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"The best stock to buy is the one you already own."

― Peter Lynch

As mentioned in my "Gentlemen, Start Your Buy Lists (Ladies Too)" article, my focus this year has been primarily on small-cap stocks. However, as also mentioned, a larger portion of my actively-managed portfolio is actually mid-caps and large-caps (~30% & ~40%). So, for several reasons, I'll comment on a few mid and large-caps I hold and would still buy if they dipped a little lower than where they are now.

I've switched focus to mid- and large-caps for now because, while I don't consider any of the small-caps stocks I write about excessively risky or speculative; all investors have different goals, time horizons and risk tolerances; as well as different definitions of each of those things. So, small-caps don't suit all investors. To address that, I recently posted the first article in this series and plan one or two more. Since these larger companies are well-known with a wealth of information readily available and I'm covering three companies in one article, I'll just offer a relatively general overview of my thesis for each company and include a bunch of links to additional information (you'll definitely need a tabbed browser).

Since I'm slightly CDO ("slightly" … ha!), it was actually difficult for me not to put the companies in alphabetical order (CDO explained), but I ordered them by amount and timeline of upside potential instead.

Trinity Industries (TRN) - Based on forward earnings growth, current valuation metrics and my calculations, my opinion is to consider buying TRN in the ~$42-$43 range; and I expect TRN to hit a new all-time high in the ~$51 range within 12 months (~20% return). Add the modest ~1.3% dividend, which may grow more in the future, and you have very worthwhile return potential, despite the fact that the stock has already come so far.

Trinity Industries is the reason I decided to adjust the title of this article series to include mid-caps. Trinity is a complex company so it would take too long to write an in-depth article about it, but it's also just too good to leave out of my recommendations only because I can't spend the time to write about it thoroughly. Even so, I have to get into some detail for the rest of the story to make any sense. Trinity operates in five segments: Rail Group; Railcar Leasing & Management Services Group; Construction Products Group; Inland Barge Group; and Energy Equipment Group. You can see a few of the many things TRN does here, here, here, here, here and here. Even though there's so much more to the company, for this overview, I'll just opine about why TRN is approaching all-time highs and why that should continue.

I doubt there's anyone at all left on the planet who hasn't heard about the U.S. oil & gas boom. Well, TRN is one of the hidden-gem companies that's a big beneficiary of that boom, but that's not a household name. So, the shares were easy to scoop up at fire sale prices over the past few years when pundits were pounding the table about double dips and other doom and gloom, instead of the boom. Again, I was luckier than I am smart so I bought my first heaping helping of TRN very close to what turned out to be one of the absolute bottoms of the past few years (~$24).

Anyway, one of many things that makes Trinity attractive is that the company benefits greatly from the O&G boom, but without as much risk as various types of O&G companies. Among many other things, Trinity builds and leases the railcars and barges that are increasingly used to move all that oil and gas to where it needs to be. The initial rail/barge surge was due to insufficient pipeline capacity and new line delays, but pipelines are being expanded and added now, yet rail is still raging. The rail/barge surge is likely to level off and there are signs that may be already happening, but I don't believe it will ever revert back to prior levels. We're in uncharted territory as it's been a very long time since the main O&G problem for the U.S. was having more than we can handle. I think that paradigm shift means it's no longer a pipeline or rail/barge zero-sum game. I think it's now a pipeline and rail/barge game and that doesn't change any time soon, even with new pipelines. These overviews have gotten longer than planned so I'll just add one more bit about TRN.

While I understand it, I still believe the common practice of defining TRN as strictly a rail company is misleading and overlooks one of the most valuable things about TRN -- the fact that, even though rail is always the main business by far, TRN also has significant capacity in other units and a rare ability to re-purpose much of that capacity. In other words, prior to the O&G boom, a good amount of Trinity's manufacturing capacity was dedicated to wind towers. But, as the O&G boom ramped up, TRN had the ability and foresight to switch a lot of capacity to railcars to take full advantage of the early parts of the boom. So, much of Trinity's current success is due to that foresight and action. The point is that TRN has the quality that I prize most in any company -- especially smart leadership.

Kroger (KR) - Based on forward earnings growth, current valuation metrics and my calculations, my call is to consider buying KR in the ~$38-$39 range; and I expect KR to continue making new all-time highs and hit ~$46 within 12 months (~20% return). Tack on the modest ~1.6% dividend, which could grow more, and the result is very good return potential.

Kroger is the seventh largest grocery retailer worldwide and, along with Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST), one of only three U.S. companies to make the top ten. That's one of the very many things I like about Kroger as an investment -- it's so much more than a run-of-the-mill grocery chain. For example, some may not be aware of Kroger Real Estate, Littman Jewelers, Fred Meyer Jewelers, Kroger Convenience Stores, Kroger Manufacturing and Kroger Pharmacies. Similarly, some may not be aware of Kroger's successful and recently expanded foray into electric car charging stations.

When I started buying KR at ~$22 a few years ago, many people said I was crazy since Whole Foods (NASDAQ:WFM) was going to "eat Kroger's lunch". Well, Kroger still has its lunch and I still have my same investment thesis (though granular aspects like financials are obviously updated regularly). My thesis is partly based on a basic belief that the world just isn't simple black and white so most things (including stocks) just aren't the simple either/or choice that many people understandably want to make them. In other words, I didn't see the fact that WFM was doing well as any indicator that KR would be driven into bankruptcy, as a few people were actually arguing at the time. In fact, my thesis was/is precisely the opposite.

Specifically, I think the fact that traditional grocers are under attack from every direction actually benefits the strongest player -- Kroger. Organic stores like WFM are attracting some high-end customers. Discount stores like Dollar General (NYSE:DG) are selling more grocery items, attracting some low-end customers. Meanwhile, multi-retailers like Wal-Mart are delivering decisive blows to the industry's mid-section. However, the conclusion I came to from all of that was different. To me, it meant the weakest of the traditional grocers would likely stumble and fall, the industry would consolidate (M&A) and the leader (Kroger) would take market share from the fallen; ending up even stronger for it all. That is indeed how it's playing out so far and I see no reason that will change. Kroger has been increasing market share organically, as well as accelerating that process via acquisition like the recent Harris Teeter deal.

As mentioned above, I consider strong leadership very important. On that topic, Kroger recently announced its succession plan and the pending retirement of CEO David Dillon who is widely considered one of the best CEOs in retail, if not in all of business. Even though Mr. Dillon is one of the reasons I invested in KR in the first place, his retirement isn't particularly concerning to me since I'm confident that he built a very strong bench, so to speak. In fact, KR has a long history of strong leadership.

General Electric (GE) - Based on forward earnings growth, current valuation metrics and my calculations, my opinion is to consider buying GE in the ~$23-$24 range; and I expect GE to hit at least ~$28 within 12 months (~19% return). Top that off with the healthy ~3.1% dividend, which is likely to grow even healthier, and that's a very respectable potential return.

General Electric needs no introduction so the first thing I have to say is that I apologize for failing to finish this article in time to get it posted weeks ago. I tried since I believe that prior to tomorrow's earnings report is likely to have been the last near-term opportunity to buy GE at the price I recommend. I'm not at all saying that I expect the stock to skyrocket though. Rather, that I expect it to notch up slightly and gradually develop a new bottom at a point or two higher.

This is not your daddy's GE … or, is it? The answer depends on how one interprets the question. GE is continually returning to its industrial conglomerate roots and, though that couldn't happen soon enough for most of us, it is still clearly a positive change.

GE has always been, and very likely will always be, responsible for a very large chunk of the innovation that propels the world forward. As such, whether one invests directly in the company or not, the reality is that we all have a deep vested interest in GE success. There are practically infinite examples of that throughout history, but I prefer to look forward so I'll refer to a recent example -- one that we won't even fully understand the significance of for many years -- GE's Industrial Internet initiative. Just last week, GE announced fourteen new Industrial Internet technologies, and expanded the ecosystem to include AT&T (NYSE:T), Cisco (NASDAQ:CSCO) and Intel (NASDAQ:INTC). I encourage everyone to read the very interesting white paper The Industrial Internet@Work or at least the brief synopsis.

Knowing how important GE is to the nation, and the world, was likely part of Warren Buffett's decision to back GE in its hour of need during the "great recession". Announced this week, Mr. Buffett now has a larger stake in GE as Berkshire Hathaway acquires 10.7 million GE shares. I'm not one to blindly follow, but I certainly don't see that as a negative.

It may surprise some investors that GE earnings are actually growing at a very healthy pace lately. In fact, GE has been generating double-digit growth from some of its most important revenue sources. You can read about examples of how the company has been doing that in the Oil & Gas industry here, here and here. There's also good information on recent developments from the GE Aviation businesses here and here, with the latter one particularly interesting since it also relates to the company's role in 3D printing. There are examples of the strength from the GE Transportation businesses here and here.

As GE Industrial continues to grow and thrive, GE Capital has actually been divesting entire units left and right, while also shedding real estate assets like the transactions here and here. Plans to exit retail lending were announced in August and plans to sell the Swiss consumer bank stake were announced a couple of weeks ago. GE has made clear that it intends to continue shrinking GE Capital until it becomes a relatively small part of the parent, and it's possible that GE Capital may even be completely divested at some point. In the meantime, GE Capital remains a useful cash machine as, in 2013 alone, it is paying $6.5 billion in dividends to the parent. In addition to continually shrinking via divestitures, much of "great recession" type risk has already been removed from GE Capital by new regulations and its designation as an SIFL. My point is that I think GE is once again not only a suitable investment for long-term investors, but practically a must-have. There are few other companies that can offer the same exposure to so many aspects of the long-term economic cycle.

By the way, if GE should sell off after earnings, which I don't expect, I am absolutely a buyer. GE isn't a stock for a quick 20% flip in a month. Again, GE is a strong long-term economic cycle play.

Part one of this series of articles is here. Please consider taking a look at the totality of the recommendations to help decide which, if any, are most appropriate for your situation. For investors more interested in small and/or mid-cap stocks at this time; I plan to write about some additional ones fairly soon, but in the meantime, my favorites include:

Mid-Cap:

  • The Manitowoc Company (NYSE:MTW) [up ~72% since my initial buy]

Small-Cap:

  • Aceto Corporation (NASDAQ:ACET) [up ~16% since my initial buy]
  • CECO Environmental (NASDAQ:CECE) [up ~50% since my initial buy]
  • Consolidated Water (NASDAQ:CWCO) [up ~119% since my initial buy]
  • Cott Corporation (NYSE:COT) [up ~8% since my initial call]
  • HCI Group (NYSE:HCI) [up ~152% since my initial buy]
  • Mueller Water Products (NYSE:MWA) [up ~203% since my initial buy]

Daktronics (NASDAQ:DAKT) is a small-cap I don't yet consider a "favorite", but that I'm watching and may develop a stronger opinion on.

There are articles on each of the names here and general information that's relevant to all of my stock picks is in my Instablog here.

I refer to my initial buys because I only recently started contributing articles and, therefore, could not have fully shared my initial calls, which obviously equate to buys. However, other cynics like me can probably find some references to when I was making buys in my old SA StockTalks or comments. My reason for mentioning the returns I've made along with the additional returns I expect is not to brag, but to offer facts beyond "trust me". With that said, these are only my opinions so I encourage all investors to do their own due diligence and make thoughtful choices.

Thanks for reading and I appreciate comments, even if just to let me know that someone is in fact reading so I'm not wasting my time.

Source: Large-Cap And Mid-Cap Values Remain, Part 2