With the Greek crises reaching its solution for now, American stock markets are expected to get back to normality sooner rather than later. To make full use of the expected improvement of the stock markets, this article will analyze 5 key stocks that can outperform their peers as well as the general market. I chose these five stocks because of their strong growth potential and position as market leaders. I will discuss this in detail below:
Philip Morris International, Inc. (PM) is a U.S.-based tobacco giant that sells its products in the markets abroad. The stock is currently trading at around $80 per share and the company has a market capitalization of $139 billion. Its current earnings per share are at $4.84 with a dividend yield of 3.8%. Over the last decade, Philip Morris paid out a per-share dividend of $6.22 three times. It has been increasing dividends consecutively for the last four years with an average dividend growth rate for the last three years of 23.3%. Its payout ratio is 57% and the stock has a beta of 0.83. Phillip Morris International's 12-month trailing gross margins and ROI are 68.50% and 56.40% respectively. Earnings per share are expected to grow by 7.8% this fiscal year. I recommend buying this stock as I believe in its potential as a dividend stock. Its closest competitor is British American Tobacco plc (BTI) with a market capitalization of $97 billion, an earnings per share growth rate of 30.6%, and a quarterly revenue growth of only 1.90%, which is low compared with Philip Morris's 26.40%. Although Phillip Morris bears more risk because of its business outside the U.S., it offers greater rewards as well. With interest rates staying low and bonds generating low incomes, it seems like a good time to invest in a stock, which almost guarantees regular dividends.
Green Mountain Coffee Roasters, Inc. (GMCR) is one the leaders in the U.S. coffee business. The company has experienced huge growth in the last couple of years and its management sees this growth as being consistent in the long term. The stock price is currently in the middle of its 52-week range trading at around $63 with a target price of $85. Green Mountain Coffee's market capitalization is $9.73 billion with a five-year earnings per share growth rate of 76.58%, and a five-year sales growth rate of 60.19%. It pays no dividends and has a price-to-earnings ratio of 32.9 times, which I believe is justifiable for large companies with sales of more than $3 billion. Its forward price-to-earnings ratio is 24.15 times, and the five-year expected PEG ratio is 0.76. Green Mountain was ranked the second-fastest growing company byFortune. Its year-on-year quarterly revenue growth is a massive 101%. Its competitor, Peet's Coffee & Tea, Inc (PEET), has a market capitalization of $878.26 million with a quarterly revenue growth of only 13.70%, and a 12-month trailing earnings per share growth rate of negative 59.7%. The reason I recommend Green Mountain Coffee is that it is a high potential growth stock. Its price-to-earnings ratio is justified, while its margins and growth rates indicate high future earnings.
Starbucks Corporation (SBUX) operates in more than 50 countries. This premier brand roasts, markets and distributes specialty coffee. It operates more than 6,700 stores itself and has around another 8,000 licensed stores all over the world. Starbucks plans to invest heavily in the Chinese and Indian markets, thus ensuring that the growth it has enjoyed during the previous years continues. Starbucks has expanded into the beer and wine markets as well. Its stock is currently trading at around $49 with a target price of $54. The company's market capitalization is around $39 billion and has enjoyed a five-year sales growth rate of 6%. It has a dividend yield of 1.40% with a payout ratio of 34%. Starbuck's 12-month trailing gross margins are 57%. It has posted excellent results even in 2012 with revenue expanding by 16% in the first quarter. It is the market leader and still lives up to its originality, good coffee and environment. McDonald's Corp (MCD) is its nearest competitor with a market capitalization of $101.78 billion and a five-year sales growth rate of only 3.64%. McDonald's dividend yield is $2.80 with a price-to-earnings ratio of 18.87, whereas Starbucks price-to-earnings ratio is 29.2. I recommend investing in Starbucks.
Pier 1 Imports, Inc. (PIR) is a U.S.-based home furnishing importer. The stock has already crossed its target price and is hovering just below its 52-week high at about $17. Pier 1 is showing positive signs since the last couple of months. Its profit has risen by more than 10% and the December same-store sales increased by 10.3%. Its price-to-earnings ratio is 17.5 and it also offers a dividend yield of 2.38%. The company's 12-month trailing gross margin is an impressive 59.48%. Another important factor to note is that 12 hedge funds have invested in Pier 1 since January, which sends a very strong signal to us. It has positive cash flows and the company has been involved in the buyback of its own shares. Its biggest rival is Cost plus Inc (CPWM), which has a market capitalization of $322 million and a year-on-year quarterly revenue growth of 3.70%. This is low compared with Pier 1's 8.2% growth. Pier 1 is an attractive stock that is going in the right direction and I recommend it for investment.
Zipcar, Inc (ZIP) is an American membership-based car company that provides automobile reservations to its members. With its acquisition of Streetcar, the company is planning to kick start its expansion in Europe as well. The stock is currently trading at around $15 with a 52-week range between $31.50 and $12.04. Its target price is $28 and the company has a market capitalization of $602 million. The stock's beta is 0.38 indicating low volatility. J.PMorgan expects Zipcar's revenue growth to be around 24% next year. However, it is a small company that is not doing so well right now. Its margins are low, and it has negative earnings per share. The company's ROI and ROE are also negative as is its net profit margin. Hertz Global Holding, Inc. (HTZ) is one of the many competitors of Zipcar. It has a market capitalization of $6.12 billion, which makes it much bigger than Zipcar and a good alternative for investment in the car-sharing business. I recommend a neutral position as far as Zipcar is concerned. Although the stock has good upside potential, I do not see any signs from the financials that signal achieving that potential any time soon.