Three Stock Picks for 2008

Below are three stock picks for 2008:

1. Buffalo Wild Wings (BWLD)

Buffalo Wild Wings is a restaurant chain that currently has 489 restaurants in 37 states. Like many other restaurants over the past few months, BWLD has been hammered from the $30s down to $23 yesterday. Analysts feel the company's growth is slowing and that the company won't meet growth expectations (management is targeting 25% earnings growth, 20% sales growth, and 15% unit growth over the long-term). It certainly is possible that growth will slow in the near future for whatever reason, but BWLD is well fit and will be able to handle any slowdown that may come. Currently the company has $72.01 million in cash with only $12.19 million in debt; and the business is producing more cash flow than ever before. Same-store sales continue to be in the upper single digits, earnings growth is 20%+ every quarter, unit expansion is for the most part going as planned. So far I see no indication that BWLD is struggling against something management can't handle. BWLD has a dedicated management team that understands the industry, the financials are strong and improving every quarter, and new restaurants continue to open at a very respectable pace.

There certainly are plenty of risks for BWLD; if the economy really does slowdown like some have been worrying about, it will take a toll on the company. BWLD's growth could very well slow and miss the expectations of management. However, I simply do not see this coming, and I think eventually the market will realize that nothing with the business has changed to justify such a huge and sudden drop in share price. I believe that sometime in the course of 2008 the stock will turnaround and reach closer to $40 by the end of year. Nothing has changed dramatically for the business, management remains committed, and the financials are more than intact.

2. Hansen Natural (HANS)

I'm sure a good portion of you have heard about this company, but for those of you who haven't, Hansen is a beverage business and sells beverages in three categories - energy drinks, juice, and carbonated beverages. The company's top product is Monster, an energy drink that seems to day in and day out grab market share from the energy drink leader Red Bull. Energy drinks are the fastest growing category in the beverage market, and Monster is the second largest in terms of market share in the category, behind Red Bull. I find Hansen extremely attractive at these prices because the upside for Monster continues to grow big time.

In February 2007, Hansen announced two major distribution deals. First, they were able to grab Anheuser-Busch (BUD) to manage Hansen's distribution in the U.S. Because A-B is such a big presence in the beverage world, this means Hansen will get more shelf space, better shelf space, and in more stores. The distribution agreement will come into full effect in 2008 and should be a major revenue booster for Hansen. But it gets even better. Hansen's international presence has been next to nothing. In 2006 they started to get some exposure in Mexico, but that was it. But, just days after the agreement with Anheuser-Busch, Hansen announced a similar agreement with PepsiCo (PEP) Canada to manage energy drink distribution in Canada. So, in a matter of days, Hansen got two of the world's beverage powerhouses to manage the distribution of its hottest products. Seems like a pretty good deal to me!

I believe these distribution deals will not only boost revenue and earnings growth tremendously, but it will also push Monster into the number one spot ahead of Red Bull. Red Bull was already losing market share as fast as Monster was gaining it, and that was with Hansen's relatively poor presence on the shelves. The Hansen that was once armed with a small knife is now armed with two mighty machine guns.

But wait, there's more! Hansen has become a cash monster. I mean that. No, seriously. Over the past year, Hansen has added over $100 million in cash to its balance sheet and now has a monster $255.44 million in cash with less than $1 million in debt. Not only that, but cash flow production is at an all-time high for the company. With all this cash, I'm sure we'll be seeing a lot of new products developed and possibly an acquisition or two. Actually, management has already been putting a lot into research and product development, some new products will be released early 2008. Speaking of management teams, Hansen's management team is absolutely, downright, no-questions-asked, superb. Chairman and CEO Rodney Sacks has been with the company since 1991 and is very dedicated to the company and connected with shareholders. He also owns a nice little portion of the company with 4,291,224 shares. Sacks' great leadership is obviously critical to the company and will be key going forward. Management is putting a lot of resources into expanding the Monster brand (a very smart move in my opinion - expand the brand that people already know and love), which has so far paid off very nicely. Basically, I feel management has its head screwed on right and I've never felt more comfortable with someone leading a business.

A bonus is Hansen has been whacked by the market because analysts are afraid the company could miss near-term estimates. Oh boy, hang onto your hats! The truth is that Hansen's growth is stronger than ever and is poised to spring up even more with the two distribution deals signed in 2007. International expansion has just gotten started and presents a huge opportunity for the company. With an excellent business at what I believe is a very low price, I believe we'll see gains of more than 50% this year with Hansen.

3. Tata Motors (TTM)

Tata Motors manufactures and sells vehicles in India in five different categories - Passenger cars, trucks, military vehicles, commercial vehicles (buses), and SUV-type vehicles. The company was founded in 1945 and is also starting to expand to countries outside of India. I've been a fan of Tata Motors for a couple years now, yet the business and the stock just can't seem to get any momentum. Things were starting to look good early last year until high interest rates took a toll on new vehicle sales. There's a good chance that this year may hold the same fate, but I see some new developments that could boost the stock in the coming year, so I'll go ahead and submit it.

There are two vehicles that Tata is scheduled to release this year that should make somewhat of a splash. You may have heard about the "Air Car" that is coming out this year - Tata Motors is the company behind it (or at least the one making the cars). This will be the world's first air car (compressed air), and it has some pretty nice features. I'm not expecting this vehicle to give the company much of a boost in earnings anytime soon (I have my doubts if third-world India will be able to afford such a car), but it should give the company a lot of press and should boost the company long-term. I believe it would also boost the stock this year.

The second vehicle is actually the world's cheapest car. It's just a small passenger car and will cost 100,000 rupees (approximately $2500). This car should do very well in third-world India. There are more and more people starting to transition into the middle class and this will be a vehicle they can afford. As India transitions to a middle class nation, this $2500 vehicle will probably be a big hit for those families who are making that transition. Again, the immediate impact this vehicle will have on Tata's earnings is anyone's guess, but I think it will boost the stock in 2008 and should really boost the business over the next few years.

There are a lot of other developments that will be important to watch. Tata won the bid for Ford's (F) Jaguar and Land Rover brands, and will pay somewhere around $2 billion. What plans the company has for these brands remains to be seen; I'll admit that I know very little about this deal at this point (I don't think too many details have been released publicly yet). What I like is that Tata's management continues to look for ways to appeal to a rising middle class in India. Management's efforts and continued innovation (the first air car and world's cheapest car released in the same year by the same company? And by an Indian company, no less?) should really pay off. I'm betting that the stock has a lot of upside this year.

Here's my mediocre Tata Motors video pitch for more information.

Disclosure: Author holds positions in the above-mentioned securities

Comments

[kkin365]

I have not dealt with any of the three stocks mentioned. Intuitively, casual dining will be tough in 2008. Fancy soft drinks; no thanks? Tata will have its hands full with Jaguar (we have one, and know that Ford struggled with restoring the car's reputation over the years). We'll check back at year-end.

[RobertNabloid]

Long term I think TATA will do very well. Soooo many people are paying attention to China and forget India... India is democratic and has a large English speaking population that are getting educated in Software Programming (and other Technology related fields), Law (U.S. law!), Accounting and Medicine (doctors).