Would you like some volatility to go along with your morning coffee?
Since I last came out with my top 5 stocks for November, the market’s gyrations have certainly put everyone on edge, and make buying stocks at this juncture definitely not for the faint of heart, or those with very short term investing time frames.
I recently wrote that now was a fantastic time to buy shares of companies you have been watching and where the fundamentals present an excellent risk/reward scenario.
My watch list is no different, and this month I have a broad range of stocks that I am looking at for possible inclusion into the PeakStocks.com portfolio.
These stocks enter and exit my Top 5 as constant fluctuations in both price, market conditions, and business fundamentals constantly alter the investment thesis.
Please note that my Top 5 Stocks for December aren’t yet formal recommendations.
I have more due diligence that I have to perform on them, but they are compelling enough with the research that I have done to be at the absolute top of my list, at least as of this writing.
Top 5 Stocks for December
The following stocks are not formal recommendations, but are the highest on my watch list right now.
They are listed in no particular order.
- PROS Holdings, Inc. (NYSE: PRO): Why did I recommend the sale of shares of PROS Holdings above, and now have the company among my top 5 best for December?
That’s easy: The stock has declined over 35% (and even as low as 50%) since my sell recommendation, and I feel that the shares may be approaching a level where the risk/reward proposition favors us greatly.
Multiple recent inside purchases by the founding members of the company make me feel better about the price of the stock at these levels, especially with the copious amounts of cash generation that PROS produces.
They are well insulated from having to tap any equity markets for cash, and even if they never grew again and stayed at the same level, the stock is trading at a discount to its cash generating capabilities.
Why I Like the Company: Wonderful high margin/cash flow business with recurring revenue streams; cutting edge and proven technology that is best-in-breed; great balance sheet and high insider ownership; valuation has gotten more attractive, recent insider buying on the open market.
- Lions Gate Entertainment Corp. (NYSE: LGF): Lions Gate Entertainment Corp. operates as a filmed entertainment studio. The company offers motion pictures, television programming, home entertainment, family entertainment, multiplatform programming, online video entertainment, theatrical distribution, video-on-demand, and digitally delivered content services, as well as film, television, and home video services.
As of March 31, 2008, it distributed a library of approximately 8,000 motion picture titles and approximately 4,000 television episodes and programs directly to retailers, video rental stores, and television channels in the United States, Canada, the United Kingdom, and Ireland. It also distributed the library through various digital media platforms, indirectly to other international markets, its subsidiaries, and various third parties.
I have been watching Lions Gate for quite some time with interest, especially now that investor Carl Icahn has thrown his hat into the ring with a significant stake in the company. Icahn recently added to that stake at significantly higher prices than where the stock sits today.
You would be surprised if I listed all the properties that Lions Gate owned and sold rights to, include high quality independent films like Crash, and other fare that we’ve watched for years.
Some of the best analysis that I have read and seen on Lions Gate, is by a Seeking Alpha contributor that has written extensively about the excellent opportunity that has presented itself with Lions Gate at these prices.
You can read his latest post on the company titled: “The Secret Takeover of Lionsgate Films”, here.
In this piece the author details how Carl Icahn has tripled his stake in the company along with some other investors, and how Lionsgate is largely undervalued because of some accounting parameters which prevent it from realizing its true cash generating ability till sometime in the future.
Why I Like the Company: Undervalued at today’ prices, even with the decline in revenue and poor guidance and results on the company’s last earnings release; large insider ownership and institutional stakes provide a “floor” on the stock price for its perceived value; increased ownership stakes by various activist investors with a proven track record for recognizing value; wonderful slate of properties and titles both in the works, and generating recurring revenue.
- BJ’s Restaurants, Inc. (BJRI): BJ’s Restaurants, Inc. owns and operates casual dining restaurants in the United States.
It operates restaurants under the BJ’s Restaurant & Brewery brand name, which includes a brewery within the restaurant; BJ’s Restaurant & Brewhouse, which receives the beer it sells from its breweries or an approved third party craft brewer of proprietary recipe beers; and BJ’s Pizza & Grill, which is a smaller format, full service restaurant.
As of December 2008, BJ’s Restaurants owned and operated 82 casual dining restaurants.
While it is certainly not the best of times to be investing in restaurant chains, I think that it is prudent to start looking at some of the best-in-breed players and more importantly for us, the fastest growing restaurant concepts.
BJ’s offers an innovative and broad menu featuring award-winning, signature deep-dish pizza complemented with generously portioned salads, appetizers, sandwiches, soups, pastas, entrees and desserts including their famous Pizookie dessert.
In addition, at most locations, BJ’s features award-winning handcrafted beer to go along with highly detailed, contemporary decor and usually includes a bank of TV’s, including several high definition flat panel televisions for patrons to enjoy while they eat.
I won’t go out on a limb and say that BJ’s restaurant concept is unique and can’t be duplicated, but as it stands now, this company is growing extremely fast, and is profitable, even in the down economy, with same-store sales declining slightly or remaining flat, while most other restaurant chains are suffering steep losses and same-store sales declines.
This is doubly remarkable considering that BJ’s has more than half of their locations in the depressed California market and says a lot about the restaurant concept and value proposition to its customers.
While the stock price has come down from about $20 per share to about $10 now, I still feel that there may be some more downside to come, but this is one of my favorite names in the restaurant space that bears keeping a close watch on.
Why I Like the Company: Rapidly expanding restaurant concept that offers a great value proposition and great food to customers; insiders including the CEO have been buying stock all the way down; the company is profitable; the company is in the early stages of its growth cycle with over 15% growth in both profits and sales expected over the next several years, even in this climate.
- Zhongpin, Inc. (HOGS): Zhongpin, Inc., through its subsidiaries, engages in the meat and food processing and distribution business primarily in the People’s Republic of China.
The rise of the middle class in China is increasing demand for more meat products, with pork being one of the major staples of this trend.
Zhongpin offers chilled and frozen pork products; pig by-products and various meats and prepared meats, such as sausages, hams, and Chinese cured hams, as well as fruit and vegetable products, including asparagus, sweet corn, broccoli, mushrooms, lima beans, strawberries, and capsicum under Zhongpin brand name.
Its customers include international or domestic fast food companies, export-registered processing factories, school cafeterias, factory canteens, army posts, national departments, and retail outlets, including supermarkets.
The company sells its products directly, as well as through a network of agents, showcase stores, and network stores.
China is still growing fast, regardless of the inflation and recent stock market turmoil there which has seen the major indices fall by over 50% this year.
It seems that anything China is toxic nowadays, but as with all things, once investors return looking for growth it will be companies like Zhongpin that will garner the most attention.
In fact, Zhongpin has held up relatively well in this market, and is beating all the indexes as its stock price has declined slightly to remained flat, while the overall market has seen steep declines.
Why I Like the Company: One of the largest pork producers in China; expanding rapidly; macro trend towards higher meat consumption in Chinese diets as more and more Chinese reach middle class; profitable with high insider ownership; great valuation/stock price; consistent execution and results by management
- Smart Balance, Inc. (NASDAQ: SMBL): Smart Balance, Inc. distributes a line of heart healthy and low fat food products in the United States. Its products under the Smart Balance brand include buttery spread, light buttery spread, light buttery spread with flax oil, Omega Plus buttery spread, popcorn, bottled oil, Buttery Burst cooking spray with organic soy, shortening and aerosol cooking spray, omega peanut butter, light mayonnaise, and Omega oatmeal.
The company also provides various products under the Earth Balance brand, including whipped spread, margarine natural buttery spread, and natural buttery spread.
In addition, its other products comprise cheese shreds and creamy cheddar-flavor slices under the brand Smart Balance and natural buttery sticks and shortening sticks under Earth Balance brand.
Smart Balance offers its products primarily through territorial food brokers, supermarket chains, military commissionaires, and other distributors.
Even in the face of rising input costs and lower consumer spending, Smart Balance has survived and even been able to raise prices (albeit not enough to offset the entire increases in their base prices), and get supermarkets to start to carry more of their products.
They have a healthy (no pun intended!) lineup of patented products that have won countless awards for their taste, superior baking ability, and heart healthy qualities.
Smart Balance is even working on a new type of milk that tastes like 2% milk but is fat free! This is perfect for those that are adverse to the taste of fat free milk but would like to drink milk that was lower in fat if they could stomach the taste.
Management is forecasting growth of anywhere from 25-30% on the top line, with a profitable year next year, despite lower margins as a result of higher costs.
If Smart Balance can make it through this tough time, they will be well prepared to gain a larger market share once times do get better.
Oh, and because Smart Balance is a relatively small company with a niche product line and portfolio of products, they are ripe for an acquisition, and in fact there have been rumblings about that happening once they show improvements in their profit and product lines.
A larger company that already makes similar products would love to add a targeted and niche product like the type Smart Balance makes that are already carried in various supermarkets including Whole Foods (NASDAQ: WFMI).
Why I Like the Company: Great products that are heart healthy and patented and taste great too; recent insider buying as well as more insider buying whenever the company’s stock dips below $6.00 per share; potential takeover target as a result of increasing sales and profits as well as a desirable niche; increasing market share despite higher input costs and declining economy; should be able to meet liquidity covenants through continued execution
While this is not a definitive and comprehensive list of every company that I watch and am interested in, these present the most compelling argument for inclusion sooner rather than later.
Once again, my Top 5 Picks for December are not formal recommendations, and after digging around, they may never become formal recommendations, but this will give you a heads up if you are looking for some interesting companies to get started researching on your own, or that you might be hearing about soon.