By Larry Gellar
An improving situation has many investors switching back into stocks. While the SPDR S&P 500 (SPY) could be a good choice, we’ve identified 5 stocks that look even better. Expect these stocks to shoot higher as the market recovers this year.
Apple Inc. (AAPL) stock is moving higher, and a new report from Gartner has many investors excited. Specifically, Gartner is predicting that a typical household will own at least 4 pieces of hardware from Apple by 2015. Furthermore, 65% of households are expected to have a smartphone or tablet. As maker of the ever-popular iPad and iPhone, Apple would benefit enormously if such a trend holds up. GSMA also recently released some numbers that would bode well for Apple, particularly in the area of number of connected devices.
As for actual company news, Apple stock has been affected lately by the death of Steve Jobs and the launch of the iPhone 4S. While Steve Jobs will be sorely missed by the company, the iPhone 4S was also a bit of a disappointment as many investors were expecting the iPhone 5. Important competitors for Apple include Google (GOOG), Hewlett-Packard (HPQ), and Research In Motion (RIMM).
Google is more expensive than Apple using price to earnings, price/earnings to growth, and price to sales, while those other two companies boast significantly lower price to earnings and price to sales ratios. Apple’s margins are about average for the technology industry, with gross margin at 39.82% and operating margin at 30.43%.
Caterpillar, Inc. (CAT) stock has been performing well, and this company is set to announce its results for the third quarter on October 24th. Many investors are excited about a recently expanded facility in Sanford, North Carolina. Here’s what one of Caterpillar’s vice presidents, Mary Bell, had to say:
This strategic investment is part of Caterpillar's long-term strategy to deliver the highest quality, best value building construction machines in the industry. We are pleased to expand our North Carolina operations and appreciate the continued support of the State and our local partners.
Caterpillar is also forming a joint venture with APR Energy. Providing temporary power for countries in the emerging markets will be the focus, and the deal is being facilitated by one of Caterpillar’s dealers in St. Augustine, Florida. CNH Global (CNH), Komatsu (OTC:KMTUY), and Volvo (OTC:VOLVY) are Caterpillar’s biggest competitors. Those stocks have lower price to earnings and price to sales ratios, while Caterpillar is about in the middle for price/earnings to growth. As for margins, Caterpillar comes in second out of those four companies, with Komatsu having both higher gross margin and higher operating margin. Dividend investors may be interested to know that this stock is currently offering a 2.4% dividend yield.
Gilead Sciences Inc. (GILD) stock has fallen a bit lately, although it just signed a deal with German pharmaceutical company Boehringer Ingelheim that would allow it to work on and distribute a new HIV treatment. Gilead will have to pay Boehringer Ingelheim a certain amount in the beginning of the deal and possibly more based on sales. The drug seeks to prevent the virus from getting into human DNA, so this could be an important breakthrough. Investors are also excited about Gilead’s Quad pill.
This drug combines some HIV treatments already on the market, and Gilead is having quite a bit of success with it in trials so far. In fact, Goldman Sachs upgraded this stock to Buy recently, mostly due to projected sales of the Quad pill. The price target was set at $46, but more importantly Goldman Sachs doesn’t think that a high-performing Quad pill will negatively affect Gilead’s other lines. Gilead’s biggest competitors include Bristol-Myers Squibb (BMY) and GlaxoSmithKline (GSK). Those stocks are trading higher than Gilead in terms of price to earnings and price/earnings to growth, although Gilead has the highest price to sales ratio. On the other hand, Gilead also has the best margins – 75.22% gross and 48.78% operating.
Emerson Electric Co. (EMR) stock has risen steadily, and one of the company’s divisions Emerson Network Power just signed a lucrative deal. That segment will work with the National Broadband Network Company in Australia to create Australia’s National Broadband Network. Here’s what Emerson Network Power’s leader had to say:
Our approach reflects a dimension of our business that differentiates us – our ability to create integrated solutions that bring core IT and telecommunications components together. This capability will deliver tremendous value not only to NBNCo but also to the general public as beneficiaries of the technology, through efficiencies in network rollout and the highest levels of network performance.
On the other hand, Emerson is struggling to sell some of its other technology due to a stagnant global economy. That might get better once the European debt crisis is resolved, and competitors like ABB, General Electric (GE), and Hitachi (HIT) are suffering from the same problem as well. If nothing else, Emerson has great margins at 39.54% gross and 17% operating. As for cash flows, $32 million came in during fiscal year 2010 and $189 million came in during the 9 months after that. High amounts of cash from operating activities have played a large role in this.
Comcast Corporation (CMCSA) has done well lately, and many investors are excited about UltraViolet. That service will utilize cloud computing, and the idea is consumers who buy DVDs or Blu-Ray discs will be able to stream those movies to their computer, smartphone, or tablet. This could be a big boost for Comcast’s Universal Pictures, which has been victimized by Internet piracy in recent years. Universal Pictures is also doing well with its Dream House movie, which has brought in over $14 million during the past two weeks. Comcast is also making its Xfinity TV bigger and better than ever before.
The newest cable boxes will offer better access to on-demand shows as well as Internet content from a variety of sources. Users of Microsoft’s (MSFT) Xbox will also be able to access Xfinity through their game console, and new content is being made available through Comcast’s web site. Comcast’s biggest competitors include DirecTV (DTV) and Dish Network (DISH). Comcast has the highest price to earnings and price to sales ratios, although price/earnings to growth ratio falls in the middle of those two other companies. As for margins, Comcast is quite strong in this regard, with gross margin at 55.36% and operating margin at 20.47%.