7 Stocks For The Next 7 Years

 |  Includes: AAPL, CAM, COP, GG, KO, NLY, UNP
by: Efsinvestment

Last week was a disastrous one for the investors. The US stocks fell for seven straight sessions, primarily due to eurozone concerns. Even the Black Friday effect was not strong enough to counter the strong pressure on the stocks. The downgrading of Belgium by S&P and Hungary by Moody’s added more doom and gloom on the equity markets. In the last week, basic material companies suffered the most [-6.8], followed by technology stocks [-6.1%] and financials [-5.5%].

Nevertheless, the prices in the equity markets look pretty cheap. As the legendary investor Warren Buffett suggests, bad times offer good business opportunities. Whenever there is extreme pessimism and uncertainty, investors tend to make the wrong decisions. In this case, a wrong decision would be to get out of stock market. The right decision in this gloomy atmosphere would be buying those stocks that can return substantial profits to long-term investors. One way to look for such stocks is to identify the past outperformers, which still has a strong growth potential. While markets are not as cheap with their mid-recession bottoms, there are several stocks which can offer great long-term profits. Here is a brief analysis of 7 stocks which have been outperformers, and I believe they would be outperformers in the next 7 years. I have analyzed these stocks from a fundamental perspective, adding my FED+ valuations and O-Metrix scores where applicable:


Trailing P/E


Fair Value


Apple (AAPL)



$653 - $735


Coca-Cola (KO)



$63 - $77


Gold Corp. (GG)



$40 - $65


Cameron Int. (CAM)



$60 - $79


Annaly Capital (NLY)



$24 - $40


Union Pacific (UNP)



$114 - $152


Conoco Phillips (COP)



$110 - $160


Click to enlarge

Apple ranks as the #1 stock of the last decade. The stock returned a whopping 3500% in the last 10 years. Under the leadership of Steve Jobs [rip], Apple, a tiny producer of Macintosh computers, became a truly global technology titan. The success behind the Apple was its aesthetic innovation. Apple did not invent the notebooks, tablets, or cell phones. But Apple came up with Mac Books, iPads, and iPhones, which changed the way we think of these gadgets. The “i” concept became a huge success around the world. Millions of songs have been downloaded through iTunes so far.

While Jobs has gone, his company is here to stay. As of November 25, Apple was trading at a trailing P/E ratio of 13.14, and forward P/E ratio of 9.37. Analysts estimate 18.40% EPS growth from Apple, which is very conservative given Apple’s past record. The introduction of iCloud has not yet reflected in the stock price. Even with such conservative growth estimates, Apple’s fair value range is $650 - $735. The stock has an A-grade O-Metrix score of 8.17.

Coca -Cola, a Warren Buffett favorite, has been a disappointment so far in 2011. While the stock returned 4000% in the last 30 years (excluding dividends), the year to date return was -1%. Although the U.S. market is more or less saturated, Coca-Cola is increasing its presence in global markets. Its partnership with local manufacturers has greatly benefited the company. Its revenues increased by 8.7%, and the stock returned 10% annually in the last 5 years. Compared to the negative return of S&P 500, that is a great success.

Analysts estimate 7% EPS growth for the future, which is much lower than past EPS growth of 20%. Based on this conservative estimate, Coca-Cola has a fair value of $63 - $77. Its O-Metrix score of 3.64 shows that the stock is priced with a premium to the market. However, given the company’s past return, it is very normal for the stock to be priced with a premium over the market.

Gold Corporation, a Jim Cramer favorite, is one of the best mining stocks in the market. Incorporated in 1994, Goldcorp became one of the world’s largest gold producers in just two decades. The company entered into an explosive growth stage in 2007, boosting its revenues, as well as profits. Regardless of the profits, Goldcorp was able to pay some sort of dividends in the last 10 years. Current yield is 0.8%.

I am not a big fan of commodities, and I believe the precious metals such as gold are in a great bubble. Nevertheless, Gold Corp is a better investment than Gold itself. The stock returned only 5% in 2011, compared to 18% return of SPDR Gold Trust (GLD). Analysts estimate 10% annualized EPS growth for the next 5 years. Based on this estimate, Goldcorp has an O-Metrix score of 2.98. Fair value range is $40 - $65.

Cameron International is a large-cap company, providing equipment and services to energy industries worldwide. The Texas-headquartered Cameron was a long-term outperformer, returning 400% in the last decade. The stock has also doubled since its dip of $20 in 2008.

Cameron’s EPS has improved by 25% annually in the last 5 years. Its sales increased by 20% in the same period. Based on 19% growth estimate, the stock has a fair-value range of $60 - $79. Its O-Metrix score of 5.84 is also above the market average.

Annaly Capital is the perfect substitute for any government or private sector bonds. Due to its status as a real estate investment trust, Annaly distributes 90% of its profits in terms of dividends. Annaly invests in long-term agency backed securities financed by short-term borrowing. Thus, using an appropriate leverage, the company exploits the spread between the short-term and long-term interest rates.

One of the primary concerns of investors is the effect of Operation Twist on mREITs’ profitability. The Operation Twist aims at reducing the spread between the interest rates, which might adversely affect mREITs’ profitability. However, it might also take several years to see the full effect. Meanwhile, reducing the long-term interest rates might also have a positive effect on the mREITs’ balance sheets. Therefore, I rate Annaly as a buy, as long as, the company keeps paying double-digit dividends.

Union Pacific is a railroad service company that provides transportation services throughout North America. It is quite amazing to see a traditional company, established in 1862, can provide a return of 250% in the last decade. UNP also pays dividends on a regular basis. Current yield is 2.52%.

Target price of $115 imply almost 20% upside potential. Analysts estimate 13% EPS growth for the next 5 years, which is conservative given the 24% EPS growth in the last 5 years. Based on this estimate, the stock has an above average O-Metrix score of 5.68. Fair value range is $115 - $152.

ConocoPhillips, a best of breed integrated oil and gas company, is significantly undervalued. The company has a 4-star rating from Morningstar and is categorized as a large-core company. COP returned 140% in the last decade. COP also paid nifty quarterly dividends in the same period. Current yield is near 4%.

Analysts estimate 8% EPS growth for the next 5 years, which is in line with the industry growth expectations. Based on this estimate, COP has a B-grade O-Metrix score of 7.33. Its fair value range of $110 - $160 imply that the stock has almost 60% upside potential to be fairly-valued. (Full analysis, here)

Disclosure: I am long AAPL.