Seeking Alpha
Long/short equity, deep value, special situations, contrarian
Profile| Send Message|
( followers)  

It's that time of year again in which investors have to reminisce of the past and think about the future. There is no use in crying over spilled milk -- mistakes that have been made and paid for, just make us better investors.

Like I have said before, there is more than one way to skin a cat and there's more than one way to earning yield or appreciation. As such, there are many investment styles and schools of thought. As long as something works for you, there is no reason to argue about the philosophical approach to investing.

My style is usually more aggressive than most and some might argue it borders on speculation. But everything one does in the market is speculative by default. The only question is how much risk you want to undertake to earn the yield or appreciation you are hoping for. So as far as I'm concerned, there is no such thing as speculation, just risk reward calculations. And before some of you rant on me, gambling is not speculation. We do not gamble in this game, just speculate.

Like Warren Buffett I don't believe that investors should diversify very much. As long as I feel comfortable with a sector or a particular stock, I don't have a problem with over exposing myself to it.

I think of the themes for 2013 might be the return of the yen carry trade. While it is not yet official -- that everyone is borrowing in yen and buying speculative assets like crazy -- it will probably turn out that way the way the yen is trading. So if this turns out to be the case, then 2013 will probably be a good year for risk assets.

With that in mind, some of the selected stocks cater to the idea that risk will be in style this year. At the same time, however, I have also picked stocks that are simply too cheap for investors to lose (much that is).

Also keep in mind that I believe the fiscal cliff will not be a hurdle this year (please consider: The Fiscal Cliff Is Already Priced In). If I had any doubts on this, I would be much more conservative.

I will use a scale of 1 to 10 for the risks associated with each stock and a second number for the possible appreciation the stock could yield during the year. Again, that is according to me, myself and I.

As such, here are my top picks for 2013.

Research In Motion (RIMM)

I think RIMM might turn out to be the big surprise of 2013. It is a classic turnaround situation play and I think that many people underestimate the penetration the company will have in the enterprise space. The company's strong balance sheet has surprised many people (me included) and as a result, the company is fully funded and will have no problem launching its new BB10 platform as many believed.

Management has done all the right things and all that can be expected from them and the only thing that lies between success and failure is the market's acceptance of the new BB10 platform.

The stock is already up about 90% from the first time I suggested it, but under certain circumstances, we might even see this stock as high as $43 in 12 months from now (read all my RIMM buy logic here).

(Risk factor 5 - possible 12 month maximum upside potential 250%)

Nokia (NOK)

Nokia is also a special turnaround situation play. Key points: the new line of Lumia phones have had rave reviews and so far stock has been exhausted in many markets and countries where the phones are on sales (mainly due to limited supply). The company is introducing three types of Lumia phones, the high end 920, middle price range 820 and the 620 for markets in Asia, Africa and to all those who aim to spend in the lower price range.

The new phones are based around the new Windows 8 operating system which I think will be the best Windows operating system yet (in fact, I just bought a new i7 system and I love it). Also, Nokia is one of the world's best known brands and was once the biggest cell-phone maker in the world. It has a large following and I think the new Lumia phones will put it back on the world phone map.

(Risk factor 5 - possible 12 month maximum upside potential 150%)

Microsoft (MSFT)

Microsoft has got to be one of the cheapest technology stocks around. I never imagined that the stock would ever trade for 8.27 times forward earnings. The new Windows 8 operating system that works with the same logic across all platforms (phone, PCs and tablets) is a great concept and I think it will be the new thing in computing. Also, I foresee that the new operating system will lay the groundwork for a new generation of touch computing systems. I think next year this time around, all new computers sold will be all-in-one touch PCs and the new Windows 8 operating system will be right in the middle of this revolution. Great balance sheet and just about the best brand name you can buy, at a price you never imagined.

(Risk factor 1 - possible 12 month maximum upside potential 75%)

Alcatel-Lucent (ALU)

Alcatel-Lucent is another high profile special turnaround situation play. With the financing the company recently received, the chances of there being a liquidity problem in the years ahead are nil. While the balance sheet still needs some improvement, I am comfortable from an investor's perspective the way things stand.

The company stands to gain as global capital expenditures by telecommunication providers is expected to increase at the compounded rate of 1.5% over the next five years. The company is very well positioned to take advantage of this infrastructure spending in many ways. The company's new line of core routers it recently introduced is only a small part of the offerings the company has to take advantage of global telecommunication capex spending.

(Risk factor 6 - possible 12 month maximum upside potential 125%)

Fonar Corp. (FONR)

Fonar is a little unknown company that engages in the research, development, production, and marketing of magnetic resonance imaging (MRI) medical scanning equipment for the detection and diagnosis of human diseases.

Key statistics: Trailing P/E 4.79, Price/Sales 0.69, Profit Margin 14.5%, Operating Margin 18.6%, Return on Assets 13.3%, Return on Equity 68.5%, Diluted EPS - ttm - .90, Total cash $12.9 million, market cap $26.2 million.

This is a micro cap stock and only for a few selected investors that invest in smaller cap stocks. The company has gone through very rough times and has made many mistakes, but I am impressed by the fact that the company has reported 11 straight quarters of profitability. Growth is at a standstill, but this is definitely a very undervalued company with a very solid balance sheet and very little debt.

This stock is also a pure-play in the medical technology space. There are not that many MRI companies out there and there is certainly no one this small.

(Risk factor 3 - possible 12 month maximum upside potential 125%)

Apple (AAPL)

Those that have been following my Apple sell logic, know that I have recommended swing trading Apple and not holding onto it long term. I have repeatedly told you to sell it at the $700 mark (and below) and I have also said that it would be a good buy if it corrected somewhere close to $500.

I have no beef with the stock (like many believe), but it's just too big to be able to double or triple and give extraordinary returns from here on. As such, in my book this is a dog stock.

But the good news is that the stock is at the $500 mark and I think it is a must buy at these levels as a swing trade opportunity with a time frame of several months in mind. So after many articles on why you should sell Apple, I am finally telling you to buy it for once.

(Risk factor 1 - possible 12 month maximum upside potential 50%)

I wish everyone (especially the folks at Seeking Alpha) a happy holiday season (what's left of it) and a happy and healthy new year. And may 2013 be a year that we will all become better people and better investors.

Source: An Aggressive But Well-Balanced Conservative 2013 Portfolio