The key for 2010: Small, aggressive growth
The best-performing stocks this year will be those of small companies that can grow quickly.
As I was doing research for my list of "Top Stocks to Buy for 2010," a couple of themes stood out.
Stocks have rallied across the board since the bottom last March. Those gains will make it more difficult to find winners going forward.
At the same time, a new business cycle is taking shape that will strongly favor companies that can grow quickly. A friendly business environment with low interest rates will be conducive to growth.
Specifically, that led me to focus my third annual list of stocks for the year on small stocks instead of behemoths. It is far easier for a small company to quickly double profits than for a large company to do the same.
Now, I’m not one to toot my own horn, but my stock lists have done very well despite a very tough market. In 2007. the list generated a return of 21% versus a loss of 2% for the S&P 500. In 2008, admittedly an off year, the 10 stocks lost 41% versus a loss of 38.5% for the market. In 2009, the return was 28.5% against 23.5%.
Put it all together and you'd have outsized gains. So what will the key be for 2010?
Click the link to get a free copy of my "Top Stocks to Buy for 2010." two of the most attractive buys on the list right now are these names in the news:
Zumiez (ZUMZ) -- Retail stocks enjoyed big gains in the second half of 2009 as the economy began to heal. Some of the gains were quite fantastical, reaching triple digits. Even so, many retail stocks remain attractive investment candidates for 2010, trading for low valuations relative to earnings growth.
One name in particular is Zumiez. The teen retailer is red-hot in popularity and growing rapidly. The company is expected to earn 30 cents per share in the current fiscal year ending in January 2010. Analysts are looking for 60% growth in the following year, to 48 cents.
But the company has started 2010 with a strong report on sales and a 12% move up. My bet is that Zumiez beats current estimates handily.
STEC (STEC) -- Owning technology in the depth of a recession always makes sense. Companies looking to do more with less turn to technology to help boost the bottom line at a time when sales and profits are decreasing.
STEC is a data-storage-device maker that appears to be poised to benefit from an expansion in technology spending. Concern about competition helped make STEC a poor performer in 2009. That should change in 2010 with the stock potentially doubling in value or more.
The company is expected to have earned $1.61 per share in the year just ended. At $19, STEC trades for 12 times earnings. In 2010, analysts expect the company to make $1.91 per share. Investors can buy that 18% growth at a very cheap price. If numbers exceed expectations, STEC is an easy double.
In fact, one very large Wall Street company made STEC its stock of the year. And it was rising today when Barron's Web site and Briefing.com suggested IBM had targeted it for takeover.
My "Top Stocks to Buy for 2010" lists eight more names like this. So far the results are impressive; in the few short trading days of the new year, my 10 stocks are up more than 10%.
I’ll keep you posted on how the list performs throughout the year.
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After enjoying a smooth rise in stock prices since May, investors are about to be hit with another bout of volatility.
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