In this article, I analyze the markets best bets for the first half of 2012. These stocks are likely to enter a seasonaly strong first half in their local industries and have catalyst that can propel further upside. As always, use this analysis as a starting point for your own due diligence.
Sanofi-Aventis SA (SNY): A month ago Sanofi's stock price was $33, and it has been fluctuating between $34.00 and $36.00 for the past several days. Since April of this year the stock has been in a range between $31.00 and $41.00. Technically speaking it seems ready to break and my bet is that it is going to be to the up-side. Sanofi-Aventis is the fourth largest pharmaceutical company in the world and the Paris based company is the largest in Europe.
The company's foremost advantage over its competitors going forward is a strong global presence and its stockpile of over 120 drugs in the pipeline. A secondary, but nonetheless significant advantage is that the company's relatively discounted 2009 accusation of Chattem, Inc. for only $1.9 billion. The purchase gave the company a strong presence in the consumer healthcare products market with brands like Gold Bond foot powder, Icy Hot menthol rub, Cortizone-10 anti- itch cream, and Selsun Blue shampoo, along with lowering the overall risk inherent to most pharmaceutical companies. A comparison of Sanofi-Aventis with its two closest competitors Pfizer (PFE) and Merck (MRK) in terms of price to earning growth reveals the stock to be somewhat pricy and may be the reasoning behind the contrarian view: Sanofi-Aventis has a PEG of 3.63, Merck has a PEG of 2.74 and Pfizer has a PEG of only 1.84.
Costco Wholesale (COST): Over the last month, Costco has resumed a short term upward trend off $70 per share that began in August. The stock has recently come off its 52 week high on profit taking, and according to Forbes, it is time to buy. The secret to business success is to adapt and to innovate, even more so in an economic downturn, and Costco Wholesale is doing just that. The recession has caused many department stores to vacate space in shopping malls and Costco has adapted its business model to take advantage of this opportunity.
Buying this space is advantageous not only for the bargain basement price but it also places stores in high traffic areas and saves the company on the infrastructure costs of building new stores. Not to mention avoiding the community resistance and public relations cost that so often comes with building warehouse stores. Costco Wholesale has earnings per share of $2.60 with a price to earnings ratio of 24.25 and its nearest competitor BJ's Wholesale Club (BJ) has earnings per share of only $2.08 with a price to earnings ratio of 17.91. This indicates that Costco Wholesale brings in substantially more in earnings at its current price.
Panera Bread Company (PNRA): Over the last month, Panera stock has shot from the $100 water line to over $140 per share. This phenomenal performance is mostly the result of an equally phenomenal fourth quarter report (see this article). Panera Bread Company is pretty much operating in a niche of its own creation in the concept of fast casual dining and although fast food giant McDonald's (MCD) is trying to imitate the concept it still has a way to go. The only real casual restaurant chain other than Panera is Cosi (COSI), but COSI is much smaller in size with locations only in California, Florida, and the Northeast -- markets Panera Bread Company has not yet begun to penetrate.
The concept of fast casual dining in Panera Bread's case emphasizes nutritional value and quality food that is ordered and paid for before one sits down to eat. The dinning ambiance is unhurried as well as casual, and free internet access adds to this atmosphere. This concept has worked well for Panera during the recession, attracting customers from more expensive full service restaurants that were trying to save on discretionary income but did not want the typical fast food offerings or style of service.
Panera Bread Company has also developed a brand recognition and loyalty during this period that will take the company into the post-recession cycle. Panera could also pick up a few ex-fast food junkies and customers looking to move up a notch from typical fast food dinning when money is not so tight.
B&G Foods Inc (BGS): In the last month, BG's stock price has gone from $18 per share to its 52 week high of $22.80 per share and still has plenty of momentum behind it. The price rise seems to stem from its proven track record of integrating acquisitions and the completion of its latest purchase of Culver Specialty Brands on November 30th. The acquisition also adds five more brands to the companies already well established portfolio of brand names like Ortega, Cream of Wheat and Polaner in the form of Molly McButter, Sugar Twin, Baker’s Joy, Static Guard and Kleen Guard.
Although food inflation is on the rise, due to the doubling of the prices in corn and wheat, B&G Foods hedged itself well in 2011 to offset these increases. All this being said the stock price is a direct reflection of fine management. The company's two closest competitors are ConAgra Foods (CAG) and General Mills (GIS). ConAgra Foods currently has a PEG ratio of 1.76 with forecast earnings growth of 2.46% in 2012 and 9.00% in 2013. General Mills has a PEG ratio of 1.90 and forecast earnings growth of 5.04% in 2012 and 8.84% in 2013. On the other hand, B&G Foods literally blows away the competition with their forecast earnings growth of 17.32% in 2012 and 20.90% in 2013 with a current PEG ratio of 2.09.
Domino's Pizza (DPZ): Over the last month the stock continued a well-established, year-long trend that has strengthened even more over the past week. The company's new, more flavorful Artisan pizza recipe has gone a long way in boosting sales in the third quarter (see this article). Domino's profits came in at $.35 per share beating analysts' estimates of $.33 per share and net income was up over the same period last year coming in at $22.1 million or $.36 per share. Net income in 2010 was $16.6 million or $.27 per share.
The combination of football season shifting into gear, increased online orders and a new line of $7.99 Artisan pizzas is expected to bode well for the company's fourth quarter statistics. Other than local competition, Domino's also faces corporate competitors Papa John's International (PZZA) and Pizza Hut's parent company-- Yum! Brands (YUM). Papa John's International currently has a PEG ratio of 1.69 and forecast earnings growth of 16.65% in 2012 and 14.44% in 2013. Yum! Brands has a PEG ratio of 1.84 with forecast earnings growth of 12.54% in 2012 and 14.84% in 2013. Domino's PEG ratio is currently 1.91 reflecting the rise in the stock's price and the company's forecast earnings growth is 14.47% for 2012 and 14.24% for 2013 but may be revised upwards depending on fourth quarter results and the sales of the new $7.99 Artisan pizzas.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
