Slide Show | September 2012
The World's 10 Best Stocks
By Kathy Kristof
Follow @kathykristof
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We asked seasoned investment pros for their selections of companies best positioned to grow and prosper for years, if not decades, to come. Based on our reporting and analysis, here are 10 of the best stocks for investors to consider:
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1. Apple (AAPL)
Apple
52-Week High: $701.91
52-Week Low: $362.02
Annual Sales: $108.3 bill.
Projected Earnings Growth: 23% annually over the next five years
Apple led Kiplinger’s list of top stocks back in January 2011, when its share price was a mere $330. And at more than double that price today, Apple shares still appear to be bargain-priced.
The stock has a number of additional catalysts. The company just won a patent suit against arch rival Samsung that is likely to force Apple’s key competitors to revamp their handsets. The verdict couldn’t have come at a more opportune time. Millions of Apple loyalists are ready to upgrade to Apple’s new iPhone, introduced on September 12. Moreover, Apple has barely cracked China’s market, which is likely to generate additional profit growth for years to come.
Of course, Apple can’t maintain an astronomical growth rate forever. But even if the company can simply achieve analysts' expectations for the next three to five years, you’ll want to have the stock in your portfolio for a long time to come. 1. Apple (AAPL)
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2. Boeing (BA)
Thinkstock
52-Week High: $76.35
52-Week Low: $56.87
Annual Sales: $68.7 bill.
Projected Earnings Growth: 11% annually over the next five years
Boeing benefits from some of the same factors fueling growth at Air Lease. To be sure, the company's space system and financing divisions haven’t performed as well, but the soaring commercial aircraft division is pushing up profits. Boeing dominates the market for large commercial jetliners, along with Europe's Airbus Industries, and it saw revenues rise 25% over the first half of 2012, to $20 billion, and it has a backlog of orders worth $374 billion. The backlog, which includes orders for 824 new Dreamliner 787 models, is roughly six times annual revenues.
Despite Europe’s woes, Mark Finn, manager of the T. Rowe Price Value Fund, thinks Boeing will become a cash cow over the next decade (it will take seven to eight years to work off the backlog). Even if a deep global recession caused some customers to cancel, it’s hard to find a scenario in which the company doesn’t deliver steadily rising profits over the next five years. Considering Boeing’s growth prospects, its stock looks like a good value. 2. Boeing (BA)
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3. Cinemark Holdings (CNK)
Thinkstock
52-Week High: $23.87
52-Week Low: $17.54
Annual Sales: $2.3 bill.
Projected Earnings Growth: 12% annually over the next five years
The U.S. theater market may be relatively moribund, but growth prospects are good in emerging markets, where more and more people are entering the middle class and heading to the movies for entertainment. Cinemark is one of the primary beneficiaries. The company operates 461 multiplexes in the U.S., Mexico, Brazil and 11 other Latin American countries. Growth over the past five years has been blistering. In the first half of 2012, revenues jumped 11%, to $1.2 billion, and profits jumped 43%, to $93.7 million.
Cinemark probably can’t keep up that pace, but the growth is far from over. The company says it plans to open 11 more theaters in 2012 and has signed agreements to open 16 more in 2013 and beyond.
But what most impresses Osterweis’s Berler is that Cinemark is delivering solid results despite a strong dollar (which results in money earned overseas getting translated into fewer bucks). That speaks to the strength of its Latin American business. If the currency headwinds abate, Cinemark could clean up, Berler says. 3. Cinemark Holdings (CNK)
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4. Coach (COH)
iStockphoto
52-Week High: $78.28
52-Week Low: $49.07
Annual Sales: $4.8 bill.
Projected Earnings Growth: 14% annually over the next five years
Shares of Coach recently went on sale after investors reacted negatively to quarterly earnings that were "only" 18% higher than the year before. Coach, which makes luxury leather handbags and shoes, as well as watches, jewelry and apparel, has been a stock market darling for decades, able to deliver strong profits even in the midst of a miserable economy. But market expectations were so high for the stock that its share price fell a whopping 18% on July 31, after the company said that it had engaged in some discounting in response to U.S. consumers’ reluctance to spend.
To be sure, economies around the world look a bit shaky, which could create headwinds for makers of luxury goods. But Coach’s executives have handled tougher challenges and came out smelling like fine Italian leather, says David Brady, president of Brady Investment Counsel, a Chicago money-management firm. Brady thinks the recent retreat in the share price gives investors an attractive entry point to buy stock in a company they’ll want to own for decades. 4. Coach (COH)
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5. Air Lease (AL)
Thinkstock
52-Week High: $26.40
52-Week Low: $17.83
Annual Sales: $366.7 mill.
Projected Earnings Growth: 43% annually over the five years
Launched by Steven Udvar-Hazy and John Plueger -- the dynamic duo that helped turn International Lease Finance Corp. into the industry behemoth in the 1980s -- Air Lease owns 137 planes and has signed agreements to lease them to 65 international airlines. Air Lease not only leases planes, it helps broker and manage them. Thus as U.S. airlines upgrade to more fuel-efficient planes, the company can broker their older models to airlines in developing countries, where rising middle class populations are fueling growth in air travel, says Matt Berler, chief executive of Osterweis Capital Management.
Oddly enough, the financial crisis in Europe has been good for Air Lease because fewer lenders are competing to finance planes, says Berler. “We don’t think the market understands the magnitude of the growth that’s now locked into the company,” Berler says. If Air Lease lives up to analysts' lofty expectations, the stock is a steal today. 5. Air Lease (AL)
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6. Danaher Corp. (DHR)
Thinkstock
52-Week High: $56.06
52-Week Low: $40.36
Annual Sales: $16.1 bill.
Projected Earnings Growth: 15% annually over the next five years
Danaher was an industrial conglomerate made up of disparate cyclical businesses. Then, in 1990, management opted to restructure to focus on five key areas in which it believed it could become a global leader.
The wisdom of the strategy proved itself in 2009 as the nation struggled with the recession precipitated by the financial crisis, says Morningstar analyst Daniel Holland. Although revenues of many of its rivals were cut in half that year, Danaher saw its sales drop about 12% and bounce back nicely in 2010. Revenues and profits have continued to rise by double-digit percentages. Second-quarter profits and sales jumped 31% and 28% respectively from the year-earlier period.
Danaher’s growth is primarily fueled by acquisitions, which it does unusually well. Danaher’s latest purchase, of Beckman Coulter last year, has not only proved profitable, it has put 40% of the company’s sales in the rapidly growing health care sector. 6. Danaher Corp. (DHR)
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7. Electronics for Imaging (EFII)
Thinkstock
52-Week High: $18.28
52-Week Low: $12.81
Annual Sales: $591.6 mill.
Projected Earnings Growth: 13% annually over the next five years
Electronics for Imaging is a 25-year-old company that makes controllers for color printers, as well as printing software. Although not a household name, the company has many things going for it.
It sports a record of double-digit growth in both sales and earnings. For the first half of the year, the company reported a 40% rise in earnings. And sales, up 15% in the first half, are likely to keep rising at a high single-digit pace for the foreseeable future, says John Barr, manager of the Needham Aggressive Growth Fund.
Also, the company is about to reap a windfall from the sale of its headquarters building to Gilead Sciences. The $180 million deal is set to be completed in October. 7. Electronics for Imaging (EFII)
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8. Qualcomm (QCOM)
Thinkstock
52-Week High: $68.02
52-Week Low: $46.91
Annual Sales: $15.0 bill.
Projected Earnings Growth: 15% annually over the next five years
It doesn’t matter who wins the smart-phone wars. Qualcomm provides the technology that powers virtually every manufacturer’s 3G and 4G devices. And with Apple having unveiled its new iPhone and an array of new tablets vying for shelf space, Christmas sales are likely to be strong enough to continue fueling another double-digit-percentage rise in Qualcomm’s earnings. During the company’s third fiscal quarter, which ended June 24, Qualcomm’s profits were up 17% from year-ago levels, and sales spiked 28%.
But the company also derives about one-third of its revenue from royalty payments on a series of patents pivotal to our increasingly wired world. Standard & Poor’s Capital IQ analyst James Moorman thinks Qualcomm’s future growth will be fueled by China, where the rising middle class is increasingly turning to smart phones to communicate. 8. Qualcomm (QCOM)
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9. Schlumberger (SLB)
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52-Week High: $79.38
52-Week Low: $56.86
Annual Sales: $39.5 bill.
Projected Earnings Growth: 18% annually over the next five years
Energy-services giant Schlumberger is the prototypical multinational. The company derives roughly 85% of its revenues from overseas, including developing markets in Africa, Brazil and Asia.
With particular expertise in deep-water drilling, Schlumberger is well-positioned to compete in a world where oil is harder to find, says Argus Research analyst Philip Weiss. Admittedly, oil exploration is a cyclical business, driven largely by crude prices. And weak prices for natural gas have hit the company’s stock, Weiss says. But the price of natural gas has little to do with Schlumberger’s profits, so Weiss just sees this as an opportunity to get the shares at a more reasonable price. 9. Schlumberger (SLB)
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10. Copa Holdings (CPA)
Thinkstock
52-Week High: $85.25
52-Week Low: $57.03
Annual Sales: $1.8 bill.
Projected Earnings Growth: 18% annually over the next five years
U.S. airlines have to scratch and claw for every penny of profit they earn. Not so for Panama City-based Copa Holdings, says Bob McAdoo, airline analyst with Imperial Capital, a Los Angeles investment firm. With a hub in the Southern Hemisphere’s cross-roads, Copa has few direct rivals. That has allowed Copa to charge premium prices for its flights and register operating profit margins of 15% to 20% year after year. As economies in Brazil and the rest of Latin America continue to expand, Copa is likely to benefit because it gives travelers the most convenient way to hop around the hemisphere.
Copa’s big advantage lies in the setup of Panama City’s airport, explains McAdoo. Panama knows that it’s a crossroads, so it treats connecting passengers as though they’re hopping on a domestic flight – no trip through customs unless you leave the airport. That saves time, and potentially the need to get a visa for a country you’re just passing through, making the airport the ideal hub for business travelers in a hurry. 10. Copa Holdings (CPA)
