5 hot stocks for summer
These potential bargains could heat up.
By Jamie Dlugosch, StockPickr
I live in the frozen tundra of Minneapolis, where we are slowly -- and I mean slowly -- emerging from a dastardly long winter and a spring that hasn't sprung. It is hard to believe that summer, as marked by Memorial Day weekend, is right around the corner.
While many market participants slow down their investment activity in summer, I think there is plenty of money to be made by staying active. In the current environment, stocks are exhibiting weakness. Sellers are dominating the action, and pessimism is rising.
This is actually quite bullish for stocks. Yes, many risks remain, but current fiscal and monetary policy is conducive to economic growth. It may not be the strongest recovery on record, but we are growing, and we're likely to continue to do so.
At the same time, stock valuations have moderated in May. Simple math tells us that stocks losing value this month combined with profit growth equates to lower valuations.
So are there bargains to be had as we head into summer? I think there are. Here are five stocks to consider.
1. Mosaic (MOS)
Summer is crop time for many farmers, especially in the northern climes. Helping the agricultural industry maximize yields is Mosaic and its fertilizer products. With demand for food showing no signs of a slowdown, Mosaic is a good summer stock to play.
Even better is the fact that Mosaic shares are incredibly depressed at the moment. The stock has suffered thanks to its parent company Cargill divesting itself of a very large block of shares. On occasion, supply and demand factors take precedence over valuation. This is one of those occasions.
There is simply too much supply of Mosaic stock selling on the market. That supply requires buyers, and the only way to entice those buyers is with a discount. The market has obliged, and Mosaic is down some 10% from the start of the year, compared with a 5% gain for the S&P 500 ($INX) over the same period.
I expect that discrepancy in performance to narrow during the summer. Mosiac is a buy at these prices. The stock also shows up among Stockpickr's 4 fertilizer stocks to trade and 8 agriculture stocks with upside.
One of the first things I do when summer arrives is read a book. This year, instead of grabbing a hard copy, I'm giving serious consideration to picking up a Kindle. The Amazon e-reader is all the rage, and I think the Kindle bug only picks up this summer.
Amazon, one of George Soros' top holdings, has been one hot stock. Over the last two years, shares have increased from $80 per share to a peak of over $200 per share. I expect that powerful performance to continue this summer as readers across the globe look to the Kindle to feed their craving for content.
Fueling that stock growth has been tremendous earnings momentum. Analysts expect Amazon to make $2.47 per share in the current year ending on Dec. 31, 2011. For the following year, Wall Street is looking for profit growth of 53% to $3.79 per share. Investors need to pay a premium of 78 times current-year estimates for that growth, but given the frothiness in new stocks such as LinkedIn (LNKD), such a premium is okay by me.
At least with Amazon we know what we're getting. The growth is real, and so are the profits. I would use the selling in May to acquire shares of Amazon at a discount.
One of summer's main themes, of course, is sun. I'm certainly looking forward to the warmth summer will hopefully bring to my state, and I'm also seeing opportunity -- in solar stocks.
Specifically, shares of First Solar have been getting slammed over the last few months. Since peaking in late March at $175 per share, the stock has fallen more than 30% to $118 per share today. This move is striking considering that oil prices have been at or near a peak during the same period.
I would think that, intuitively, with oil at such a level, demand for solar would increase greatly. The market seems to see things differently. Regardless, the discount in share price is intriguing from a valuation perspective.
For starters, First Solar has beaten earnings estimates in each of the last four quarters, including the most-recent quarter, ended March 31, when the company beat estimates by 17 cents per share. Analysts expect First Solar to make $9.45 per share for the full year ending Dec. 31 and $10.69 per share in the following year.
You can buy that 13% growth for just under 13 times 2011 estimates. I believe that with oil at high levels, First Solar will perform better than expected. I would buy the stock before the rest of the market figures that out.
In the summer, I typically like to get out and about. When outdoor activities are washed out by rain, I stay indoors and catch up on my movie watching, aided by my Netflix subscription. I suspect I'm not alone in this.
What makes Netflix an interesting pick for this summer has more to do with how transformative the company is becoming. The light bulb went on for me recently when playing with my daughters on our Wii. Streaming Netflix content, which I can do with the Wii, could completely eliminate my need for cable television.
Netflix is indeed a game-changer, and the stock is a buy even though it trades at all-time highs. Analysts expect Netflix to earn $4.46 per share in the current year and $6.52 per share in 2012, representing nearly 50% in profit growth.
Encroaching on the cable industry and its billions of dollars in revenue could blow those numbers out of the water. Netflix is one of Jim Cramer's top cheap growth picks, and I'd ride this fun, not-so-little momentum stock during the summer.
Summer is the season for thunderstorms, tornadoes and hurricanes, and with storms already raging in the mid-section of the country, it looks like this summer could be a rough ride.
With the carnage thus far, we are approaching record numbers of storm fatalities in 2011, and we have a good month or two to go before the end of the season. It may be a bit of a morbid pick, but I'd consider adding casket-maker Hillenbrand to your portfolio.
Hillenbrand's shares are reasonably priced and include a rich dividend of 3.4%. Analysts expect the company to make $1.76 per share in the current fiscal year ending Sept. 30. For now, growth is projected to hit 10%, with earnings hitting $1.95 per share in fiscal-year 2012.
Investors can buy Hillenbrand for 13 times 2011 estimates. Those estimates may prove to be low if storm season continues to rage. If so, the stock will likely do well. If not, you can sit back and collect that nice dividend.
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