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These eight stocks all offer strong growth prospects at reasonable prices, a combination that should result in solid gains. We lean toward large companies, but our picks also include two small caps.
These eight stock picks are part of Kiplinger's investing outlook for 2017.
By Daren Fonda, Associate Editor
| From Kiplinger's Personal Finance, January 2017
Stocks are listed alphabetically. Prices are as of November 9, 2016.
Robert Scobie via Flickr
Share price: $806
The market value of Alphabet is $544 billion, so it’s hard to fathom it getting much bigger. But the owner of Google, YouTube and other tech businesses hasn’t peaked. Recent product launches include the Pixel smartphone and Google Home (a virtual personal assistant). Add those products to Alphabet’s other businesses—including thriving sales of online ads, apps and cloud-based services—and you get a firm that analysts believe will generate 19% profit growth in 2017. At 20 times estimated earnings, the stock doesn’t look expensive.
Share price: $112
CME Group owns the Chicago Mercantile Exchange and other trading venues where speculators bet on everything from the price of pork bellies to the future level of Standard & Poor’s 500-stock index. CME has expanded by merging with other exchanges and providing more services to traders. Analysts expect profits to climb a modest 6.9% in 2017. But CME pays a regular dividend of 60 cents a share and will likely pay a special dividend at year-end. That could lift the total payout to $5.67 a share in 2017, estimates Bank of America Merrill Lynch, giving the stock a hefty 5.1% yield.
Share price: $86
A real estate investment trust, Crown Castle Intl. leases space on nearly 40,000 cell-phone towers to wireless carriers, such as AT&T and Verizon. Income is climbing as customers consume more data on mobile devices. Cable providers such as Charter Communications and Comcast also plan to roll out wireless service in 2017, boosting demand for space on cell-phone towers. As a REIT, Crown Castle must shell out at least 90% of its taxable income to investors. Paying $3.54 per share, the stock yields 4.1%. Analysts expect the dividend to climb by 9% in 2017.
Dori via Wikipedia
Share price: $19
Headwaters is a leading maker of roofing and other building products. A healthy housing market should support strong sales. Headwaters is also thriving as a supplier of fly ash, which is increasingly used in concrete production. The shares look cheap at 12 times estimated profits, says Charlie Smith, with Fort Pitt Capital in Pittsburgh. Another reason to buy: Headwaters may spin off its fly-ash business. If the small firm were to split up, the stocks would be worth $24 per share combined, says Robert Dunn, of Institutional Research Group, in New York City.
Note: Headwaters announced on November 20 that an Australian company, Boral, plans to buy the firm for $24.25 a share in cash. Headwaters expects the deal to close in mid-2017, limiting the stock’s potential for gains above that price.
Share price: $34
Running clinical trials for biotech firms, Medpace handles everything from the design of a research study to its execution. Sales should climb at a 13% annual pace through 2020, and the firm should be able to maintain industry-leading profit margins above 30%, says UBS. Medpace would face setbacks if drugmakers were to reduce spending for clinical trials. But the small firm, which went public last August at $23 a share, takes a “unique and full-service approach” to the business, says UBS. It rates the stock a “buy” and expects the price to hit $35 over the next year.
Share price: $159
Palo Alto Networks sells sophisticated hardware and software to protect networks against cyberattacks. Sales are rising steadily as the firm expands its product lineup and signs up more customers for subscriptions to its cloud-based software, creating revenue streams that should last for years. Although growth is slowing, analysts still see revenues increasing a healthy 32%, to $2.1 billion, in the fiscal year that ends in January 2018. Operating profits, which strip out some expenses but provide a snapshot of the business’s underlying health, should climb by 58%.
Courtesy U.S. Navy
Share price: $145
After stagnating for years, U.S. military spending is likely to pick up once the new president takes office.
That should boost sales for Raytheon, which makes military products—from Patriot missiles to electronic warfare systems. The firm’s order backlog hit $35.8 billion in the third quarter of 2016, up by $2.2 billion from a year earlier. Foreign sales, about one-third of the total, are also rising. Bank of America Merrill Lynch says Raytheon will be a “beneficiary of a global arms race.” It rates the stock a “buy” and sees it hitting $160 over the next 12 months.
Share price: $418
Biotech firm Regeneron makes one of the top-selling drugs to prevent eye diseases in the elderly. That product, Eylea, accounts for about two-thirds of the firm’s sales, estimated at $5 billion in 2016.
Regeneron’s lineup also includes Praluent, a drug to combat high cholesterol that’s being tested as a treatment to prevent second heart attacks. The company may soon win regulatory approval for a new drug for rheumatoid arthritis, and it has several other promising drugs in late-stage studies.
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