Diverse Portfolio For 2012: 7 Top Growth Names

by: Bill Maurer

As we approach the end of 2011, it is time for investors to start setting up their portfolios for the new year. In part one of my two part series, I will focus on my top seven names for growth-oriented investors. The following chart shows their return so far in 2011, along with their analyst rating (1=strong buy, 5=sell), the average price target and corresponding potential upside. Here are my seven.

Name 2011 Return Rating Target Upside
Apple (AAPL) 18.49% 1.7 $508.83 33.13%
Baidu (BIDU) 15.46% 1.8 $188.67 69.29%
Mastercard (MA) 60.42% 1.8 $406.10 13.20%
Priceline (PCLN) 15.06% 2.0 $625.48 36.05%
Boston Beer (SAM) 9.61% 2.5 $101.00 -3.10%
Molycorp (MCP) -45.73% 2.5 $64.50 138.18%
Intuitive Surgical (ISRG) 67.68% 2.7 $433.27 0.25%

Here are the projections for revenue and earnings per share growth for each of these names in 2011.

Company Revenues EPS
AAPL* 28.90% 25.58%
BIDU 51.20% 49.32%
MA 12.50% 16.62%
PCLN 25.30% 29.53%
SAM 10.00% 11.62%
MCP 75.70% 103.21%
ISRG 17.50% 19.24%

*Fiscal year ends in September.

So why have I chosen these names? Well, here's why.

Apple: Apple still has plenty of room to grow, and 2012 sets up for a great year. The stock has been depressed, down about 10% since its last earnings report, and we all know the iPhone has done extremely well. iPad sales aren't what many thought they might be, but Apple should be releasing a new one in the coming months and sales will take off again. Plus, Mac sales are at all-time highs, and Apple's market share is extremely low. Many think that Apple could go to $500 or more next year. I don't think it will reach that high, as my personal prediction is the $450 to $475 level, but even at $450, that's still 18% of upside from here. For a yearly return, you could do a lot worse than that.

Baidu: Baidu is the leading internet company out of China, and its $39 billion market cap shows differentiates it from being just another Chinese stock you can't invest in. The company has solid revenues and earnings, and is expected to grow those numbers quite well in 2012. Analysts have become even more positive on the name lately, with 27 current buys and 6 holds, and a 70% upside on target price. Thanks to numerous problems with other names in the industry that shouldn't affect Baidu, shares have dropped 15% in the last week. That makes the name even more attractive, and as I've written recently, Baidu remains the favorite in its industry. You could go with the American version in Google (GOOG), but Baidu is a smaller company and has more growth potential.

Mastercard: I included a credit card company because they are extremely profitable and are still growing at nice rates. I selected Mastercard because it has better expected growth than Visa (V), and also has a few lower valuation metrics than its main competitor. Mastercard has a lower price to sales ratio and a lower trailing P/E. It also has a much smaller market cap, so it will be easier for the stock to rise. The company may also decide to split at some point, which would further increase demand for the name. I think this stock will crack $400 next year. It is a good name to be in for the long term, not just 2012.

Priceline: The online travel site has continued to dominate its industry in 2011, and I have no reason to doubt it will continue in 2012. Priceline is constantly improving its margins, and with 25% revenue growth expected next year, earnings will zoom even more. The stock hasn't done much lately, even after Goldman Sachs gave the name a buy when it recently initiated coverage of the sector. A forward P/E of 15 is quite reasonable, given the company's growth. The stock is $100 off its all-time high, and that is despite continually beating analyst estimates. The company, like Apple, usually gives conservative guidance, so expect it to jump again if it beats. I think the stock would do a lot better if it were to split, but I still see this name heading towards $600 or so next year.

Boston Beer: I needed to find a good consumer name that wasn't considered a value play, and Boston Beer fits that bill. The company is a craft beer producer, known for its flagship Samuel Adams Boston Lager. I just analyzed this name as a long-term investment, so check out that article for a full analysis. But here are some tidbits. The company's revenue growth will accelerate in 2012, and the company has been improving margins over the past few years. It is buying back stock, but not in large enough quantities to really matter. This is a company you are buying for the long term, on the basis that the company can become one of the major beer makers. With yearly revenues of just $500 million right now, this stock could be a big winner if those revenues get into the billions, like the big names it battles in an ever competitive industry.

Molycorp: Shares of the rare earth mineral processor have taken a beating in 2011, and I expect them to rebound in 2012. Expectations for the company were a little high, and there was just too much hype around the name. In 2011, the company is expected to increase revenues by 1,000%. 2012 revenues are expected to be up about 75%, with earnings per share doubling. Given that estimates for next year have come down from $4.03 to $3.17 in the past 90 days, I think expectations have been tempered enough. There have been recent rumors that China might limit rare earth exports and look to ban the world's largest rare earth mineral name from exporting its goods. That would provide a tighter supply of these minerals. Although Molycorp is a processor and not producer, this could still help shares rise. Molycorp just had too much hype and expectations around it at the end of 2010, and I think the euphoria has worn off and it could be a great investment now.

Intuitive Surgical: The surgical robot maker known for its Da Vinci Surgical System has continued to impress, constantly beating expectations. The company has blown out earnings per share numbers by an average of 21% over the past four quarters, and this is not new for the company. The company is expected to grow revenues by 17.5% next year, and even more on the EPS front. The stock is currently around the average target price, but I think most analysts are too low on the name. The company has continued to grow and impress, and is a nice growth healthcare name, which is rare. The company recently announced FDA approval for use of its technologies in gall bladder removal, and this will increase the number of procedures done using its equipment. I think the stock will easily go over $500 in 2012, and is a potential candidate for a stock split.

Any of these seven names would be nice additions to a diverse growth portfolio. You have two tech names, two services, a consumer, healthcare, and material names to choose from. All seven names have rapidly growing revenues and earnings, which should provide great growth potential for shares in 2012.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BIDU over the next 72 hours.