Seeking Alpha
Profile| Send Message| ()  

Prediction is very difficult, especially if it's about the future. - Niels Bohr

I attempt to use catalysts to propel my short-term and intermediate-term trades. Specifically, for intermediate-term trades I tend to look for a theme that is likely to play out over the next 6-12 months. That's how I'd like to approach this article about my favorite choices over the next 11 months. Let's get right into it, shall we?

Theme: Continued Housing Rebound

I do expect the housing market to continue improving, though it could have hiccups. One of my main reasons for believing in the housing recovery is the amount of time we have spent with very low annual housing starts. I view this time period and its anemic housing starts as a necessary period of extra inventory burn-off of the excess homes created during the housing bubble. While the homebuilder stocks may be temporarily ahead of themselves, I think that they (especially the two listed below) have trimmed fat from their operations and are running lean, mean, fighting machines that should maximize earnings.

1) D.R. Horton (DHI) is the homebuilder that I picked in a previous article to be my preferred vehicle to ride this wave. I can't back off of that view now. It has comparatively little debt, and is among the leaders of its industry in margins. It currently has a P/E of 8, a PEG of .80, and a price-to-book ratio of 1.94, meaning it is valued cheaply. It also has an 11.65% short interest, which could provide for additional buying if those shorts can't handle more price increases.

2) Toll Brothers (TOL) is another homebuilder that made it to the "final round" in my article on homebuilders. It has comparable numbers to DHI and even less debt relative to assets. It has a 13.56 P/E ratio, price-to-book ratio of 2.05, and a PEG of .61, so it is also priced relatively cheaply. TOL caters to a slightly wealthier clientele than D.R. Horton, which I don't see as an advantage, but which means it faces less competition among other homebuilders.

Theme: The Move Toward U.S. Energy Independence

This is a huge one, not only for these next two stocks, but for the U.S. economy (and geopolitical position) as a whole. Think about the major oil producing players in the world: Arab League, United Arab Emirates, Saudi Arabia, Iran, Russia, Nigeria, Venezuela. These are who you are depending on and sending dollars to (ie. making rich). The idea of energy independence is very important for the security of the country. That's why the production increases in North America because of fracking and other techniques are significant. At heart I am a hippie and would love to only rely on alternative sources of energy, but that is not feasible right now, so buy a hybrid or ride a bike. This is not changing anytime soon -- but I digress. Because of new technology, geologists estimate that we will be outproducing Saudi Arabia -- WINNING! -- in oil production within about three years and that we have now reachable reserves many times that of OPEC countries. In addition to fracking technology improvements, areas like the Bakken Basin are achieving lower production costs, which adds to the bottom line of these companies.

3) Kodiac Oil & Gas (KOG) is an oil and natural gas exploration and production company. It has exposure to the well known Bakken Formation in Montana, and North Dakota, and it seems very undervalued to me. It has a forward P/E of 12.82 despite analysts expecting earnings growth of over 200% this year, 57% next year, and 50% annually over the next five years! The concern here of course is earnings, because it hasn't had much success recently turning a profit. It seems to me that the low P/E is partially because investors doubt Kodiac's skill at earning a profit. If this company can get it together, I believe the stock price can really rocket. This could be the riskiest of the entire "Top 13" but has the potential for a major move.

4) C & J Energy Services (CJES) provides hydraulic fracturing and related services to oil and natural gas companies. CJES seems very undervalued. It's forward P/E is 7.78, despite the fact that earnings are expected to grow over 370% this year and 20% annually for the next five years. It has a miniscule PEG at .30 and reasonable debt. Natural gas prices are currently in the toilet, so if they happen to recover it only adds to demand for companies like CJES. Finally, its margins are very solid. I like this stock a lot. Fade Zack's with its #5 Strong Sell Rank! Better yet, it may offer a buying opportunity if the stock sells off due to the "ranking."

That does it for this article. I'll put out Part 2 and Part 3 shortly. Expect to see nine themes in all. Have a nice day.

Disclaimer: We do not know your personal financial situation, so the information contained in this article represents my opinion, and should not be construed as personalized investment advice. Past performance is no guarantee of future results. Do your own research on individual issues.

Source: Top 13 Stocks For 2013 - Part 1