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Slide Show | December 2012

23 Stock Picks for 2013

Despite a rally that has seen the market more than double from its bear-market low in 2009, stocks still represent good value. Stocks in most major sectors are trading below their long-term average price-earnings ratios. At the same time, companies are sporting profit margins and cash levels above their historical norms. Cash-rich companies that can manufacture growth in a tepid economy will deliver the goods to shareholders.

Here are 23 stock picks for you to consider in 2013, culled from Kiplinger's investing editors and columnists James K. Glassman and Andrew Feinberg. (Analyst estimates are provided by Thomson Reuters)

James K. Glassman is executive director of the George W. Bush Institute and the author of The 4% Solution, a book on the economy. He owns none of the stocks mentioned as his picks.

Andrew Feinberg manages New York-based hedge fund CJA Partners.


23 Stock Picks for 2013

1. Coach

52-Week High: $79.70

52-Week Low: $48.24

Annual Revenue: $4.9 billion

Projected 2013 Earnings Growth: 14.7%

From Kiplinger: Shares of the luxury handbag maker Coach (symbol: COH) fell 7% in 2012, mainly because of sluggish sales in North America. But skittish investors overlooked Coach's overseas business. In the July–September quarter, foreign sales rose 15% from the same period in 2011, driven by nearly 40% growth in China. Coach pulls in average sales of $2,500 per square foot per year from its more than 800 stores worldwide, 25% more than rival Tiffany. Coach has significantly raised its dividends every year since 2009; its stock yields 2.1%.

1. Coach

2. Covidien

52-Week High: $60.81

52-Week Low: $41.69

Annual Revenue: $11.9 billion

Projected 2013 Earnings Growth: 10.0%

From Kiplinger: A global leader in medical devices, supplies and drugs, Covidien (symbol: COV) isn’t resting easy. The company, based in Ireland, expects to launch 100 new products through 2014. And it will continue to increase its research-and-development budget at a double-digit pace. Another goal: capitalize on emerging markets, where annual sales are growing rapidly. Analysts see Covidien’s plan to spin off its drug business as a positive, allowing the company to focus on its faster-growing and more-profitable devices business. The stock sells for 13 times estimated 2013 profits and yields 1.8%.

2. Covidien

3. John B. Sanfilippo & Sons

52-Week High: $19.67

52-Week Low: $7.16

Annual Revenue: $721 million

Projected 2013 Earnings Growth: 5.4%

From Kiplinger: One bag of nuts is like any other, right? Not at John B. Sanfilippo & Sons (symbol: JBSS). The Elgin, Ill., nut processor has done much to make its brands -- Fisher and Orchard Valley Harvest -- stand out. Small innovations, such as the use of resealable bags, are just a start. The firm launches new products every year -- such as vanilla-flavored almonds in 2012. Adam Strauss, co-manager of Appleseed Fund, expects a 44% bump in 2013 profits from 2012. The stock, which has a market value of just $184 million, sells for 11 times estimated 2013 earnings.

3. John B. Sanfilippo & Sons

4. Qualcomm

52-Week High: $68.87

52-Week Low: $51.76

Annual Revenue: $19.1 billion

Projected 2013 Earnings Growth: 10.2%

From Kiplinger: When anyone buys a smart phone, chances are the coffers at Qualcomm (symbol: QCOM) go ka-ching. That's because the San Diego firm created the 3G technology used in many of those devices. Qualcomm is also a leader in 4G technologies. It makes money selling the chips that drive many high-speed wireless phones and tablets. It also collects royalties from device makers that use its technology. The stock sells for 15 times estimated profits for the current fiscal year -- not expensive for a company that analysts think can generate 14% annual earnings growth over the next few years.

4. Qualcomm

5. TRW Automotive

52-Week High: $51.22

52-Week Low: $28.85

Annual Revenue: $16.4 billion

Projected 2013 Earnings Growth: 9.1%

From Kiplinger: With auto sales reviving, things are looking up at TRW Automotive (symbol: TRW). The Livonia, Mich., firm is a leading supplier of safety systems to carmakers worldwide -- think seat belts, airbags, and braking and driver-assist systems. Over the past five years, TRW has cut long-term debt by 55%. It now has $1.2 billion in cash on its books -- 62% more than in 2008. And in 2012, it initiated a $1 billion share-buyback program. TRW expects revenues from China and South America to grow 10% a year through 2014, offsetting flat sales in Europe. The stock sells for 8 times estimated 2013 profits.

5. TRW Automotive

Toll Brothers

52-Week High: $37.08

52-Week Low: $18.95

Annual Revenue: $1.7 billion

Projected 2013 Earnings Growth: 61.2%

From Kiplinger: Housing has turned the corner, and that’s pushed up homebuilder stocks. Shares of Toll Brothers (symbol: TOL), which bills itself as the nation's biggest builder of luxury homes, rose 62% in 2012, and the Horsham, Pa., company has plenty of momentum going into the new year. Toll Brothers recently reported that the backlog of homes under construction had climbed 59% from the year before. The company is diversified. Single-family homes account for 53% of sales; high-rises, senior communities and multifamily homes make up the rest. Analysts see profits rising 65% in the current fiscal year.

Toll Brothers

7. VMware

52-Week High: $118.79

52-Week Low: $74.69

Annual Revenue: $4.4 billion

Projected 2013 Earnings Growth: 14.9%

From Kiplinger: Cloud computing is hot. Analysts expect the market for Internet-based data storage and networking to grow 19% a year through 2020. That's where VMware (symbol: VMW) comes in. The Palo Alto, Cal., company creates software that builds and manages cloud-computing systems so that companies can work more efficiently. The stock, at 28 times estimated 2013 earnings, isn't cheap. But VMware's sales and profits have grown 23% and 25% a year, respectively, since 2007, and analysts see similar earnings growth over the next few years. Data-storage giant EMC owns 80% of VMware.

7. VMware

8. Wells Fargo

52-Week High: $36.60

52-Week Low: $25.18

Annual Revenue: $77.3 billion

Projected 2013 Earnings Growth: 8.4%

From Kiplinger: San Francisco–based Wells Fargo (symbol: WFC) is one of the country's biggest banks, with more than 11,000 branches in 39 states. It makes more loans to home buyers and small-business owners than any other U.S. bank. And it's one of the most profitable banks, with a net profit margin of 18.1% -- better than that of most of its peers. That means that even in a slow-moving economy, the bank should hold up well. Wells, which reported record earnings in the second quarter, raised its dividend in 2011 and 2012. The stock yields 2.7% and trades at 9 times expected 2013 earnings.

8. Wells Fargo

9. Cenveo

52-Week High: $5.25

52-Week Low: $1.26

Annual Revenue: $1.8 billion

Projected 2013 Earnings Growth: 50%

From James K. Glassman: Cenveo (symbol: CVO) is a printing company with a $2 share price and a price-earnings ratio, based on estimated 2013 earnings, of just 4. It's the choice of Daniel Abramowitz, with Hillson Financial Management in Rockville, Md. Cenveo has a lot of debt, and the stock is speculative, he notes: "But the downside at these levels is limited, and the upside is pretty substantial."

9. Cenveo

10. Comcast

52-Week High: $37.96

52-Week Low: $22.37

Annual Revenue: $61.7 billion

Projected 2013 Earnings Growth: 13.8%

From James K. Glassman: Comcast (symbol: CMCSA) is the nation's biggest cable operator and the owner of NBCUniversal and its TV, movie and theme-park businesses. As the number of broadband Internet subscribers increases, Comcast is emerging as one of the most adept players on the changing telecom scene. Earnings are expected to rise 14% in 2013; for that kind of growth, the stock’s P/E of 17 is modest.

10. Comcast

11. Stryker

52-Week High: $57.15

52-Week Low: $45.61

Annual Revenue: $8.5 billion

Projected 2013 Earnings Growth: 6.2%

From James K. Glassman: Stryker (symbol: SYK) is a large, skillfully managed maker of medical devices, including hip and knee implants. Currently trading at 13 times projected 2013 earnings, Stryker is one of those companies you can stash in your IRA for a few decades and profit from as the world ages.

11. Stryker

12. New Oriental Education & Technology Group

52-Week High: $29.19

52-Week Low: $9.41

Annual Revenue: $841 million

Projected 2013 Earnings Growth: 30.4%

From James K. Glassman: New Oriental Education & Technology Group (symbol: EDU), which I recommended for 2010, gained a lovely 48% over the following 12 months. For the past year, however, New Oriental -- which dominates the market for private educational services in China (55 schools and 726 learning centers) -- has taken a dive, as have many Chinese stocks. It's now close to its early-2010 price, even though revenues have doubled.

12. New Oriental Education & Technology Group

13. Kimberly-Clark

52-Week High: $88.25

52-Week Low: $69.44

Annual Revenue: $20.9 billion

Projected 2013 Earnings Growth: 6.9%

From James K. Glassman: When it comes to ratings from the Value Line Investment Survey, my financial bible, you can't do better than a stock that's rated "1" for timeliness, "1" for safety and "A++" for financial strength. Kimberly-Clark (symbol: KMB), maker of Kleenex, Huggies and other consumer products, is one of the few stocks that rings every bell. It yields 3.4%, trades at a reasonable 15 times estimated 2013 earnings and is much less volatile than the overall market. Plus, Value Line's analysts expect earnings to rise 16% in 2013. Who says you can't have it all?

13. Kimberly-Clark

14. U.S. Bancorp

52-Week High: $35.46

52-Week Low: $25.43

Annual Revenue: $17.2 billion

Projected 2013 Earnings Growth: 7.3%

From James K. Glassman: The venerable investment firm Brown Brothers Harriman, which has catered to wealthy families since 1818, has launched some excellent mutual funds in recent years. The managers of BBH Core Select look for stocks that sell for a "meaningful discount" from their judgment of a firm’s intrinsic, or true, value, thus providing what financial scholar Benjamin Graham called a "margin of safety." A prime holding for the past eight years has been Minneapolis-based U.S. Bancorp (symbol: USB), one of the best-run banks in the world. Its stock has risen 35% in the past year, but the P/E is still reasonable at 10, and the 2.5% dividend yield gives you more income than a ten-year Treasury bond. (For more on BBH Core Select, a former member of the Kiplinger 25, see Mairs & Power Growth: A Worthy Substitute for BBH Core Select.)

14. U.S. Bancorp

15. Dell

52-Week High: $18.36

52-Week Low: $8.69

Annual Revenue: $58.7 billion

Projected 2013 Earnings Growth: -2.3%

From James K. Glassman: Money manager James Roumell gained fame with his victories in the Wall Street Journal's late, lamented, dartboard-versus-stock-pickers contests. Two years ago, he launched a mutual fund, Roumell Opportunistic Value. He is a regular on this list, and he’s got a real contrarian choice: Dell (symbol: DELL). These are tough times for makers of personal computers but, in a letter to his investors, Roumell notes that Dell today derives two-thirds of its earnings from software, servers and services. And the stock is cheap! It has lost half of its value in eight months and trades at just 6 times estimated earnings for the year that ends in January 2014. Writes Roumell: "We are exercising our greed gene while others are locked in fear."

15. Dell

16. Tangoe

52-Week High: $23.05

52-Week Low: $11.99

Annual Revenue: $140 million

Projected 2013 Earnings Growth: 33.3%

From James K. Glassman Terry Tillman, who analyzes software stocks for the Raymond James investment firm, chose SuccessFactors for 2012. Now he's enthusiastic about Tangoe (symbol: TNGO), which makes software that helps manage the telecom services that large and midsize companies use. Revenues in the July–September quarter were up 39% from the same period in 2011. When you consider Tangoe's fast growth, its P/E of 20, based on 2013 earnings estimates, seems attractive. But I'm mainly drawn by the firm's similarity to SuccessFactors. Two in a row?

16. Tangoe

17. Reed Elsevier

52-Week High: $42.21

52-Week Low: $28.66

Annual Revenue: $9.6 billion

Projected 2013 Earnings Growth: 2.8%

From James K. Glassman Among funds that invest in large foreign stocks with a blend of growth and value attributes, Artisan International Value has delivered the best return over the past ten years -- an amazing 14.3% annualized, according to Morningstar. Near the top of its portfolio is Reed Elsevier (symbol: RUK), a London-based firm that offers professional information services, including scientific journals and the LexisNexis legal database. Getting my attention are a sterling balance sheet, a P/E of 13, a dividend yield of 1.8% and a business with a broad moat -- in this case, brand names that deter inroads by competitors.

17. Reed Elsevier

18. Ford Motor Company

52-Week High: $13.05

52-Week Low: $8.82

Annual Revenue: $135.6 billion

Projected 2013 Earnings Growth: 9.0%

From James K. Glassman Two years ago, I started a new tradition: picking a stock myself. In both years, it was iShares MSCI Brazil Index, an exchange-traded fund that tracks the Brazilian stock market. It bombed twice, and I am not going to that well again. I’m picking Ford Motor (symbol: F), whose heroic CEO, Alan Mulally, turned down bailout money and guided the business through tough times to 13 straight quarters of pretax profitability, including surprisingly strong earnings of $1.6 billion in the third quarter of 2012. Ford still has room to grow. Despite the firm's achievements, the stock has dropped 40% since early 2011, and the P/E is 8. The P/E is low because investors apparently don't believe that Ford can sustain those high profits. I think they're wrong and believe that Ford deserves a higher valuation.

18. Ford Motor Company

19. Ocwen Financial

52-Week High: $39.83

52-Week Low: $13.12

Annual Revenue: $765 million

Projected 2013 Earnings Growth: 212.5%

From Andrew Feinberg: Ocwen Financial (symbol: OCN) soared 142% in 2012, but it still has room to grow. Ocwen services mortgages, so it's partly a play on a resurgent housing market. In October, the company announced two deals -- one for the loan-servicing business of Residential Capital and the other for Homeward Residential, a mortgage servicer and originator. Analysts see Ocwen earning $4.50 per share in 2013, but I think profits will be much higher.

19. Ocwen Financial

20. Fortress Investment Group

52-Week High: $4.83

52-Week Low: $2.86

Annual Revenue: $648 million

Projected 2013 Earnings Growth: 36.4%

From Andrew Feinberg: Fortress Investment Group (symbol: FIG) is a New York City firm that manages hedge funds, private-equity funds and other accounts. Its stock traded as high as $34 in 2007, before plunging toward the abyss. Fortress’s funds have been performing well, and the firm is raking in billions of dollars in new money. In addition, because many formerly laggard funds have rebounded, Fortress is in a position to start collecting more in performance-incentive fees. If you subtract the cash and investments on Fortress's balance sheet from its market value, the stock trades at just 7 times estimated 2013 profits.

20. Fortress Investment Group

21. Brookfield Residential Properties

52-Week High: $18.90

52-Week Low: $7.11

Annual Revenue: $990 million

Projected 2013 Earnings Growth: NA

From Andrew Feinberg: A developer and homebuilder in the U.S. and Canada, Brookfield Residential Properties (symbol: BRP) is well positioned: More than 80% of its Canadian assets are in oil-sands-rich Alberta. The Calgary company has owned most of its land for years but carries the value of that property on its books at cost. If the shares traded in line with Brookfield's peers, they would triple.

21. Brookfield Residential Properties

22. Joy Global

52-Week High: $96.00

52-Week Low: $47.69

Annual Revenue: $5.4 billion

Projected 2013 Earnings Growth: -5.3%

From Andrew Feinberg: With growth in China and other emerging markets slowing, buying shares in Joy Global (symbol: JOY), one of the world's biggest coal-mining-equipment companies, might seem crazy. But the stock, down 42% from its January 2012 high, more than reflects the slowdown. Joy's stable maintenance and service business -- 60% of revenues -- is worth about $50 a share. If the global economy were just slightly stronger, its new-equipment business would be worth about the same. Despite growing use of natural gas in the U.S., worldwide construction of new coal plants remains strong. Joy Global shares could easily see $100 again in the coming year.

22. Joy Global

23. AIG

52-Week High: $37.67

52-Week Low: $22.19

Annual Revenue: $70.6 billion

Projected 2013 Earnings Growth: -17.7%

From Andrew Feinberg: When American International Group (symbol: AIG) announced strong third-quarter results, CEO Robert Benmosche said the insurer might not buy back any more AIG shares held by the U.S., as it had earlier said it might. The stock sank on the news, but investors missed the bigger picture. AIG trades at about 50% of its book value of $69 per share, while its peers typically trade at about book value. AIG could eventually earn $6 per share and trade at, or close to, its rising book value.

23. AIG

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