Safe Mid- and Large-Cap Stocks to Consider

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 |  Includes: ARCO, BIDU, CF, CLF, KRO, NFLX, RDY, SINA, SQM, TTM
by: Michael Bryant

I always ask myself, “Why would I invest in Coca-Cola (NYSE:KO), Pepsi (NYSE:PEP), Walmart (NYSE:WMT), and McDonalds (NYSE:MCD)?” Could it be because Warren Buffett holds them? Well, Warren Buffett isn't really concerned about the annual returns of the stock. He is more interested in the cash flow, so he can reinvest it. This is how he compounds his money. And all of the above stocks showed impressive growth during the 90s. But how can you replicate his growth?

Investing in small caps is risky. I do not advise retirement money to be invested in small caps. Instead, find mid-cap or large-cap growth stocks. These provide good growth with much less risk.

Bellow is a list of great stocks to buy now.

Arcos Dorados Holdings (NYSE:ARCO)

Owning over 1600 restaurants and McDonald's franchises in South America, the company was just spun off from MCD last week. With a market cap of $4.72 billion, the stock could easily double. Taking MCD's market cap of $80 billion and 31,000 restaurants worldwide and comparing them to ARCO's market, the shares seem fairly priced. But South America is not saturated like the United States where MCD has over 13,000 restaurants. Thus, there is plenty of growth for ARCO. Plus, they get the added boost of the growing economy.

Baidu (NASDAQ:BIDU)

The Chinese search leader is like Google (NASDAQ:GOOG), which I wrote about and said it could at least double. And think about it. Google has a $168 billion market cap. BIDU has $52 billion market cap, three times lower than GOOG's. Why wouldn't BIDU have a similar market cap to GOOG, considering China's population size, growth, and that GOOG exited China? The 20% market share Google China had in 2007 would have likely added to BIDU's then-62% market share.

ROA is 40% compared to 17% for GOOG. That would also assume a three-time rise in share price.

CF Industries (NYSE:CF)

This is a nitrogen and phosphorus play. Both are key ingredients in fertilizer. With the purchase of Terra Industries two years ago, which I mentioned here, they became a dominant player in the nitrogen business, owning 70% of the world's market share. Agricultural products are expected to do well as the global population rises and fertile lands declining due to urbanization, desertification, and erosion. Potash demand is up 80% from last year.

A PEG of 0.88 says the stock is undervalued compared to its earnings and growth rate. Year over year quarterly revenue growth, gross margin, and operating margin are higher than that of the industry, signaling a leader.

Cliffs Natural Resources (NYSE:CLF)

The company dominates North American iron ore mining and was speculated to be an acquisition target by Warren Buffet. As the United States' economy improves, steel demand is expected to rise. Iron ore is a chief component of steel.

Like CF, a PEG of 0.77 says the stock is undervalued. Year over year quarterly growth and operating margin are much higher than that of the industry, signalling a possible leader.

Kronos Worldwide (NYSE:KRO)

The company is the #1 producer of titanium dioxide. The titanium dioxide market is in a short squeeze mainly due to the increased demand for titanium, such as in aircraft.

A PEG of 0.69 says the stock is undervalued. Year over year quarterly growth and operating margin are at least twice that of the industry, signaling a leader.

Dr. Reddy's Laboratories Ltd. (NYSE:RDY)

One of India's largest generic drug makers, the company is expected to benefit in the next few years as blockbuster drugs come off patent. The stock will get an added boost from the country's growing economy. Plus, RDY is expanding outside of India.

PEG is 0.48, meaning that the stock can easily double.

Netflix (NASDAQ:NFLX)

The dominant provider of DVDs and streaming videos should grow with Blockbuster's (OTC:BLOAQ) bankruptcy. At a market cap $13 billion, it is a steel. The company has over 20 million users in the United States and Canada and its streaming business grew 41% from last year.

Although PEG is not undervalued at 1.69, that is less than the industry average of 4.15 and less than closest competitor, Amazon (NASDAQ:AMZN), which has a PEG 2.30. Year over year quarterly revenue growth and operating margin is higher than the industry average, signaling a possible leader.

Sina (NASDAQ:SINA)

The owner of China's version of Twitter stands to grow as social media grows in the world's most populous nation. But the company also offers streaming and gets ad revenue, which is also expected to grow.

Opperating margin is way higher than that of the industry. It is also higher than that of its nearest competitor, Netease (NASDAQ:NTES).

Chemical & Mining Co. of Chile (NYSE:SQM)

The company is a producer of lower cost fertilizer that is an alternative to potash. This caused speculation last year that BHP Billiton (NYSE:BHP) or Vale (NYSE:VALE) could bid for the company. The company also mines about one-third of the world's lithium. Both products will be in high demand. Lithium is needed for electric and hybrid cars, which as I noted will become more in demand as oil goes up. This is a duel play, because if either fertilizer or lithium does well, the stock will do well.

Year over year quarterly revenue growth, gross margin, and operating margin are all higher than that of the industry, signaling a possible leader.

Tata Motors (NYSE:TTM)

India's largest auto manufacturer with a 74% market share should grow as the Indian automobile market grows. With a $16 billion market cap, this could easily reach at least half of Ford's (NYSE:F) market cap of $58 billion. That means it could double in a year or two. India has 12 motor vehicles per 1000 people, far lower than the 765 motor vehicles per 1,000 people the United States has. This shows how much potential growth TTM has.

PEG is 0.27, meaning the stock could easily grow four-fold. Year over year quarterly revenue growth, gross margin, and opperating margin is about twice that of the industry.

All of these players could gain 50% to 100% in a year. The game plan is to find a 100% gainer every year. Each year I will provide additional stocks that I think will gain 100% a year. Yes, you can gamble on Rare Element Resources (NYSEMKT:REE), Molycorp (MCP), Denison Mines (NYSEMKT:DNN), Uranium Resources (NASDAQ:URRE), and Samson Oil & Gas (NYSEMKT:SSN) and gain from 200% to 400% a year, but you can also lose 200% to 400%. All these companies are high growth small caps that carry high risk and are not suitable for retirement money. As a general rule, if you are young and have risk appetite, sure, invest in these. But if you are old, nearing retirement, and don't have high risk appetite, do not invest in the five stocks mentioned in this paragraph.

Let's start with $1000. The table below shows how long it will take assuming you double your money every year.

1. $1,000

2. $2,000

3. $4,000

4. $8,000

5. $16,000

6. $32,000

7. $64,000

8. $128,000

9. $256,000

10. $512,000

11. $1,024,000

12. $2,048,000

13. $4,069,000

14. $8,192,000

15. $16,384,000

Click to enlarge

So in 11 years, the $1000 will be worth about $1 million. This is a hard shot, so let's do the same math for a 50% gain each year. This would yield $1 million in 19 years. Either way, you will retire a millionaire or multi-millionaire.

Disclosure: I am long SSN, MCP.