I posit we are at an inflection point. The next four years should be an amazing time to be in the market. The Dow has fully recovered since taking a nose dive in 2008.
A substantial amount of cash has flowed into stock mutual funds recently. Over the last four weeks approximately $20 billion has flowed in. Nevertheless, this is just the tip of the iceberg with $400 billion in outflows over the last four years. With the Dow only 1.2% from historic highs, the probability of more money coming off the sidelines is great. This should propel the markets higher.
I have chosen five stocks from five separate sectors I believe are primed to rally over the next four years. In the following sections we will perform a review of the fundamental and technical state of each company to determine if this is the right time to buy. Furthermore, we will attempt to identify potential catalysts for growth. The following table depicts summary statistics and Tuesday's performance for the stocks.
Apple Inc. (AAPL)
The company is trading 35% below its 52-week high and has 39% upside potential based on the consensus mean target price of $637 for the company. Apple was trading Tuesday for $458, up nearly 3% for the day.
Apple is fundamentally sound. Apple has a forward P/E ratio of 8.69, a PEG ratio of .73 and trades for approximately 10 times free cash flow. The company has no debt and $137 billion in cash. The company pays a dividend with a 2.40% yield. Margins took a hit yet the company still achieved a 25.35% net profit margin.
Apple has been in a well-defined downtrend for the past few months. The stock has fallen for a high of over $700 to a low of approximately $450 after announcing earnings. The stock has been consolidating at this level for the past month. Although the stock has shown weakness in the short term, the long-term uptrend support line seems to be holding up.
Apple is currently completely out of favor. You don't hear hardly anyone stating it's time to step up and buy stock. Even so, bargain hunters are buying the stock and it appears to be consolidating at the $450 mark. The company has $137 billion in cash and arguably some of the best minds in the business. Steve Jobs may be gone. However he left an indelible imprint on Tim Cook and the rest of the team. I wouldn't count them out just yet. I see this as a major buying opportunity.
Bank of America Corporation (BAC)
The company is trading 2% below its 52-week high and has 1% potential upside based on a consensus mean target price of $12.07 for the company. BAC was trading Tuesday at $11.85, up over 3% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 8.97. BAC has a net profit margin of 5.03%. BAC is trading for approximately 52% of book value. EPS next year is expected to rise by 32% and the company pays a dividend with a yield of .35%.
Technically, BAC looks good. The coveted golden cross was fulfilled earlier this year. The stock has been in a solid uptrend since mid-July. The stock recently pulled back to the midpoint of the uptrend channel, which I suggested in my last article was the time to buy. I am long BAC.
Global money center banks like BAC are the source of funding for global growth. The uptick in the housing market and the steepening of the yield curve due to demand for long-term capital are strong buy indicators for the banks.
BAC has a fortress balance sheet. BAC's success at cutting costs, improved capital position and the likelihood of higher capital returns are all huge positives going forward. The stock is a solid buy at this level.
Ford Motor Co. (F)
The company is trading 7% below its 52-week high and has 15% upside based on the analysts' mean target price of $15.14 for the company. Ford was trading Tuesday for $13.10, almost 2% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.67. Ford is trading for 12.34 times free cash flow and 2.6 times book value. EPS next year is expected to rise by approximately 20%. The company pays a dividend with a yield of 3.11% and has a PEG ratio of 0.34 and a net profit margin of 13.36%.
Technically, Ford is currently in a well-defined uptrend. The stock has been in a solid uptrend since the last quarter. The stock achieved the coveted golden cross where the 50-day sma crosses above the 200-day sma in December. This is a significant event and should drive the stock higher as many technical traders use this as a bullish signal to buy.
The rebound in the US housing market coupled with the aging of cars on the road should provide a significant catalyst for the stock. In my last update on the stock I recommended waiting until after earnings to start a position due to the probability of a pullback.
The pullback has occurred based on weak numbers out of Europe. This should mark the low point for the stock. Ford has taken drastic steps to curb losses from the European division by closing two plants. You can read the earnings call transcript here. The effects of this action should show up on the next earnings report. I like Ford here.
General Electric Company (GE)
The company is trading 2% below its 52 week high and has 10% potential upside based on the consensus mean target price of $24.86 for the company. GE was trading Tuesday at $22.54, up over 1% for the day.
Fundamentally, GE looks solid. GE's forward P/E is 12.12. GE's quarter over quarter EPS and sales growth rates are 10% and 4%, respectively. GE's net profit margin is 10.11%. GE has a dividend with a yield of 3.41%.
Technically, GE is has been in an uptrend since bouncing off a low of $18 in June. Recently, the stock has broken out to the upside of a descending triangle formation. This is extremely bullish.
GE looks poised to take advantage of an upturn in growth in the emerging markets. If global growth does improve, GE will definitely grow along with it. Yet, the stock has gapped up so suddenly, I would wait for a pullback to the $21.50 range prior to starting a position.
Sirius XM Radio Inc. (SIRI)
The company is trading 3% off its 52-week high and has 6% upside potential based on the analysts' mean target price of $3.35. Sirius stock was trading Tuesday for $3.14, down nearly 1% for the day.
Fundamentally, this stock has several positives. SIRI has a forward P/E of 29, and trades for 26 times free cash flow. EPS for the next five years is expected to rise by 29%. Quarter-over-quarter sales are up 14%. SIRI's TTM ROE is 87%, and the company's net profit margin is 103%.
Technically, Sirius stock has been in a well-defined uptrend since the start of July. The coveted golden cross was achieved by the stock in August. This extremely bullish signal has once again been proven true. The stock has been posting higher highs and higher lows since the start of December.
The big news is Sirius' Board of Directors has approved a $2 billion common stock repurchase program. This should underpin the stock at this level. Secondly, new car sales are up significantly and SIRI is a derivative play on the auto industry. SIRI is well positioned for organic growth and actually added two million new subscribers last year. The recent positive news regarding new car sales and a share buyback program bodes well for the stock.
Moreover, SIRI fourth quarter earnings more than doubled benefiting from continued subscriber growth and lower churn rates. The company reported a profit of $156.2 million, up from $71.3 million a year earlier. You can read the earnings call transcript here.
The Bottom Line
I believe these stocks are buys that have major upside potential over the next four years. With the prospects for an improving global economy on the horizon, I see these stocks continuing to move higher. As stated earlier, I would hold off on starting a position in GE presently though. Let the stock cool off and fill the recent gap prior to starting a position.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in on a weekly basis at a minimum to reduce risk. Set a stop loss order to minimize losses even further if you wish.
Disclosure: I am long BAC.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.