What a difference a month makes. Several weeks ago, I decided to give these seven stocks six months to make me rich, but now one month later, the seven stocks selected have been reduced to four - let's just say that "patience" has never been one of those qualities of strength that I possess when other options are presented. Here are my reasons why.
Apple (AAPL) - I've Sold
One of the dumbest things that I have done this year so far was selling Apple at $450 after its recent earnings announcement. Frankly, I don't think that I will ever forgive myself for this mistake. My reason was the expectation that it was going to retrace below $440 as it has been known to do in the past. But this time, clearly the stock had other plans. What I have come to realize is that I don't think I am quite yet equipped to handle a company such as Apple. Not suggesting that I am incapable of understanding it, but rather I need to appreciate more of its ability to defy what makes common sense. It has been able to create its own markets in ways that I have never seen before. Therefore when the stock made a 30 point jump after earnings, my immediate reaction was, "it can't get any better than this" - as I've said, it had other plans.
I continue to think that any price under $500 is still very cheap because the long term valuation suggests $650 and higher. All Apple needs to do is achieve roughly 12% to 15% annual revenue growth for the next couple of years, the company will be able to generate almost $180 billion in annual revenue. Just imagine what that means for a second. Assuming a declining ratio of free cash flow conversion, Apple could end 2015 with nearly $39 billion in free cash flow. Assuming 6% cash flow growth beyond that, a market-matching discount rate, and adding in the cash on the balance sheet, suggests a target of at least $650.
Sirius XM (SIRI) - I've Sold
I sold out of Sirius just prior to its most recent earnings announcement. I would not be honest if I did not say that the $2.18 resistance reality and the significant upward pressure played an important role in my decision to sell earlier this week ahead of earnings, which were also released on Thursday to very little fanfare.
The company reported a quarterly profit in line with expectations, as net subscriber additions jumped 65%, but revenue came in slightly below Street estimates. Sirius announced that Q4 net subscriber additions rose to 542,966 but this news was over one month old and baked into the current stock price. Included in the numbers were revenues of $784 million which were short of estimates of $785.5. Ti also recorded net income of $71 million, or 1 cent a share, compared with a net loss of $81 million, or 2 cents a share, a year ago.
I do plan on getting back in at some point. My targeted entry point (if I'm lucky) is between $2.00 and $2.10. And I will likely take a short position if it reaches $2.25 to $2.30. The reason is because the stock is now (I believe) fairly valued and whatever direction it goes past $2.15 it will likely return back to what I call my pivot point. This is even though long term I think it is going to $2.50. But there is also money to be made in the short term. Why leave it on the table?
Bank of America (BAC) - I've Held
Bank of America this afternoon just broke the $8 level. I recently said that the stock is likely heading to $10. However, that prediction was trumped this week when in a recent article noted BofA bull Dick Bove suggested that the troubled bank should be able to hit $30 - in four years. This immediately forced me to rethink my now seemingly conservative $10 target. In the article citing an interview by Mr. Bove, he was quoted as saying the following:
I think there's $3 in earnings power there and this stock can easily sell at 10 times earnings, once you recognize that the company is two companies: its Countrywide and its Bank of America and once you get Countrywide taken out of Bank of America, which is the lawsuits are paid, the bad loans are paid the foreclosures are done, all of a sudden Bank of America is there and Bank of America can earn three bucks.
I have to agree with this assessment and it seems as evident by Bank of America's performance year to date, the market is in agreement as well. However, reaching $30 is a bit of a tall task. The question is, do the fundamentals support that valuation?
Wal-Mart (WMT) - I've Held
Wal-Mart is one very interesting company. On some levels, I have never viewed it as an individual stock, but more as an ETF or even a mutual fund. You walk into any of its stores and you are likely to pick up any item from several other large publicly traded companies on Wall Street. While it has never been the growth story its online rival Amazon (AMZN) has become, Wal-Mart has always been a safe stock for any portfolio because though it will not impress you, it will not disappoint either.
Discretionary spending and consumer staples stocks yielded a respectable 4.4% and 10.5%, respectively, in 2011. I will concede that I would never "write home" about that performance, but it didn't generate many margin calls from my broker. I said recently that Wal-Mart stands to outperform the first couple of quarters if not for the year. The reason for this optimism has (in part) to do with the concern over rising oil prices - which if you have not noticed have already started.
Any time discretionary spending becomes a concern, it often bodes well for retailers that focus on consumer staples such as Wal-Mart. Remarkably the company continues to get overlooked when some of the best companies on the market are mentioned. This is even though its shares have returned nearly $7 in dividends. Wal-Mart is not likely to ever excite anyone with its growth again, but it continues to be a very reliable stock in any type of market.
Exxon Mobil (XOM) - I've Held
I'm mentioning Exxon here for a couple of reasons. First and foremost, in addition to producing the key energy driver that is oil and gas, the company is a cash producing behemoth. But with respect to building this well diversified portfolio, you can see that it is now anchored with Apple as the top two largest companies in the world according to market cap.
Though the company often gets overlooked for what appears to be routine success, there is a lot to like here and it often gets taken for granted. It has huge reserves and plenty of capital which often is an appealing quality to conservative investors. Not to mention that it has a well earned reputation - something that many of its competitors are working hard to rebuild.
Investors should keep in mind that Exxon Mobil is still a dominant player even among big oil companies. It has nearly three times the market cap of even the other oil giants, but it is hardly a lumbering, stumbling giant. The company is still in the mix of all phases of upstream and downstream operations, and its portfolio of exploration and production projects should make it able to continue to weather these lean times.
Boston Scientific (BSX) - I've Held
One of the best turnaround stories in the healthcare sector continues to be that of Boston Scientific. The company is one of the leading producers of medical devices that are used in a range of interventional medical specialties. Its main challenge centers on trying to secure better and decent footing in the drug-coated stent market vacated by Johnson & Johnson (JNJ). Many analysts became optimistic of the company when JNJ conceded the market, but Boston Scientific have been unable to prove that it can win in the market.
This is a bet that I am willing to place on a stock that is now trading at $5.30 and only percentages away from its 52-week low. The company needs to show that it can execute and reduce some expenses. That is not often an easy request for firms that rely heavily on R&D. Having said that, with the prospects of this sector as well as my willingness to wait it out, I am inclined to add at current levels.
Abbott Labs (ABT) - I've Sold
As great as a company Abbott continues to prove to be, my sell was merely a product of lack of additional capital. Said plainly, I just ran out of money. In a recent article, I talked about how I regretted not having invested in the healthcare sector during 2011. In 2012, that is going to change. The reality is healthcare appears to have grown at a faster rate than the economy and seems poised to continue to do so. I am inclined to look at adding Abbott Labs. This is odd for me because I typically do not buy stocks at 52-week highs, however I don't see any evidence that the stock is poised to slow its growth.
The company obtains a great portion of its profits from pharmaceuticals. Nevertheless, it is one with excellent long-term growth characteristics and compelling drivers for future growth. The company's new stent platform is capturing share from the rest of its peers and I believe many investors under appreciate the quality and growth potential of Abbott's diagnostics franchise. With a solid long-term record of cash flow growth, a good return on capital, no major patent issues and manageable debt, I believe dividend-seeking investors stand to benefit a great deal from the standpoint of excellent income and tremendous growth.