Best Names From Raymond James
Lots of brokerage "best-picks" lists aren't worth the pixels they're e-mailed on. But I eagerly await the new Raymond James list every year. Why? Because its record is so good. Last year, Raymond James's best picks beat the SP 500 by 17 percentage points.
Over the past ten years, the list has returned an annualized 42%. That's an average of 30 percentage points per year better than the SP. That's beyond fabulous.
In truth, the picks aren't that good. Here's why: Raymond James reports that the 2005 picks surged, on average, 5% in the first five minutes of trading after they were announced. That accounted for nearly one quarter of the list's total appreciation last year.
To the brokerage firm's credit, it reports the returns of its list both from the moment the list first released in mid December, as well as by calendar year -- that is, January 1 through December 31. Over the years, roughly one quarter of the list's performance occurred in the last two weeks of December. But even on a calendar-year basis, James's recommendations have still returned an annualized 32%, has beaten the SP every year and has never lost more than 5%.
My advice: Take a look at the stocks and do your own research before buying. Be particularly suspicious of any stocks that have already risen dramatically. I note the ones that have done so below.
The list, chosen by veteran analysts, is limited to relatively liquid stocks. Only one stock per industry is selected.
The list, alphabetically
Amdocs (DOX) is a leading supplier of billing, software and other services for the telecom industry. Analyst Mike Lattimore sees more change and mergers in this industry and says Amdocs is the company best equipped to provide needed services to telecom firms. The stock trades at 16 times his 2006 earnings estimate of $1.67 per share. Historically, it has sold at a P/E of 20. The stock, recently $32, is up $6 since it was recommended.
Briggs Stratton (BGG) produces air-cooled gasoline engines used in everything from lawn mowers to construction equipment. Analyst Sam Darkatsh says the company recently pushed through a 4.5% price increase without experiencing a decline in sales volume because of its "dominant competitive position." The stock, at $34, trades at 11 times his $3.18 per share earnings estimate for this year.
Chesapeake Energy Corp. (CHK) is a natural-gas exploration and production company. It's the second-largest independent gas producer in the U.S. The company boasts first-rate management, economies of scale and is growing through discovery and acquisitions, says analyst Wayne Andrews, who is bullish on natural gas. At $34, the stock trades at nine times his 2006 earnings estimate of $3.54 per share.
Chubb Corp. (CB) is one the three largest insurance underwriters in the U.S. Analyst Gregory Peters likes the firm's AA financial rating from SP and expects rising prices in some lines this year. At $97, the stock trades at 11 times his 2006 earnings estimate of $9.05 per share.
Dell (DELL), the world's largest computer maker, saw its price fall from the low $40s to below $30 as its competitors gained strength last year. Analyst Brian Alexander thinks the selling has been overdone. The company boasts an incredible 70%-plus return on equity. The stock, at $30, trades at 20 times his $1.55 per share earnings estimate for 2006. He thinks revenue growth will be in double digits the next two years -- about twice that of the industry.
LifePoint Hospitals (LPNT) has a terrific strategy. Rather than buying hospitals in big cities where there's tons of competition, LifePoint acquires hospitals in smaller towns far from quality medical care. Then it lures specialists who can offer care to residents of small towns and farming areas who previously had to travel to cities for some medical services. Analyst John Ransom expects LifePoint earn $2.80 per share this year. With the stock at $31, the P/E is 11. The shares fell late last year after the company reported weak results -- and, indeed, has fallen more since Ransom recommended the stock.
Nabors Industries (NBR) is one of the largest drilling contractors for land-based oil and gas projects. With increasing demand for oil and gas, prices for rigs are rising rapidly, and Nabors is a beneficiary, says analyst Marshall Adkins. He thinks earnings will surge to $5.65 per share this year, making the stock's P/E 14 based on its recent price of $80. Nabors has risen $4 since Adkins recommended it, but not because it's on the Raymond James list. Instead, it has soared along with other energy-service stocks.
Republic Services (RSG) is the third-largest provider of garbage services in the U.S. It's growing rapidly, partly because of its focus on the growing Sunbelt. Analyst William Fisher expects higher pricing and better profit margins this year as new landfills come on line. The stock, at $37, trades at 19 times his 2006 earnings estimate of $1.91 per share.
Ryanair Holdings (RYAAY) is the lowest-cost airline in Europe. It's also Europe's most profitable airline, with an estimated after-tax profit margin of 18% in fiscal 2006, according to analyst James Parker. He predicts that the company will earn $2.60 per American Depositary Receipt this fiscal year. The ADR trades at about 20 times that estimate. It has risen $4, to $54, since being recommended.
U.S. Bancorp (USB), the nation's sixth-largest bank, is undervalued given its growth prospects, says analyst Brad Vander Ploeg. At $29, it trades at just 12 times his 2006 earnings estimate of $2.60 per share -- making it cheaper than many of its peers.
Opinions expressed in this column are those of the author.