Picking stocks for 2013 is not an easy job. An investor has to check the companies thoroughly from a fundamental perspective and then he has to allocate his capital in different sectors in order to diversify and reduce his portfolio risk. I follow closely about 2000 companies from different sectors and eventually it took me a significant amount of time to select the ones with the biggest upside potential for 2013. Assuming we pass the fiscal cliff successfully, the following handful of companies are my top picks for 2013. To prove that I stand behind my choices, I am also up to the challenge to check the yield of this portfolio by year end. As the following stocks have been selected very carefully, I am a strong believer that the yield of this portfolio will beat the performance of the market indices.
In the past, I pointed out how cheap Bill Barrett (NYSE:BBG) was. Barrett is a producer of 62,000 boepd (30% oil and liquids) which delivers sizable growth in oil production and cash flows year-over-year.
Barrett primarily targets the Denver-Julesburg and Uinta Basins which are very rich in oil, as the company drills wells with IP-30 rates between 407-476 boepd.
However, a fire brought Barrett's stock down to fire-sale prices and its Enterprise Value (EV) at $2.2B. With funds from operations (annualized) for 2012 at $400M, the company trades for only $35,000/boepd and 5.5x the FFO annualized. The D/CF ratio (annualized) is 3 but the debt is quite manageable as the oil production grows consistently YoY, impacting positively the FFO while the convertible notes are due in 2016 and later. Moreover, Barrett completed recently a $335M sale of natural gas assets to pay down its bank debt and fund its core oil program.
Oil and gas without pipelines is like a yummy Greek yogurt without spoon! This is why I suggest Enbridge Energy Partners (NYSE:EEP) as Enbridge transports crude oil and natural gas from Canada to the refineries in the U.S. Midwest and Gulf Coast regions. Enbridge is a perfect fit for high-yield seekers as it raises distributions every year guiding annual distribution increases of 2-5%. The current annual yield is 7.7% based on today's closing price.
However, I believe Enbridge will also be a growth machine in 2013 due to its two recent game changer projects, the Seaway expansion and the "light oil access program." The Seaway pipeline expansion from 150,000 bopd to 400,000 bopd is on schedule to be completed in Q1 2013 and there is a twin line planned for 2014 that will further boost capacity to 850,000 bopd. "The Light Oil Access Program" is a $6.2B project that aims to move the black gold from Western Canada and the North Dakota Bakken to refineries in U.S., adding 400,000 bopd to the current network by 2016. Although this stock might experience some selling due to the fiscal cliff uncertainty, the bigger picture should limit selling as the demand for pipelines and storage facilities will most likely keep rising due to the increasing need in energy production going forward.
"Diamonds are forever," but what about gold?
Shirley Bassey was singing about the longevity of the diamonds some years ago. Nowadays the gold producers are singing "Gold is forever" and they charge us with $1700/oz! Why? Among other factors, the low-hanging fruit a.k.a. gold deposits developed at shallow depths was picked a long time ago and the producers have to dig deeper now to mine gold, increasing their operating costs.
The first episode of the quantitative easing of September 2012 and the second one of December 2012 have set a floor for the future price of commodities, gold primarily. This is why I pick Thompson Creek Metals (NYSE:TC) and Nevsun Resources (NYSEMKT:NSU) from the mining sector. Thompson Creek is a molybdenum producer that trades below its book value (PBV=0.3) although the company holds $385M cash as of Q3 2012. The upcoming game changer for Thompson is its gold and copper mine that will be operational in the second half of 2013. Mt. Milligan mine has the second largest gold reserve in Canada. Milligan's average annual production over a 22-year mine life is forecast to be 81M pounds copper and 194,500 oz gold. The mine is on schedule for completion in Q3 2013 and commencement of commercial production of copper and gold in Q4 2013. The signals from China are also very encouraging impacting positively the demand both for copper and molybdenum. So what's not to like here?
Nevsun's principal mineral property is Bisha Mine, a gold and copper mine in Eritrea in Africa. Apart from the annual production of approximately 300,000 oz of gold, this low PE (PE=5) and debt-free company will produce high grade copper during the next months as the copper plant expansion continues to progress on schedule with concentrate production expected in mid-2013. Moreover, the company expanded its properties with the recent acquisition of the Hambok copper-zinc deposit which will provide additional feed for the Bisha plant. Both catalysts will improve further Nevsun's fundamental picture in 2013 strengthening its operating cash flows and its position as a mid-tier miner.
The Greek "Sweet"
"Coco" means "very sweet" in Greek. Is it a coincidence that "Coco" is also the ticker for Corinthian Colleges (NASDAQ:COCO) ? Maybe not as this stock will be a very sweet upside surprise during 2013, in my opinion. I believe that the company has turned its ship after coming through a difficult and transformational 2012, when several structural changes took place in its sector. Corinthian has also been re-organized and eventually it has returned back to small profits.
More importantly, the operating cash flows have stabilized well in the positive territory during the last 3 out of 4 quarters and now the company can handle better its decent debt. It is worth mentioning that Corinthian has also lowered its default rate at 6.70% beating the national rate of 9.10%.
Despite the overall corporate progress, the stock still trades below its book value (PBV=0.38). As the company's new growth initiatives (i.e. free GED preparation and new diploma programs) will come into full force in 2013, any value-driven investor who takes a position at $2.45 will be handsomely rewarded in my opinion.
If there isn't a tsunami of negative events in the markets, the companies above have the potential to offer a tsunami of pleasure well before the end of 2013. I think an investor cannot afford to overlook them because they are already undervalued and they will have a significant fundamental improvement during the next months which has not been reflected on the stock price yet.
Disclaimer: This is not a buy recommendation and an investor has to conduct his own due diligence first before buying any of these stocks.