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The Top 9 Investments For 2013 January 15, 2013

Posted by Ishmael Chibvuri in Latest Articles!!!.

Everyone always wants to now what will be the best investments of each year. While tough to predict due to so many changing dynamics each year, we have identified nine stocks that we believe look very strong for the new year. We will break down our company’s Top Nine picks for 2013 with price targets and analysis.

Top Nine Investment Ideas

1. International Business Machines (IBM) –

2013 Price Target: $285

Potential Gain: 45-50%

Analysis: The company should have a very strong year after a flat 2012. The company should see cyclical strength with the upgrade of Power 7+ processors. Additionally, the flat growth in 2012 should allow for some very solid comparative rates. Additionally, the recent missteps of Dell (DELL) and Hewlett-Packard (HPQ) compared to the continued success of IBM show a strong, unique business model that can continue to thrive in changing market environments and spending trends. The company’s last major cycle of server shipments was in early 2010 with the Power 7 servers. The upgrade to the 7+ will increase a new spending cycle that we do not believe is appropriately priced into the stock. The company’s current PE sits at 13.5, which shows very strong value. We believe that IBM is ready for a strong year and is heavily undervalued. The company should see at least 15% growth in earnings in 2013, and it could be even higher based on the general market trends. With over 75% returns in the past five years, we believe IBM continues its strength in the new year.

2. Apple (AAPL)

2013 Price Target: $850

Potential Gain: 55-60%

Analysis: Everyone has their opinion on the direction of AAPL in the new year, but one thing to realize is even with its recent weakness, AAPL has made over 30% YTD, and it was up over 50% earlier this year. The knock on AAPL right now is that the company is losing its innovative edge and will not be able to maintain its strength with continued slight updates to its iPhone and iPad line. Eventually, the products will lose popularity if consumers believe that the company is limited in its innovative development. Yet, 2013 could be another big year for Apple. The company is widely expected to develop its Apple TV line into a stronger product line that will translate into strong revenue and very high margins. Apple TV will be the development of Apple’s own brand of TV, which will focus on bringing the application style of the iPhone and iPad to a television. The product would definitely allow the company to reinvent the TV in the same way it did the cellphone and drastically improve an already standing product line. Additionally, 2013 should be the launch of Apple Radio, which will rival Pandora/Spotify. The product line will help the company take its new iTunes into the social aspects of the tech world, which Apple has been unable to do with previous ventures like Ping. The financial aspects of Apple Radio seem to be limited as Pandora has struggled to become profitable, but we like the product as a add-on to the iPhone, iPad, and potential Apple TV to bring those products into social media products like Twitter and Facebook (FB). The stock, additionally, is trading at extremely cheap valuations despite strong growth. The company has a future PE at 9.5, which is very cheap. We tend to look at a 15 future PE or lower as a very strong level to buy for an investment. We believe that the stock will make a strong comeback with new products. The company would see a huge bounce back as well if the company can strike a deal with China Mobile to launch its iPhone. The company is missing out on a lot of market share there, but if the company can get a deal with the large Chinese mobile company, AAPL stock will have a ton of upside as well. Without China Mobile, the company is still very solid, but we foresee a deal happening this year, creating a lot of opportunity.

3. Starbucks (SBUX)

2013 Price Target: $72

Potential Gain: 30-35%

Analysis: SBUX has definitely regained its dominance in 2012 as a high-margin coffee producer, and we foresee another big year in 2013. One snag for the company appears to be its Verismo instant brewer. The company has received some negative reviews of the product and recently dropped prices drastically, but we still see a lot of upside for the company as the company will benefit from the high margins from the individual packet sales of coffee for the machine. 2013, though, will be the year for SBUX to ramp up stores in China and should start to see stronger returns in the country. The company has 700 stores, currently, in China, but it wants to double that number 2015. Starbucks should see around 200-250 new stores come online in 2013. We believe that the company’s growth in China will be a strong source of growth in revenue and earnings for the company. The China-Asia-Pacific region for SBUX saw 28% growth in net revenue in the latest quarter with same-store sales rising 10% year/year. We have not come to any concrete conclusion on the Teavana acquisition. We do believe the company’s earlier acquisition of Evolution Fresh will be a strong growth idea as it ventures into the Jamba Juice realm, and the company is obviously wanting to increase its tea exposure with its purchase of Teavana. We believe the company is setting up for another strong year and should see some of its 2012 plans and developments coming into fruition in 2013.

4. Panera Bread (PNRA)

2013 Price Target: $200

Potential Gain: 20-25%

Analysis: PNRA continues to deliver solid results with low-beta, and we believe it is set for a very nice 2013. The company was one of our top picks for 2012, returning just over 12%. We believe, however, that the stock should see an even better performance in 2013 as it continues to expand its international presence. PNRA’s value seems strong with a future PE at 22, but we believe this level effectively reflects the company’s strong growth model that is very consistent. The company has continued to grow sales by 9-14% each year over the past four years and should continue to be very strong again in 2013. With consistent growth like that, the future PE seems more fair valued. The company’s most appealing prospect is that the company has a ton of geographical expansion potential domestically and internationally. The company only has over 1600 stores currently but could expand to anywhere from 3500-4000 stores throughout the country. At a rate of about 200 new stores per year, the company has a lot of long-term potential for growth. For us, the company is a very attractive high-growth, low-risk play that should attract any investor looking to add growth stocks to its mix. PNRA would go a long way by introducing a dividend in 2013, but there is no signal that is on the way.

5. Monster Beverage (MNST)

2013 Price Target: $82

Potential Gain: 50-55%

Analysis: Its been a whirlwind year for MNST after solid growth years in 2010-2011. The company was hit by the FDA’s comments that linked Monster energy drinks to several deaths. Those comments were later dulled, but the comments brought some definite risk into the shares as it means that energy drinks have a definite dangerous black eye that will hurt sales/growth. At the same time, MNST is extremely cheap for such a high growth stock. The 22.5 future PE looks very cheap when looking at the potential for 15-16% growth in sales and 20% growth in earnings. MNST should start to see a lot of its movement into foreign markets start to pay off in 2013, and we believe the FDA situation has kept shares under pressure when it really should not be. The allegations were extremely limited in its findings and later retracted. Overall, though, the FDA debacle created an opportunity for a company with outstanding growth potential. In the past five years, MNST has grown its revenue 120%, but the company is nowhere near done. The company has tons of potential for international expansion as well as domestic expansion. The company is expanding into many new markets and is seeing very strong results in there new ventures. Here are some statistics from the company’s latest quarterly transcripts. The company saw sales in Mexico grow 46% year over year in Q3. Gross sales to all customers out of the U.S. grew by 19%, and net sales to Europe, Middle East, and Africa grew by 43%. The company has tons of potential to see larger growth in these areas as it has just entered many of the markets in the last couple years, and MNST is still entering new ones right now. MNST controls 37% of the energy drink market share right now, only trailing Red Bull, which has 42%. As we can see, the energy drink market is mostly a two-horse race, and the two lead horses are moving into international markets as well as increasing domestic sales. According to Nielsen ratings, Monster saw a 19.5% increase in sales from mid-July to mid-October, which was the largest increase of any energy drink company. 20% growth of sales is very strong for the beverage industry and strongly outpaces other public beverage companies.

6. Wal-Mart (WMT)

2013 Price Target: $95

Potential Gain: 35-40%

Analysis: WMT was one of our Top Picks for 2012, and we believe that it will continue to grow stronger in 2013. After a 17% gain in 2012, can WMT continue higher in the coming year? We believe that the driver for WMT will be another solid growth year in 2013 around 6% growth in sales and 10% growth in earnings. The company’s 12.7 future PE is very attractive to us. That level shows us a lot of value accompanied with a solid nearly 2.5% yield. The stock should start to make a nice move in the new year after what appeared to have been a successful holiday season. The company said that it had its best Black Friday ever, and WMT processed 22M customers on Thanksgiving Thursday. The company reintroduced its "layaway" business, which appears to have attracted a lot of buyers for the holiday season. Overall, though, we believe that 2012 was a great year for WMT as it got back on track with appealing to cost cutting. The company’s goal for the year was to cut its costs to bring back customers that may gave left for dollar stores. Many were fearful of margin compression this year, but the company has done the opposite. Walmart has increased operating income slightly year/year from 5.6% to 5.7%. Not a big gain, but in a year when the company wanted to focus on cost cutting, the company has shown its amazing efficiency as well as economic moat. With the company’s plan working well, we believe it will see strong growth and even further margin expansion in 2013. A lot of recent moves make us very excited for 2013. The company has restructured stores to be more appealing to its core customers, including moving its apparel division back to Arkansas from New York, which is a great move to additionally get back to its customer base. We believe this will help merchandising in the right way. WMT is not a fashion hot spot, and its good that the company not pretend to be one. Finally, the company is set to focus on its international expansion in 2013 in Canada, which we believe will allow them to see very solid growth past this year.

7. VF Corp. (VFC)

Price Target: $193

Potential Gain: 25-30%

Analysis: We believe that VFC is going to have a very strong Q4 holiday season for numerous reasons to help jump start 2013 after a strong 2012. The company grew over 20% this year, and we believe it can do it again next year. First off, the company is benefiting from a 16% decline in cotton prices in 2012, which will help margins expand for the coming quarter and in 2013. The company has seen 40 straight years of dividend increases, and with a yield now sitting at 2.3%, the company is looking very solid. The company’s strong dividend accompanies a strong growth stock. We see the company growing about 15% growth in earnings and 9% growth in sales. On top of that, VFC has great value. The company’s future PE is now below 14. Below 15 is a strong signal to buy, and with good growth and yield, the stock is very solid. VFC has nearly every aspect of a winning stock we are looking for, and we believe its current lineup is very solid and appealing. The company has Wrangler, North Face, Lee, and Vans, which are four lines that we find very appealing. We believe VFC is one of the safest picks we have for the year, and it could experience some very strong growth this year with margin expansion and another solid year of revenue/earnings growth.

8. Arctic Cat (ACAT)

Price Target: $55

Potential Gain: 55-60%

Analysis: ACAT is looking very solid right now and could be ripe for an extremely solid year in 2013. The key to ACAT is that the company is an amazing growth stock in a low-growth automotive industry. ACAT has experienced some recent weakness that we believe has no reasoning, and it should be bought on this weakness. The company has been looking very solid in channel checks and showing a lot of demand for its products despite weak snow fall. The company has been up and down throughout 2012. It was up over 30% at one point and now is flat for the year. It looks like 2013, though, will start to show some consistency for the company. We are expecting the company to see another 10% of growth in sales in 2013, and it will rebound in sales performance in the coming year. The company is very undervalued right now with a 10 future PE, which is very cheap. For a stock that is growing earnings 15-20% in 2013, the stock should have much more value in its price. The reason it does not is a mystery honestly. The warm weather during the winter has been a drag on the stock somewhat, but all in all, the growth is there for ACAT. We expect the market to start appropriately pricing the company very soon.

9. M/I Homes (MHO)

Price Target: $40

Potential Gain: 45-50%

Analysis: The housing boom of 2012 was amazing for housing stocks, and 2013 should likely be a flattening process for housing stocks. One stock, however, that we think can really make a move in 2013 from that industry is M/I Homes. MHO is looking very solid moving forward. We are anticipating around 150% increase in earnings in 2012 along with around 30% growth in revenue. The company is making a major comeback from losses, and we think that the stock could be ready to explode. The positive for MHO is that the last five years of residential construction have completely changed the industry. MHO has trimmed its balance sheet down significantly. Competition has dried up, and when the company’s sales start to really tick up, the margins will explode. So, can 2013 repeat 2012. We believe so especially for MHO. Its our favorite because of its geographical exposure. The company does the majority of their business in the Midwest (Ohio, Illinois, Indiana) and the Midatlantic (Virginia, North Carolina, Maryland), Florida and Texas. Right now, when we look at employment levels in states to population. The best states with largest population to unemployment rates are Texas, Virginia, and Ohio. The three best markets for homebuilders. Its no wonder why MHO has set up their core business in these three areas. Maryland is ranked 8th and the company’s worst market is North Carolina ranked 40th. We believe their lack of exposure to the heavily unemployed West Coast and Northeast is a major advantage. With secular growth in the housing market, the best employed areas will have the best results in 2013, and we see MHO having great advantage in that respect. The company’s value is not as drastic as it looks right now. The current PE is at 102, but the company’s future PE is 18.

Honorable Mentions:

Chipotle Mexican Grill (CMG), Harley-Davidson (HOG), Dollar General (DG), Dell, Constellation Brands (STZ)

Source: http://seekingalpha.com/article/1109351-the-top-9-investments-for-2013?source=email_investing_ideas&ifp=0


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