Several readers have asked me what particular stocks are on my radar these days.
The list is actually quite long, but unfortunately it’s chock full of companies that just don’t seem to grasp their own potential. But since I’m currently giving away my best ideas for free, I have no problem presenting a list of my potential candidates, with the overriding asterisk that most of these will never find themselves in the Secular Trends Portfolio.
But a few of them will, and 1 or 2 may soon make the leap to prime time. I say this as I glare frustratingly at the 15% cash balance in the model, generated from the sale of Freeport-McMoRan (FCX), Schering-Plough (SGP), and trimming of Petrobras (PBR).
As mentioned earlier, I’m quite fond of several international opportunities, especially in Brazil, India, and South America. But in order to get my desired exposure in a way that can be replicated by any retail investor, I may have to resort to ETFs. I consider them an unsightly vehicle for a focused equity model, but it’s better to have an indirect flight to a great destination than a straight shot to a mediocre one.
Without further ado, here’s a list (in no particular order) of the stocks that I’ve been putting through the due diligence ringer of late. I’ve tossed some notes out there (there’s lots of hard truths amidst the jokes and cynicism) to show just how difficult it is to find companies I can really get behind:
- Coinstar (CSTR) - this company could have a beautiful business model, but they’ve cluttered it up with some real crud, and also loaded their balance sheet for reasons I just can’t comprehend
- Yum! Brands (YUM) - I liked the name “Tricon Global” better; no self-respecting company should have an exclamation point in its name. But nonetheless a company with solid prospects
- Papa John’s (PZZA) - yeah, I’m sayin’ it, I like their pizza. And it’s right up the alley of today’s consumer. And their competitors have somehow managed over the course of the last decade to make their pizzas taste like a combination of cardboard and wax.
- P.F. Chang’s (PFCB) - I’m not keen on higher-end restaurants, but the valuation here is much, much better than competitors like CAKE, and the company is finally generating meaningful net income levels
- Fortune Brands (FO) - Whiskey, faucets, and golf balls; what more could you want?
- Transocean (RIG) - they’ve managed to hold on to most of their rig count, and Brazil alone could keep these guys in business for the next decade.
- Baker Hughes (BHI) - another oilfield services company with some neat niche products. As you can tell I am a long-term bull on oil. I see it as the ultimate no-brainer secular trend.
- Syngenta (SYT) - a promising agriculture/seed company, and part of the second no-brainer trend - we need more food. Right now
- Claymore Global Water Index (CGW) - I really like the theme, but have no idea who the best-positioned players are. They probably don’t, either
- ADTRAN (ADTN) - an interesting play on converging wireless broadband. But they are still spread out to thin to win in all their markets. I don’t know if they’ll be smart enough to focus in on the winners, but they are a prime buyout candidate.
- Maidenform Brands (MFB) - Sorry if this comes across as crude, but they make fat pants and cheap underwear. I actually think that’s a pretty good space to be in this economy.
- Limited Brands (LTD) - In case I’m wrong on #11, Limited can help bring the sexy back - whenever the consumer comes back. But it could be a long while…
- McAfee (MFE) - there’s no possible segue from underwear to spyware, but at least it rhymes. Valuation is pretty rich with this one, which is my main sticking point.
- Varian Medical Systems (VAR) - I’m a big fan of select medical device/hardware firms, and Varian’s radiation systems make profits for every hospital that uses them. Should be protected during healthcare reform efforts.
- St. Jude Medical (STJ) - love their product line and their margins. Rich valuation
- PepsiCo, Inc (PEP) - the company is FINALLY executing on all the acquisitions made over the past decade. The margin trends are staggering for a company of this size.
- Cisco Systems (CSCO) - I think their time is coming - and although I’d almost never use this as part of a thesis, you can bet that John Chambers wants to retire with his stock at a multi-year high. The man is a genius at subtle marketing.
- Weyerhauser (WY) - I need to wait until I’m sure the broad economy has turned, but when it does this company is a guaranteed double - at least. The forestry assets cannot be understated.
- Williams-Sonoma (WSM) - same comment as #18, only a triple instead of a double. But a later stage play on a rebound. Fantastic brands that will only latch on more with younger demographics.
- Shanda Interactive (SNDA) - I missed the boat a bit on this one already, but if they can prove some sustainability in their markets, there’s plenty more room for upside. The free-game, pay for more model I believe is a winner.
- Bed Bath & Beyond (BBBY) - I am utterly fearful of most retailers, but having your #1 competitor go out of business is bound to generate meaningful market share gains. And there’s actually a lot of value-priced items in their stores. But staying away until I feel better about the housing markets
- Honeywell (HON) - Another name that needs a more solidified economic rebound, and until Boeing stops being an industry punchline, this is probably one to avoid.
- Cerner Corp. (CERN) - This company will be an obvious beneficiary of moves to create electronic medical records (EMR); the problem is that the stock has already run out of sensible valuation ranges because of that. It still may be a long-term winner, but I need to feel out whether someone like IBM (IBM) or CSCO can’t swoop in and destroy them with 6 months of concerted effort.
Well there you go. These are the names that I’ve poured over lately, but there are other lists that represent different le vels of interest. Remember, at Epiphany Investing, the theme comes first. Then the company searches begin, and the fundamentals go under the microscope.
I welcome any comments related to these companies or their competition; maybe I can even get some of my research outsourced in the process. I’ll be posting a “week in review” piece beginning this weekend, and continuing to tweak the site to present my ideas and thoughts in a more readable way.
In the meantime, I have updated the Portfolio Page with sector weightings and second quarter commentary. I have to update the cash balance to reflect the collected dividends, and then it’s on to the vital task of getting the model back up to a 97% + equity weighting.
Disclosure: author does not hold positions in the companies mentioned.