12/27/2011 9:45 PM ET|
12 stock picks for '12 from top pros
Annualized return: 11%
Investing style: Looks for out-of-favor, deep value and contrarian plays.
Market outlook: Sound Advice doesn't offer an overall market outlook, which is not uncommon for value investors.
Two favorite stocks: The newsletter is very bullish on Transocean (RIG), a global oil and gas well-drilling company that's extremely out of favor. Transocean's stock has been cut in half since April, trading recently at $40. The stock has been hit by a host of concerns, including fears about recession, concerns that it overpaid for an acquisition and worries about how long it is taking to upgrade its rigs. The company also faces potential risks from a lawsuit in Brazil related to an offshore leak at a well Transocean was involved in.
But fears about the lawsuit are overblown, because Chevron (CVX), the company developing the well, has said it will cover costs related to the problem, says Steve Horwitz, the managing editor of Sound Advice. And worries about the other problems are exaggerated, too, he believes. His evidence: The book value of Transocean's equipment is $60 a share, yet the stock trades at $40. "At this point I can't see this stock not having a very strong recovery," says Horwitz.
Another favorite of Sound Advice is Paychex (PAYX), a payroll-processing company. Paychex typically helps smaller companies, which often grow rapidly as the economy expands. So if economic growth picks up in 2012, as I expect, this company will benefit a lot. And if growth brings higher interest rates, which is often the case, that will help Paychex as well. It temporarily holds large amounts of cash for clients before sending out paychecks. So it can make more money off this cash if interest rates go up. The company also looks cheap, and it has a 4.2% dividend yield.
The Oberweis Report
Annualized return: 10.2%
Investing style: Seeks small and lightly followed companies that have solid growth and reasonable valuations.
Market outlook: Jim Oberweis, of the Oberweis Report, expects stocks will do well in 2012 as fears and risk aversion among investors recede. "Valuations are very low, the second-lowest in my career," he says. The lowest was during the panic of 2008-09.
Two favorite stocks: One of his favorite stocks for 2012 is Acacia Research (ACTG), which partners with patent owners and then licenses patents to companies or files lawsuits to challenge unauthorized use of patents. The company is involved in a lot of lawsuits related to technology inside smartphones, and Oberweis expects a "significant settlement in 2012 with at least one company" in this area.
Oberweis also likes Kenexa (KNXA), which sells software that helps companies recruit and retain employees. Oberweis expects rapid sales growth at this company to continue in 2012, and drive this stock higher.
The Buyback Letter
Annualized return: 9.3%
Investing style: Favors companies that look cheap and are repurchasing their own stock in large amounts, a sign management sees value in the stock and expects better times ahead.
Market outlook: David Fried, of the Buyback Letter, doesn't offer overall market forecasts.
Two favorite stocks: Fried particularly likes two stocks for 2012, based on cheap valuations and recent stock buybacks, among other factors. First is O'Reilly Automotive (ORLY), which runs auto parts stores. The retail chain deployed its prodigious cash flow to buy back 8% of its stock over the past 12 months, which Fried takes as a bullish sign. O'Reilly Automotive is one of three dominant players in the space, which gives it clout and staying power, believes Fried.
Another favorite is SkyWest (SKYW) , a regional airline that looks dirt cheap because it trades for less than its cash levels if you ignore the debt, which is backed by assets like planes. This stock trades for half of its book value, which is commonly used as a measure of a company's net assets. Here's another sign that the stock is cheap: recent stock buybacks. SkyWest rarely buys back its own stock. But the last time it did so, the stock was a great performer. So Fried takes SkyWest's repurchase of about 6% of its own stock over the past six months as a sign that this airline stock could take off and help lift your portfolio into the skies in 2012.
At the time of publication, Michael Brush owned shares of the Al Frank Fund(VALUX), which is managed by Buckingham, editor of The Prudent Speculator.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
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