Five Likely Stock Winners Named in Midyear Review
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Okay, 2007 has been a humdinger for the stock market. So if you’re one of the nation’s roughly 78 million stock players, it’s that time again, midyear, to take stock of your stock portfolio. The reasons:
• To see what does and doesn’t make sense, price-wise, after this year’s gains in the major market averages.
• To deal with the unmistakable signs that both the economy and earnings growth are slowing.
• Because we’ve entered two of the worst back-to -back months of the year for stock prices — July and August — a period in which the Standard & Poor’s 500-stock index has averaged an annual 1.5% loss over the past 18 years).
One of the country’s more respected investment newsletters, the Dow Theory Forecasts of Hammond , Ind., has just wrapped up such a midyear review and has come up with its five best bets for the remainder of 2007.
The picks merit serious consideration because they’re all included on the newsletter’s “focus list,” which has far outpaced the general market with a reported gain of 309.1% since its inception in December 1944, compared with a 226.3% rise for the S&P 500 during the same period. As of a few days ago, the list has posted an increase of 11.9% so far this year, versus a 5.8% gain in the S&P 500.
With the near-term market environment likely to be dominated by concerns about the slowing of profit growth, the letter’s five midyear favorites center on companies that editor Richard Moroney says have the potential to beat Wall Street’s bottom-line expectations. Indicative of this, all five picks topped Street estimates in the most recent quarter and have seen their profit projections for this year and next year revised upward over the past three months.
Here’s a brief rundown from Dow Theory Forecasts of the five stocks, each of which the newsletter views as a market outperformer with the prospect of achieving 15% to 20% gains over the next 12 months.
• Garmin Ltd. ($80.00), a maker of devices that use global-positioning technology to pinpoint location and provide directions. In its March quarter, sales of its automobile devices more than doubled, while sales of its aviation devices jumped 26%. In May, the company said that recent demand has been so strong it is adding production capacity in Taiwan and may buy another plant. It also estimated a 20% sales increase for this year. Garmin is also adding more products at lower price points, which should fatten volume and increase market share. Consensus estimates project Garmin’s pershare will climb 21% this year and 12% next year. At 23 times its 2007 estimate, DTF figures the stock is reasonably valued relative to its growth potential.
• Accenture ($41.91), the world’s largest consulting firm and a player in outsourcing services with about 146,000 workers in 46 countries, is selling at 20 times its expected year-ahead earnings of $2.02 a share. The company, which is aggressively expanding in India and eastern Europe, attracts many global companies that outsource services with its English-speaking workforce. Consensus estimates project per-share earnings growth of 20% in fiscal 2007, which ends next month, and 13% in fiscal 2008. The stock currently trades at a discount to its five-year average forward price/earnings ratio of 27.
• L-3 Communications Corp. ($100.52), a manufacturer of secure and specialized systems for satellite, avionics, and marine communications, 80% of whose business is government-related, especially in the military sector. The company is expected to benefit from recent increases in the Defense Department’s supplemental budget for the wars in Iraq and Afghanistan, and from its growing sales to foreign governments. The trend toward modernizing existing aircraft and communications systems — rather than building new ones — also benefits L-3. Consensus estimates project per-share profit growth of 36% in 2007 and 12% in 2008.
• AMETEK Inc. ($42.08), a maker of electronic instruments and specialty motors for a variety of industrial markets. About 80% of its products are not widely available at competing firms. Expansion in several markets it serves — notably aerospace, power, and life sciences — should sustain decent earnings growth. The relocation of its manufacturing to less costly countries such as Mexico, China, and Brazil has led to much improved profit margins. Much of the company’s recent growth has come from 40 acquisitions over the past five years.
• Oceaneering International Inc. ($54.51), a maker of subsea systems to test potential offshore oil fields. Demand for sub-sea hardware remains high, supporting improvement in both sales and profit margins, and a 63% jump in the backlogs for the 12 months that ended in March. An expansion in manufacturing capacity for its sub-sea products and improved pricing on the vehicle fleet should drive double-digit profit growth over the next year. Consensus estimates call for a 23% profit gain in 2007 and an 18% rise in 2008.
