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All Contents © 2017The Kiplinger Washington Editors
By Ryan Ermey, Staff Writer
| July 2017
As part of our tour of the United States of Stocks, we took at closer look at publicly traded companies based in western states. Our list of 13 companies — one from each state in the West — includes small banks you've probably never heard of as well as the biggest name in online retail that everyone can't stop talking about.
A word of caution: Since we picked a single stock from each state, and choices in some western states are sparse, a few of these stocks are best suited to investors comfortable with a higher degree of risk. This is not a selection of our favorite stocks in the entire region, in other words. Take a look at the best stock to buy now in each state in the West.
Share price: $2.14
Market value: $112 million
Alaska Communications is one of only two telecommunications firms providing telephone and internet service in the Last Frontier.
Isolation has its advantages, says Eric Kuby, co-manager of North Star Opportunity Fund, which holds the stock. For instance, he says, the company owns two undersea fiber-optic routes connecting Alaska to the continental U.S. A company looking to set up shop in Alaska would be better served buying Alaska Communications than spending the money to duplicate its infrastructure. In the past few years, the company has deployed gobs of cash to build a best-in-class fiber network. That has sapped earnings, as has the company’s commitment to paying down debt. Overall sales inched up in the first quarter compared with the same period a year earlier, but broadband revenues grew 11%, boding well for the company’s internet services segment. Alaska plans to buy back $10 million worth of stock through 2019 and may even initiate a dividend in the next couple years, says Kuby. Shares represent a good value for patient investors, he says.
Share price: $80.07
Market value: $18.4 billion
Microchip Technology’s business is a niche within a niche. Within the world of semiconductors, Microchip manufacturers microcontrollers (or MCUs, for microcontroller units)—chips that act as “brains” in electronic devices.
Microchip’s specialty is 8-bit MCUs that work in simple devices, such as electric razors, but the company also has smaller shares in more-complex 16- and 32-bit MCUs, which you might find in implanted medical devices. In recent years, as demand for semiconductors has increased, the company has expanded its market share across all three MCU markets through acquisitions—most recently buying chipmaker Atmel for $3.6 billion in 2016. Microchip estimates that the purchase will add $1 to earnings per share starting in the fiscal year that begins in April 2018. The company earned $3.67 a share in the year that ended March 31, according to Zacks Investment Research. Over the past 12 months, Microchip’s shares rose 57%, compared with a 46% gain for the average semiconductor firm. Yet even after the run-up, Microchip trades at just 16 times estimated earnings for the next 12 months, while its average peer trades at 18 times earnings. Given the strength of Microchip’s business and its growth prospects, CFRA analyst Angelo Zino rates the stock a “buy” and sees it hitting $90 over the next 12 months.
Headquarters: Foster City
Share price: $93.95
Market value: $216.6 billion
It’s hard to keep Visa down for long. The payment processor accounts for about half of credit card transactions worldwide and an even higher percentage of debit card transactions, according to the Nilson Report, a newsletter tracking the payments industry. And there are few real challengers on the horizon.
Companies leading the way in digital payments, such as Apple, Google and PayPal, have chosen to partner with existing payment processors rather than attempt to dethrone them, says Morningstar analyst Jim Sinegal. In recent years, Visa has notched revenue gains despite unfavorable currency conditions, major data breaches and Russian sanctions. For the fiscal year ending in September 2017, Wall Street analysts, on average, project revenues to grow by 18%, thanks to growth in electronic, digital and mobile payments, and a doubling of merchant locations in India. Moshe Orenbuch, an analyst at Credit Suisse, believes earnings per share will rise by 18% over the same period, followed by a 15% boost in the fiscal year that ends in September 2018. He rates the stock a “buy,” with a 12-month price target of $105.
Share price: $20.16
Market value: $6.4 billion
Antero Resources is an oil and natural gas exploration and production company that operates primarily in the Marcellus and Utica shale formations in the Appalachian Basin.
Shares have fallen 1.6% since February, when the company reported a loss of $2.92 a share for 2016. The sell-off has left the stock looking cheap given Antero’s potential for growth. Antero’s future natural gas production is hedged (meaning it is locked in at a certain selling price) through 2018 at favorable prices, says CFRA analyst Stewart Glickman. That leaves Antero free to focus on growth through drilling, Glickman says. Antero projects 20% to 22% annualized growth in production through 2020. Even if that seems optimistic, Glickman says the stock is at “historical trough levels” and assigns a 12-month price target of $25.
Share price: $80.70
Market value: $3.4 billion
This year is looking warm and breezy for Bank of Hawaii, says Value Line analyst Kenneth DeFranco Jr. Rising interest rates and increased loan demand are boosting interest income for the bank. And a healing Hawaiian economy marked by elevated tourism, growth in new construction and strengthening median home prices bodes well for the bank, he says. He expects earnings per share to reach $4.70 by the end of 2018, a 5% annual growth rate from last year’s mark.
Bank of Hawaii is one of only two publicly traded banks in the state, and the islands' isolation, coupled with Hawaiians’ loyalty to names they trust, means that the bank faces little competition from large, mainland banks, says Craig Stone, who manages Virtus KAR Small-Cap Value Fund. Bank of Hawaii is a top-ten holding in the fund. Stone appreciates the company’s consistent (if not stratospheric) earnings growth rate, which helps the stock hold up well when the market tumbles, he says. During the 2007–09 bear market, Bank of Hawaii slid a cumulative 49%, compared with a 55% loss for the S&P 500 and 69% for the average U.S. regional bank. Over the past 15 years, shares in Bank of Hawaii returned an annualized 9.1%, outpacing its peers by four percentage points and the broad market by 0.7-point. After a 4% dividend hike in March, the stock currently yields 2.5%.
Share price: $49.35
Market value: $1.1 billion
US Ecology operates hazardous-waste disposal landfills in the U.S. and Canada. The company’s focus on hazardous materials has historically produced higher profit margins than more-diversified waste management firms, says Morningstar analyst Barbara Noverini.
Although US Ecology depends on its core contracts with industrial-waste generators that consistently pay the company for regular disposal, a large portion of its business comes from high-volume special projects. Delays in a number of those projects last year, combined with overall sluggishness in the industrial sector, led to declines in 2016 earnings and sales. But Value Line analyst Simon Shoucair notes that 2016 project deferments have pushed business into 2017. Add in improving prospects for many of US Ecology’s industrial clients, and the company is poised to bounce back this year, he says. Stifel analysts Michael Hoffman and Brian Butler see earnings per share jumping 18% this year, helping to push the stock to $55 over the next 12 months.
Share price: $35.05
Market value: $2.7 billion
Glacier is a regional bank holding company that provides commercial banking services at 146 locations in Arizona, Colorado, Idaho, Montana, Utah, Washington, and Wyoming.
The company has grown through acquisition, with the management team snapping up small, regional banks that they believe have potential for growth. This “company of banks” model puts Glacier in a unique niche, says Tim Skiendzielewski of Aberdeen Asset Management, whose Small Cap Equity fund counts the stock among its top-ten holdings. Glacier’s size and resources, he says, allow its subsidiaries to offer more sophisticated products than local, mom-and-pop banks, while being more involved on a community level than bigger “super-regionals.” Glacier’s conservative underwriting, well-managed expenses and good loan growth have led to superior return on average equity (ROAE) and return on average assets (ROAA) – both key measures of banks’ profitability – compared with its peers. Analysts who cover the stock see per-share earnings growth climbing 12% this year, followed by a 11% jump in 2018. The company has hiked its annual payout every year since 2012, and in January paid a 30-cent special dividend on top of its normal quarterly payout for the third straight year. The stock’s annualized regular payout of 84 cents per share gives it a yield of 2.4%.
Headquarters: Las Vegas
Share price: $64.34
Market value: $51.0 billion
Las Vegas Sands develops casinos in the U.S. and Asia, with the bulk of revenues coming from properties in Singapore and the Chinese gambling mecca of Macau.
After more than a two-year slide in the wake of Chinese government regulations, Macau gaming revenues finally bottomed in late 2016. The timing couldn’t have been better for Sands, which unveiled the Parisian Macau in September. The mammoth casino is part of four interconnected Sands hotels on the glitzy Cotai strip that combine for a staggering 13,000 hotel rooms, 840 retail stores and 1.7 million square feet of meeting and convention space. Given Sands’ leadership in the Macau market and relatively stable prospects for its properties in Singapore, CFRA analyst Tuna Amobi sees earnings increasing by 22% this year. He rates the stock a “strong buy.”
Although shares trade near his $65 12-month target price, the stock yields a generous 4.5%. Long-term prospects may be even better. Morningstar projects overall gambling revenue in Macau to increase gradually through 2018, at which point infrastructure projects aimed at improving traffic flow in and out of the gambling capital will bring on double-digit annual growth rates.
Share price: $39.80
Market value: $3.2 billion
PNM Resources is the holding company for two New Mexican electric utilities: Public Service of New Mexico and Texas-New Mexico Power Company.
Earnings were flat and revenues declined for PNM in 2016, but things are looking up. Public Service of New Mexico recently received approval from regulators to raise its rates, which will drive earnings growth for PNM, says Value Line analyst Nils Van Liew. He projects a 12% increase in earnings for the company overall this year, followed by 8% growth in 2018. Concerns remain over sluggish growth in PNM’s customer base, but Van Liew says there are signs that New Mexico’s economy may be picking up, with big corporations such as Facebook and Lowe’s expanding operations there, potentially bringing new customers for PNM. Patient investors can collect a well-covered dividend while waiting for business to expand. The stock currently yields 2.4%.
Share price: $88.65
Market value: $2.2 billion
Lithia sells new and used cars and related services at 154 dealerships on the East Coast and in the western U.S. Analysts believe U.S. light vehicle sales may have peaked in 2016, but not Lithia’s, says CFRA analyst Efraim Levy. He projects growth of 10% this year, driven by strong employment, easy credit and an aging vehicle fleet indicating pent-up demand. Lithia’s sales are also growing by acquisition, with 15 new dealerships last year and thousands of potential targets on the radar for the years ahead. The strength of Lithia’s business model, says Morningstar analyst David Whiston, lies in its acquisition of rural dealerships, through which the company can position itself as the only seller of a particular brand within a huge geographic radius. Lithia’s large market shares in small cities give the company pricing power, he says. And Lithia can continue to grow through acquisition in urban areas as well, says Levy. He rates the stock a “buy” with a 12-month price target of $103.
Headquarters: Salt Lake City
Share price: $26.26
Market value: $1.8 billion
Myriad develops genetic diagnostic products. Best known for its BRACAnalysis test, which assesses a woman’s risk for developing hereditary breast and ovarian cancer, the company is seeking to expand its hereditary cancer detection business with the myRisk test, which screens 25 genes for a multitude of cancers. Myriad’s efforts to develop a host of new products, including diagnostic tests for neurological and autoimmune conditions, have eaten away at earnings recently, as has sharply declining demand for the company’s BRACAnalysis kits. But demand for the kits may have bottomed and stabilized, says Value Line analyst Nira Maharaj, and Myriad’s newer diagnostic offerings should keep the company competitive in the $700 billion diagnostics market over the next three to five years. Analysts at William Blair believe a new deal with insurer UnitedHealthcare is in the cards, potentially providing coverage for Myriad’s GeneSight test. They believe the stock will outperform the broad stock market over the next 12 months.
Share price: $1,001.03
Market value: $478.6 billion
Amazon’s world takeover continues. The retail behemoth announced in June its intention to acquire upscale grocer Whole Foods Market (WFM) for $42 a share. As a result of the merger, say analysts at Wedbush, Amazon is positioned to rapidly expand its Amazon Fresh grocery delivery business, for which Prime subscribers currently pay an additional $15 per month. The purchase also means that Amazon picks up 440 Whole Foods stores, located in most major urban areas in the U.S. representing a big increase in refrigeration-equipped distribution centers for the company. Amazon may eventually offer grocery delivery in an hour or less nationwide, says Wedbush.
In the meantime, analysts say, Whole Foods stores will be ideal outlets for popular Amazon products such as Kindle, FireTV and Echo. Wedbush sees the acquisition driving sales growth over the next several years as the company expands its grocery business, and it assigns an “outperform” rating to the stock along with a 12-month price target of $1,250.
Share price: $3.01
Market value: $226 million
The pickings for public companies in Wyoming are slim. Cloud Peak is the biggest, even though the stock qualifies as a “penny stock,” trading at $3 a share. Still, it might pay off for contrarian investors willing to take a shot on a coal company. Cloud Peak produces coal in the Powder River Basin, operating three mines in Wyoming and Montana. Ryan Thibodeaux, comanager of the Goodwood SMID Long/Short fund, which owns the stock, concedes that coal stocks are a tough sell, given the expected long-term decline in the use of coal for generating electricity as utilities turn to cheaper natural gas. Natural gas prices, however, have been on the rise since late 2016, causing utilities to draw down coal inventories, implying increased future demand, says Thibodeaux. He thinks Cloud Peak is worth $10 a share. Analysts at Stifel rate the stock a “buy” with a 12-month price target of $7.25.
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