Our Extended Value Portfolio is resetting to start out 2012. The portfolio is a $50K long-term investing portfolio that uses 12-month price targets from our EquityAnalytics department to select equities that we believe have upside to outperform the market. This year, we are introducing several new types of positions into the portfolio to help it become an even better long-term portfolio that includes bonds, ETFs, and commodity holdings.
Without further ado, here are our selections and allocations to start the 2012 year for our Extended Value Portfolio. The portfolio holdings have 10% stop losses at 50% and 15% for the other 50%. All holdings are listed in the holdings page.
CA - CA Inc. is our top rated Application Software company in EquityAnalytics. We have a PT of $31 on the company right now and believe that it has a big 2012 ahead of it with cloud networking. The company is second in market share in cloud storage, and we believe that it has the ability to really improve valuation with more growth and better margins. We are a fan of the 1% yield as well.
Target: $22.50, $24.50, and $31
KO - Coca-Cola, we believe, has tremendous upside in 2012. The company has a PT of $94 for us right now, and we believe KO offers us both growth and income. The company operates a solid 2.68% yield as well as a P/E of 13, which trails everyone in its industry. The company, though, has an amazing economic moat, remains strong in tough times, and should continue to dominate the beverage industry. Margins dropped in 2011, and we expect those to strengthen again in 2012, which should help to bring up the multiple on Coca-Cola.
Target: $77.50, $84, and $94
DG - Dollar General seems like a great buy in 2012. The company combines both value and growth with a solid balance sheet and very low beta. The company has a $52 price target. What we like most about DG is that compared with most other discount retailers, DG has done a lot of work redesigning stores to best work with what its customers need for quick shopping. It has an advantage over others with small stores in prime community locations that work well for stop'n'go shopping that seems very popular right now. We believe it continues to grow at a nice rate of 8% in sales this year and offers better value than other dollar stores.
Target: $46, $52
DHI - DR Horton. Investing in residential construction may not be the most popular recommendation of 2012, but we believe that we are starting to see a solid housing bottom that will definitely allow for recovery this year. DR Horton is our top scorer in EquityAnalytics and is one of the only residential construction companies that is booking profits right now. We have a $17.50 PT on the company, and we believe that DHI will be one of the top companies to lead the housing turnaround. While we are not expecting a boom, the stock does offer around 25%-30% upside to our price target.
Target: $14.60, $16.00, and $17.50
DD - DuPont rated very well on our EquityAnalytics scoring led by its focus on specialty chemicals that have higher economic moats than more general chemicals that have higher competition. The company, additionally, offers an outstanding dividend at 3.5%. We believe the company is also undervalued at a 12.7 PE ratio and should be trading at a higher multiple in 2012. The company has done a solid job of improving profitability over the past three years, and we believe that improvement should continue in 2012. If margins do get a bump, the PE ratio becomes even more suspect at these levels. We have a $59 PT.
Target: $51.54, $56.22, and $59
GIL - Gildan Activewear is a definite leader in apparel manufacturing. The company has great growth and solid profitability in a market where it is tough to create economic moats. It offers a compelling 1.5% dividend, and we believe that the company has upside to our price target of $36. The company should be able to make a nice move higher from here as it outperforms the industry in growth with sales and earnings outpacing the industry exceptionally. Further, it is considerably undervalued with a PE at 10 vs. an industry average around 20. Value and growth in one...can't beat it.
Target: $21.85, $24.00, and $36
HANS - Hansen's. What we like about Hansen's is that this is the true expression of growth. HANS is slated to hit another 15% growth rate this year. The company has its issues, such as an undiversified lineup of growth engines, stiff competition and heavy valuations. Yet, we believe that the company is still just scratching the surface of international expansion that can be a huge growth engine as it continues to develop its Monster brand name as well as other beverage items. Look for HANS to continue to attract money flow as investors continue to seek growth. We have a $120 PT.
Target: $102.50, $112.50, and $120
MCD - McDonald's, is just such a solid stock with the combination of growth, safety and income. We believe that MCD should be headed to $110 this year, which will not be as strong as some of our other targets. Yet, we also will be picking up a solid 2.8% yield that is attractive. Further, MCD has done a great job dealing with currency issues and has not seen a slowdown despite issues in Europe and China. We believe that MCD will continue to offer growth and value this year, and we like it to offset value and growth plays with income investing.
Target: $105, $110
MSFT - Microsoft. Can 2012 be a year for Microsoft to finally do something with its stock? We believe it could be. The company has made a lot of great moves in the past couple months that have been positive for the outlook of the company, and we are a big fan of the nearly 3% yield. MSFT is undervalued and represents a typical value play as it is not far off the margins of many competitors with higher PE ratios. Yet, MSFT continues to dog the competition. We believe that MSFT will turn things around with a continued focus on entertainment and cloud computing that are going to offer some definite new revenue streams.
Target: $30, $32.50, and $40
PNRA - Panera is a great growth story that continues to get better. Panera is thriving in the casual dining arena with fellow Chipotle Mexican Grill (NYSE:CMG). Quick food that is good and good for you. The company is now moving into cities, which provides another strong revenue stream for the company and continues to build up their image. It has the potential for a lot more stores, and we believe the company is ready to move into new markets. We have a $170 PT on the company, and we see this stock as a growth story about to take off even further in 2012.
Target: $150, $170
SQM - Sociedad Quimica is one of our plays in international markets and emerging markets that we think will bounce back in 2012. SQM is based in Chile, a great emerging market. The company has a great economic moat as it owns a lot of natural resources in Chile that are not able to be mined or processed by other companies. The company will continue to grow at strong rates as Chile emerges, and we believe that the company has a lot of potential in 2012. We have an $84 target, which gives a lot of upside for the company. Further, SQM gives us a solid 1.85% dividend.
Target: $60, $65, and $84
TSL - Trina Solar Limited. We have to take a stab at solar in 2012. After getting absolutely murdered in 2011, there is likely one way for solar to go...up. Or, less likely, to 0. The best company in the industry is hands down Trina. It has great management, solid financials, and a cheap production process that gives it great profitability. The company has a lot of upside and was trading at $30 in the past 52 weeks. We believe that a 3.12 PE is about as bad as it gets, and we see a lot of possible upside in 2012 for Trina. We have a $13.50 PT, giving about 100% upside.
Target: $8, $9, and $13.50
TTWO - Take-Two Interactive is another of our speculation plays that we think has some definite bounce back in 2012. The company had an amazing 2010 with "NBA 2K11" and "Red Dead Redemption," but it dropped the ball in 2011 with "LA Noire" and the NBA lockout hurting its follow through on 2K12. Now, 2012 brings the next installment of its amazing "Grand Theft Auto" series. We believe that this game can put through $1B in sales given the type of success of blockbuster hits in video games, and it can be the biggest game in 2012. Look for TTWO retake $20 in 2012.
Target: $15.50, $17.00, and $20
VFC - Vanity Fair Co. is one of the best in apparel manufacturing with an all-star lineup and its knack for great acquisitions like Timberland (NYSE:TBL) in 2011. The company has Lee, Wrangler, Vans, Timberland, Lucy, and many other brands that work on many different fronts. We believe 2012 should continue to be a strong growth year for the company, and we believe as it works some more debt off from the balance sheet the company will continue to see its equity value continue to improve. The company should be moving to around $170 this year. Plus, the company offers a solid 2.1% yield. Growth stock for sure.
Target: $148, $162, and $170
WMT - Wal-Mart has great upside in 2012. We see a two-fold year for the company. On one front, we believe the company is taking steps to retake a lot of the lower income clients with layaway and lower prices. At the same time, we believe the company may see some of its margins drop this year. The issue, though, is that the company is attacking international markets very well, and it has its sights set on Brazil and India in 2012, which we believe will provide the company a lot of upside this year. We have a PT of $76 for the company and also will enjoy the 2.44% yield.
Target: $65.50, $70, and $76
AGG - While we do believe that the bond market has brought yields to levels that are hard to hold, we believe that having a bond ETF is a great way to hedge your portfolio and allow yourself access to the bond market without owning true bonds. One of the top bond ETFs is iShares Barclays Aggregate Bond Fund, which allows us a fixed-income fund. The fund mixes treasuries, corporate bonds, and mortgage-backed securities. It is a nice fund to hedge our equities and will perform well in nearly every market.
Target: $115, $120
USO: Oil is going to most likely continue to be a strong commodity in 2012, unfortunately. Oil has a $120 PT on most analyst desks, and with Middle East issues, rising demand, and continuing rebound of our economy, oil may benefit. Additionally, USO allows us to continue to hedge our positions.
Target: $42, $45
EWC - Canada is one of the most appealing markets of 2012. The Canadian market enjoys a lot of the same growth as the American market with less connection to Europe. Canada has been resilient over 2011, and we believe money flow will continue into Canada in 2012. It is one of the favorite markets of many analysts, and we see the strengths. The country has a lot of potential with its commodities, oil markets, shale markets, and tons of natural resources. We like its solid foundation, and think it has a lot of potential for safe money.
Target: $29, $32
VWO - Emerging markets may be the story in 2012. Europe...money does not want to go there. China...money does not want to go there right now. The USA is going to be strong. We like Canada. Money, additionally, may want to reenter Russia, India, Brazil, and other emerging markets that took a backseat in 2012. Our favorite EM fund is VWO operated by Vanguard. The fund holds a great portfolio of stocks in China, Brazil, Mexico, Russia, Taiwan, Korea, and more. We believe this fund should have a nice year and is a great hedge to our US equities.
Target: $41.50, $43
Cash Holdings - Finally, we want to keep a solid amount of the portfolio in cash. While the market continues to offer opportunities, there are still a lot of issues out there. We have a lot of qualms about Europe, China's "soft" landing, the oil markets, and overall problems with the economies of the world. Cash is king still in 2012. We have about 20% of the fund in cash still. We will be looking to deploy the cash as the opportunities present themselves, but until we see more strength in Europe, cash will remain an important part of our plan.