If you're in the right stocks and/or the right sectors - such as housing, wow! - you're having a grand time in this bull market. The Top Ten is doing its thing, up 26.5%, or close to double the S&P 500 return. And like last year, all ten stock picks are in the green. (Go here if you'd like to review the list and its performance.)
If you're not participating in the bull market, don't stress. There's still plenty of profit to be made in this cycle. As I've written in past columns, it promises to be a solid decade for stocks. Investors should be able to average double-digit annual returns for the remainder of the decade, and smart stock-pickers should do appreciably better.
The primary trend is up, and that's how you should play it. Get your money in, and add to positions on pullbacks.
Stocks to buy right now
If you're looking for stock ideas, I'm here to help. There are a number of gems in my Top Ten list for 2013, including a few potential multi-baggers. In a recent column I suggested picking up Mueller Water Products in front of their earnings report and it's popped nicely. Here are three more names that have the potential to pop in a big way and soon:
Amazon (AMZN): If you asked me for my single, best idea, it would be Amazon (based on today's stock price). There's a lot of nonsense written about this stock, and it's the same old tune - that the PE ratio is, I don't know, like bazillions. Ignore it. The addressable market in online retail, third party marketplace and utility computing (through AWS, or Amazon Web Services) is vast, and Amazon is just getting started.
Amazon could be a multi-bagger relatively quickly, and here's how: There's a good chance AWS will be spun off to shareholders over the next year or so for competitive reasons. It certainly can't hide what might be a $100 billion business by 2015 under "Other Income" on their financial statements much longer. It's growing about 65% annually and it is the dominant player (75% market share) in infrastructure as a service in the public cloud.
Ex-AWS, the rest of the business will generate about $115 billion in gross merchandise sales this year - yes, I know reported revenue will be about $75 billion, but that's a mix of gross and net revenue; 40% of revenue is reported on a net basis and 60% is reported gross. (See my column last year if you want a more detailed explanation.) The key takeaway: Amazon is selling at one times gross merchandise sales - not counting AWS - and growing fast.
That's a really cheap quote for an operating model that'll drop 4% to the bottom line when it slows spending. However you slice and dice it, Amazon is worth a lot more than the current quote. I expect to score a multi-bagger from here.
Hovnanian (HOV): The sixth-largest homebuilder in the U.S., Hovnanian is likely to report strong operating numbers later this month. I've written enough columns on why you should be bullish on housing, so I won't pound the table again. But I do have a warning for investors already invested in the sector: Don't short-circuit your trade. Plan on this being a 5 to 7 year move, at a minimum. You want to score a multi-bagger? It's here for the taking, but you've got to be patient to see it. As for those not invested in housing, get invested. At $5.65 per share, Hovnanian is great way to start. My guess is it will be a double-digit stock by next year.
MGM Resort (MGM): MGM reported terrific numbers last week, the beginning of what I expect will be several quarters of good news. Like with housing, the move in MGM is still in the early days. I'm looking for a return to the $30's in the stock, up from it's current quote near $15. The operating leverage in the MGM model is powerful, and it's going to help the stock in 2013 and 2014. By the way, Kirk Kerkorian applied for authority to take his holdings up to 20% from 13% (he can buy later this week), and my bet is he will.
Better days are ahead for the economy, for housing, for employment, and for the stock market. You didn't think things would be lousy forever, did you? Don't make the mistake of looking backward. Rear view mirror investors never make money, they just get cynical and old and cranky.
It's time to get excited about investing again. There are reasons to be optimistic. Even better, there's money to be made.