By Neal Goodwin
Today we look at a few of Jeremy Grantham's latest buy ideas. For those wondering why one should follow the advice of Jeremy Grantham, look no further than the continuous success of his Boston-based asset management firm Grantham May Van Otterloo (GMO). GMO has had a 10 year cumulative return of 31% versus just 16.4% in the S&P 500 (SPY). In a recent article with businessinsider.com Jeremy predicted that stocks are subject to a boost, largely due to the point in the Presidential Cycle that we find ourselves in at this time. Year 3 of the Presidential Cycle has historically been very good for stocks because the current government does everything it can to help itself get re-elected, including flooding the economy with cheap money, in turn raising the value of stocks. Grantham believes that stocks are poised to rise until October, which is when we may see a downturn as a result of overpricing. So, with this in mind, what has Jeremy been buying for his investors? Here is a list of 9 of his newest buy ideas. Use this list as a starting point for your own due diligence.
CF Industries Holdings (CF) is one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. As mentioned in a previous article, the Mississippi Floods of recent should prove to benefit fertilizer companies like CF and Agrium (AGU). Once the flood waters subside, farmers will need to get back to work and they will need more soil nutrients. CF is one of the companies that is expected to benefit directly from this second round of buying soil nutrients, and 1 year analysts' price targets have CF around $161.31, a healthy increase from the current trade price of $139.06. I love the prospects of this stock going forward. In the second half of 2010, CF saw a more than 100% increase in stock prices, and being a seasonal product company, I expect increases in the same time-frame again, especially following the Mississippi floods. I cannot promise 100% return, however there should be a healthy increase. Peripherals are excellent in that P/E is a relatively low 15.60, forward P/E is an attractive 10.37, and PEG is a very healthy 0.88. CF also has an impressive EPS of $10.10, and a projected 1 year EPS of over $15. Recent news on CF stock is that volume has increased tremendously over the past few days, suggesting bullish market perception and also suggesting the ideal window to buy this stock may close sooner rather than later. My suggestion? Buy now.
Canadian Natural Resources (CNQ) An independent oil and natural gas exploration, development and production company, CNQ is based out of Calgary. CNQ main operations are focused in Western Canada, the North Sea, and Offshore West Africa. The company's business approach is to maintain large project inventories and production diversification among each of the commodities it produces.
CNQ, to put it nicely, had a dreadful first quarter, posting a 94% plunge in Q1 profits on a combination of the fire at Horizon oil sands and a higher tax rate in the United Kingdom. Paul Sankey, an analyst with Duesche Bank, believes CNQ will get back on track. Many knowledgeable investors are overall bullish on the oil industry as a long term investment simply because of the numbers in the game of supply and demand. This was likely an anomaly due to some catastrophes within the business, however it does not mean CNQ is a sure thing to jump back. Good news for CNQ holders is that it is one of the most leveraged companies in the industry to the price of oil, and will outperform most of the competition in a high oil price environment. Company estimates that each dollar increase in crude oil will result in per share earnings increases of 9 cents. Recently, oil has dropped considerably, however it is bound to go up as oil reserves continue to decrease in supply. It is all a game of supply and demand, and CNQ is poised to take advantage of that
As a long term stock, I love CNQ. In the short run, I want to see it return to production it had before its horrific first quarter. P/E is currently over 40, making me concerned. However forward P/E is 11.53 suggesting the inflated current P/E is due to its Q1 problems PEG is also reassuring at 1.22. I want to see more positive results in how the company deals with recent issues, but once it hashes out its problems I would give this stock a buy rating. Oil will continue to go up, and CNQ is one of the companies who will directly benefit. Current stock price is $41.97, but expect a number closer to its 52-week high of $52.04 once it rectifies its issues.
Canadian Imperial Bank (CM), from its 10k provides a range of financial products and services to individual, small business, commercial, corporate, and institutional customers primarily in Canada. CM, overall has had impressive returns as a stock in the last ten years save the financial crises, where it was hit exceptionally hard once exposed to billions of dollars in losses associated with the subprime crisis in the United States.
I believe CM is a strong buy. Much of this rating comes from its impressive dividend and yield of $3.57 and 4.10%, respectively. While paying such impressive dividends, it is in a great financial position only having a payout ratio of 52%. CM also backs a strong P/E of 13.60 and a supporting PEG ratio of 1.11 that shows it has a strong foundation for improvement in stock value. CM supports a strong EPS estimate for the remainder of the year of $7.58, a healthy increase from its current $6.38. This stock has a high probability of increasing considerably as the Canadian economy continues to climb out of recession, and as a country that was not hit as hard as others it is fairly far along in that battle. CM will continue to benefit as the economy continues to recover and grow. While revenue per share is still well below pre-crisis levels, it has had a considerable increase in that number in the last three quarters. Again, I give this stock a strong buy. Even with a marginal increase in stock value, it pays a very impressive dividend.
Teleflex, Inc. (TFX) In the medical instruments and supplies industry, TFX manufactures a diversified portfolio of products and provides services for the automotive, marine, industrial, medical and aerospace markets worldwide in over 130 countries. It is a growth-oriented company managed for long-term, consistent performance.
I like TFX peripherals, however I do not like some factors of its business, and for that I give it a hold rating. While sporting an impressive P/E of 10.45 and a fine PEG of 1.31, it has a very nice potential upside as a stock. This stock will reciprocate patience with nice dividends, but this appears to be a risky stock to invest in. Over the last year it has actually decreased in revenue, losing 6.3%, and over the past five years have lost 6.7% of revenue. Over the last five quarters it has increased, decreased, increased again, and decreased again, ending with its lowest revenues of that time period in the latest quarter. Additionally, with returns on equity, assets, and investment less than 10% for the past year, this company is too inconsistent with output to consider a positive buy. The predictability of its market is too uncertain as there are currently a large number of companies producing medical instruments and not as many buyers. If interested in medical supplies, keep an eye on this stock because it does sport solid peripheral numbers, however do not invest too much at this moment.
First Solar (FSLR) FSLR is one of the fastest growing manufacturers of solar modules in the world. It is the largest manufacturer of thin film solar modules on earth, and were the first to break the $1 per watt manufacturing cost barrier in 2008.
I am going to be straight forward with you: keep a real good eye on this stock. While this stock is on a downward trend, and slightly overvalued right now, there are sunny days ahead. China recently announced that it wants to double solar power usage by the year 2015. On top of that, China wants to increase its solar power usage 10-fold by the year 2020. What does this mean for FSLR? Considering it is currently the world leader in Solar Energy, owning 10.8% of the market, this could mean huge things. While FSLR may still fluctuate for the time being, and will probably drop a little more, watch how the price shoots up once China starts employing companies, assuming FSLR is one of the companies under contract. Depending on how much China asks of this company, this stock could be due for a wild increase in stock prices. In the mean time, keep an eye on this stock because it has a high beta (1.60) and is prone to fluctuations. FSLR currently has a P/E of 18.03 and a PEG of .65, both healthy indicators. It does not pay dividends, but EPS is $7.01. I will give this stock a hold rating, with a strong buy rating pending any news on how China proceeds with its vast increase in solar power.
Rovi Corporation (ROVI) is in the business of providing media guides for television and internet, as well as providing a platform for online stores such as BestBuy (BBY) to distribute its goods to internet buyers. ROVI has had great performance as of late with its stock value gaining 55% in the past 12 months. It has a P/E of 39.9, but has expected increase in revenues of greater than 20% for 2011 and 2012, which is consistent with its 5 year growth rate of 24%. Being a mid-sized company in the same industry as juggernauts like Apple (AAPL), ROVI has considerable competition and long term outlook is difficult to predict. However, determinants of management effectiveness are very promising in that ROI and ROA are both more than 5x industry averages. Currently trading around $58 per share, ROVI is on an upward swing and should have no trouble getting close to its 52 week high of $69.50 on January 14th. I give ROVI a buy rating. It has a market cap of $6.25 Billion and a strong PEG ratio of 1.16.
PriceSmart (PSMT) is a U.S. style membership shopping warehouse chain operating in Central America and the Caribbean, very similar to the better known Costco (COST). PSMT has been doing exceptionally well on the market, increasing nearly 80% over the last 12 months and 17% over the last 3 months. Its stores that have been around for longer than 12 months have generated greater than a 20% increase in revenues over the past year, and it is estimated to grow by 20.54% over the next 12. Combined with a P/E of 21.62 and it is in perfect position to continue growth in market value. For Q1, it increased inventory by 14.9% by decreased inventory/assets from 69.95% to 66.79% year over year. PSMT is a strong buy, with a great growth potential both in stock prices and in brand name reach. PSMT is a young and relatively unknown entity so gains are forecasted for the future as it continues to grow.
Molina Healthcare (MOH) arranges for the delivery of health care services to people eligible for Medicaid, Medicare, and other government-sponsored programs. While MOH has strong peripherals, it is a very risky investment. The reason is more than 50% of its revenue is government funding. The current government is under a considerable amount of pressure avoid a national debt crises at all costs, so cutbacks are very likely going to happen somewhere within the government. MOH is a company that could suffer considerable losses from any cuts, making it very risky. Aside from risk of cuts, MOH looks promising. I has a P/E of 18.68, a PEG ratio of 0.93, and estimated growth of 16.94%. It has increased in value 50% over the last year, and increased EPS 78% in that same time frame. In a time of stable government finances, this would be a stock worth considering, but potential of cuts to its budget make MOH an unattractive investment.
FMC Corporation (FMC) produces chemicals in agricultural products, specialty chemicals, and industrial chemicals. As I noted in a recent article when talking about CF Industries Holdings, companies producing in the agricultural products segment are set to a nice boost in demand as a result of the Mississippi floods. Farmers need to replenish on seasonal supplies so this should account for a healthy increase in stock price. FMC has increased in price per share 40% in the last year, and 10% in the last 3 months. It has increased sales in the last five years while the rest of the industry has actually lost sales on average. FMC is projected to increase revenues by 18% in 2011, and it has superior ROA (6.7%) and ROI (12.7%) compared with the industry over the last five years. It has considerable business in Latin America, a region that is growing considerably in output for agricultural chemical companies. Something to note is the ideal time to buy FMC and similar stocks is around March, as that is the time farmers are buying the products. The ideal period to hold the stock lasts until mid June, and then historically it will drop. That period may last longer this year due to the Mississippi floods extending the main buy period, however the ideal window to profit off of FMC is nearing. Do not be afraid to sell before the stock takes a dip. A month from now, FMC may be a prime short candidate.