Investors are looking for strong companies to help make money during these turbulent market conditions. Some companies are growing fast despite the economic downturn, while others are struggling to get by. In the following article, I will discuss five companies that are poised to pop this year, and a few that may have already popped and should be watched for a pullback or other growth catalyst before jumping in. These five companies are all linked together by one common theme: they are capitalizing on the poor economic conditions around them.
Priceline.com (PCLN): Shares traded around $540 at the time of this writing. This is just off of its 52 week high of $561.88 and well above their 52 week low of $411.26. Priceline has grown its international operations to what directors call "significant contributors to results" in the latest 10-Q. Those same directors acknowledge though that recent offerings by Living Social, Groupon (GRPN), Expedia (EXPE), Travelocity, etc… are a potential threat to Priceline's business and could erode at its sales. The 10-Q also talks about how Priceline needs to continue to develop new products to stay ahead of its competition.
In addition to that, directors also stressed the need to continue to focus on growing international brands to help keep competition out of those markets. Revenue growth this year should come in around 35%-40% compared to last year. For next year however, as competition continues to increase, I think growth will slow to around 15%. I think shares could see $650.00 per share by the end of 2013.
Intuitive Surgical Inc. (ISRG): Shares traded around $492 at the time of this writing; just off their 52 week high of $495.53 and well above their 52 week low of $315.01. Intuitive is the leader in surgical robotics. It has double revenues over the last three years, carries over $2 billion in cash and no long term debt. As robots become the standard for surgery hospitals will have to continue to add these machines. In addition, with the aging population, medical procedures will increase and again, cause an increase in demand for Intuitive's da Vinci machines.
In its most recent fourth quarter earnings release, Intuitive said revenues for this quarter were up 28% compared to the same quarter last year. EPS for the year were up almost $3 over last year. Unfortunately Intuitive bought back shares instead of starting a dividend, but that shows they are generating sufficient cash flow even while funding research and development efforts. I look for EPS for the end of 2012 to be in the $17 range, or a $5 increase because of increased growth and demand for surgical robotics equipment.
Alleghany Corp (Y): Shares traded around $306 at the time of this writing. This is right in the middle of its 52 week high of $340.91 and 52 week low of $277.03. Alleghany was just approved by Transatlantic (TRH) shareholders to acquire that company. I think prior to this Alleghany had a promising year ahead of it. Now however, I feel Alleghany is over paying for Transatlantic mostly due in part to the large loss that Transatlantic just posted.
In addition, Alleghany posted a sizeable loss because of the extreme weather in the south and Midwest, mainly in relation to tornados. With both these companies posting a loss, and add to that the costs of acquisition, I think that Alleghany will drop or stay flat. However, after the companies merge and start to see some synergies I think it will be poised to grow and grow fast. But, that is something I don't think we'll see the start of until near the end of 2013. Do watch this stock though, it should dip quite a bit and should be a good buy in 6-12 months.
Autozone Inc (AZO): Shares traded around $350 at the time of this writing. This is just off their 52 week high of $351.93 and well above their 52 week low of $247.36. According to its most recent 10-Q Autozone has only about $100 million in cash but $3.5 billion in debt. Same store sales were encouraging with 4.6% growth for the quarter and net sales up 7.4%. Autozone notes two items that it feels have the closest correlation to its growth: miles drive, and vehicles over 7 years old on the road. Because of the economy people are keeping their vehicles longer, but with increasing gas prices people are driving less. I wonder if this won't hurt that correlation or add to the vehicle age.
Regardless, I think people have been putting off repairs hoping for economic improvement, but since that's taking so long, people will have to bite the bullet and make those repairs. I think the increasing use of social media; YouTube for instance, is helping people save money on minor car repairs. A person could watch a video of how to change their vehicle's oil, go buy the parts, and save some money versus going to a service station. Since people are working less and need to save money, they have time to do some things on their own. I think this should help Autozone. I think Autozone could see $400 in the next twelve months. It needs to focus on recruiting people that want to be do it yourselfers to save money, and it needs to work on operating efficiencies to cut costs.
Chipotle Mexican Grill Inc (CMG): Shares traded around $374 at the time of this writing; this is just pennies off their 52 week high of $375.23, and well above their 52 week low of $234.48. According to end of year results, Chipotle has nearly $400 million in cash and no long term debt on the books. Comparable sales were up 11.2%, net income increased 20% and revenue increased 23.6%. Unfortunately restaurant level operating margin was down to 26% and food costs increased as well. Chipotle opened 150 new stores as well. Chipotle also announced a smaller footprint store so that it can expand and spend less on initial build-out and opening of new locations. This should help improve the time it takes new stores to become profitable.
In addition, international expansion just began. This should help shield Chipotle from a big squeeze in any one market, once it gets new stores up and running in those other markets. I have been in several locations lately and eaten, and like their improvements from a few years ago. Management expects only mid-single digit comparable sales growth for 2012. I think as things continue to slowly improve that comparable sales growth will come in around the low double digit range. I think shares could see $450 over the next 12 months as Chipotle continues to expand into new markets and improve sales at existing locations.