3 Top Stocks to own for 2011

Here are 3 names that I expect to deliver market beating returns in 2011

By Jamie Dlugosch Jan 12, 2011 9:10PM

For the past three or four years I’ve shared some of my annual list of 10 Top Stocks to Own with MSN Money readers, here and in the old Strategy Lab stock-picking game.

 

If you’ve been following along, we’ve done very well. In 2010, my 10 Top Stocks returned an aggregative 28.4%, more than double the S&P 500’s 12.9% return. (And yes, you’re welcome to do a quick Bing search to find the lists and check the results yourself.)

 

I certainly expect similar returns on my 10 Top Stocks to own this year. In fact, I expect one name on the list, ((China ProBiotics, CHBT)) to double in value next year. Here’s why, a bit more on what I expect in 2011, and two more picks:

 

My main theme last year was to be aggressively long in smaller companies that I believed had earnings momentum. To the extent valuations were low, and they were, all the better.

 

This year I’m following a few different themes, though I’m still biased toward cheap, growing stocks.

 

At the top of the list is the re-inflation trade. That means owning stocks tied to gold and other commodities, including oil.

 

Another key trend is China. Investors have overreacted to concerns regarding fraud with Chinese stocks trading on U.S. exchanges. This has led to broad discounts that provide opportunities for investors.

 

Here are three names from my 10 Top Stocks for 2011:

 

Mosaic (MOS)

 

The battle for Potash (POT) has made me most enthusiastic for fellow fertilizer maker, Mosaic (MOS). Despite what you may hear to the contrary, the global growth story remains in play.

 

Feeding the masses will always be an issue, and if I am right, the food companies are thinking about more than just basic sustenance. Think about it this way: if the United States is the beacon to follow, then weight gain has to be part of the picture. On the supply side, yield becomes a huge part of the equation. Solving the yield issue are companies like Mosaic.

 

In 2010, shares of Mosaic fluctuated widely. Only at the end of the year did the company break into positive territory. I expect that forward momentum to continue in 2011. Shares now trade for 30 times trailing earnings, but only 14 times forward earnings.

 

With a possible takeover in play, the ingredients are in place for Mosaic to be a Top Stock in 2011. I expect Mosaic to trade north of $100 before the next year is out.

 

China-Biotics (CHBT)

 

China-Biotics (CHBT) provides research and development, production, marketing and distribution of microbial products in China. The company is a leader in the intestinal microbial balance market, which involves microorganisms that protect against high blood pressure and blood sugar levels, among other health benefits.

 

The attraction to this stock is from a valuation and growth perspective. Shares are down below $12 today after peaking above $19 earlier in the year. Concern about a Chinese market slowdown has hurt investor sentiment. That makes absolutely no sense in my opinion.

 

At its current price, shares trade for 9 times trailing earnings. Estimates for profits in the year ending March, 2011 are at $1.67 per share. That puts the forward earnings multiple at 7 times. The estimate for 2012 is $2.19 per share. That is more than 30% earnings growth you can buy for a single digit multiple.

 

Are you kidding me? This looks like a steal, and if I was forced to pick a favorite stock for 2011, this would be the name I would choose.

 

Salesforce.com (CRM)

 

What happens to stocks during a bull market? Aside from the euphoria of investors and across-the-board price gains, certain stocks that tend to explode in value. These are the stocks that reach nosebleed levels, attracting attention because of huge profit growth, potential or some combination thereof.

 

If their timing is right, investors can ride that euphoric wave to big profits.

 

This is what you do with your fun money. I wouldn’t bet my entire portfolio on stocks like this, but I do like having one or two in the mix. And 2011 is the right time for owning a nosebleed stock or two. We are emerging from a very tough time for stocks. The party is starting, not ending. At least, that’s my opinion.

 

I recently named Salesforce.com (CRM) as one of the four horsemen of technology for 2011. The company is in the explosive cloud-computing space, and investors are buying into the hype.

 

Shares really moved higher in the last month of 2010, me a bit of a pause, but not much. If we get a strong bull market in 2011, I expect Salesforce.com to be one of the leaders.

 

You can get the entire list of Top Stocks for 2011 here for an e-mail address.

1Comment
avatar
I think it was you that recommended IMAX several years ago at about $5 per share as a takeover target.  That has worked out pretty well, even though there was no takeover.
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