Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message| ()  

Barron's, the noted and well-followed industry weekly published its list of favorite picks for 2014 this weekend. Last year's "Top Ten" list has returned over 35% so far this year.

Making the list this year were Barrick Gold (ABX), Canadian Natural Resources (CNQ), Citigroup (C), Deere (DE), General Motors (GM), Intel (INTC), MetLife (MET), Nestle (OTCPK:NSRGY), Simon Property Group (SPG) and US Airways Group (LCC). Out of the ten selections, I find the two with the lowest forward PEs the most attractive for significant gains in 2014.

Barrick Gold - Nothing went right for the world's largest gold miner (by production and reserves) in 2013. Gold prices have plunged during the year and its huge Pascua-Lama project in South America has been hit by cost overruns and setbacks. Its shares lost more than 50% in 2013 and now Barrick sells at the same price levels as a decade ago when gold went for $400/ounce.

However, changes are afoot at this huge Canadian gold producer. Its long time founder and chairman is being shown the door in 2014. In addition, it has stopped development at Pascua-Lama and raised some $3B in October to shore up its balance sheet.

The stock is dirt cheap at under 7.5x forward earnings, and under 4x the profit it made in FY2011. ABX also is priced at just ~13% over book value. Pessimism is ripe on the stock even as it has beat on bottom line estimates for each of the last four quarters. ABX goes for $15.40 a share.

Barron's thinks the breakup value of this mining giant is $35 a share, the mean price target of the 22 analysts that cover the shares is $20 a share and S&P has a price target of $22 a share. Any change in sentiment on Barrick and/or the gold mining sector in 2014 could lead to outsized gains given the depressed state of the industry.

General Motors - This cheap auto manufacturer also should see a nice bump in 2014. The government should have sold its remaining stake in the company by year-end. This should free the company to pay a dividend and/or initiate a stock repurchase program. The company has over $15B in net cash on its balance sheet.

In addition, its operations in Europe are starting to improve and it is going gangbusters in China where it's selling ~250,000 vehicles a month through its joint ventures.

The average age of a domestic vehicle is ~11 years and financing rates remain low which bodes well for the same robust auto demand we saw in 2013. In addition, the recent drop in gas prices should help bolster sales of pick-up trucks and SUVs; both of which carry much higher margins than cars.

General Motors should generate ~$8B of free cash flow in 2014. The stock is also selling at just 8.6x forward earnings, a slight discount to competitor Ford (9.1x forward earnings). Earnings are projected to increase over 35% in FY2014 on revenue gains of 6% to 7%. The median price target by the 15 analysts that cover the stock is $48 a share; ~20% above its current stock price. The company also made the top ten large cap stock list for 2014 at Merrill Lynch.

I would also stick with Apple (AAPL) which actually was the poorest performer in last year's top ten list so far in 2013. Incredibly the shares are only up ~9% this year even after gaining more than 40% from their lows of late June.

The company is in the middle of product refresh cycle with launches of new versions of its iconic iPad and iPhone franchises in the last few months. It also appears that a distribution deal with China Mobile (CHL) and its over 750mm subscribers is all but a done deal.

The shares pay a 2.3% dividend yield and the company is returning ~$10B a quarter in dividends and stock repurchases. After subtracting its over $140B cash and marketable securities hoard, the shares sell for less than 9x forward earnings. This is a significant discount to the overall multiple of the market which is roughly 16x forward earnings.

Source: 2 Picks From Barron's 'Top Ten Stocks For 2014' List