Value Investing: The Stock Advisors' Top Picks
The Stock Advisors released their top six stock picks based on the wisdom of Godfather of value investing Benjamin Graham and his protegee Warren Buffett.
In fulfilling value investing criteria, these names "sell at sensible prices, offer reasonable appreciation potential and provide solid dividends." Other requirements include:
- Free cash ﬂow more than $20 million
- Net proﬁt margin more than 15%
- Return on equity more than 15%
- Discounted cash ﬂow value higher than current price
- Market capitalization more than $1 billion
- Standard & Poor's rating of B+ or better
- Positive earnings growth during the past five years with no deﬁcits
- Dividends currently paid
The final six choices and reasoning are as follows:
Caterpillar (NYS: CAT) is the world's largest manufacturer of earth-moving equipment. Demand for Caterpillar is expected to increase as older machinery is replaced and used to rebuild areas hit by this year's natural disasters. This includes Japan and U.S. in the wake of hurricane, tornadoes, and flooding.
Additionally, rapid growth of infrastructure in developing nations provides CAT with ample growth opportunities. The U.S. and other developed countries are improving and rebuilding infrastructure as well.
Coach (NYS: COH) , maker of designer high-quality leather goods, is The Stock Advisors' second stock pick. The company is expanding retail space by 12% over the next year and opening 20 stores in China.
"We expect sales and EPS growth of 15% during the next 12 months and beyond. The current low stock price provides investors with a chance to buy Coach at a bargain price."
J.B. Hunt Transport Services (NAS: JBHT) provides logistic services for truck-load freight throughout the U.S. and regions of Canada and Mexico. "JBHT also provides transportation, storage and planning to companies such as Wal-Mart, under long-term contracts."
Management is aggressively increasing long-term contract business and the more profitable intermodal operations. "We expect revenues to rise 12% and EPS to increase 29% during the next 12 months."
McKesson (NYS: MCK) "provides a wide range of services and products to independent pharmacies, retail chains and institutions in the U.S. and Canada. Their services and products reduce costs and improve efﬁciency. The company operates two segments. "
The company is adding a third operation to their existing Distribution Solutions and Technological Solutions segments:
"To diversify, McKesson acquired U.S. Oncology, which is dedicated to cancer treatment and research, in December 2010, for $2.2 billion. McKesson's sales will likely increase 6%, and EPS 17% during the next 12 months. "
Ross Stores (NAS: ROST) operates 1,091 stores in 27 states and Guam featuring high quality apparel, shoes jewelry and home furnishings. The company is expanding into Arkansas and Illinois with 15 news stores.
Ross acquires merchandise at a steep discount by buying manufacturer cancellations and turnovers. Their discounted merchandise becomes increasingly attractive in economic downturns, including the current financial climate.
"These will jump-start Ross's presence and provide noticeable growth in the near future. We forecast sales and earnings growth of 12% during the next 12 months."
Tupperware Brands (NYS: TUP) "is a leading direct seller of beauty and household products marketed by an independent sales force of 2.6 million representatives ... Tupperware derives 86% of sales from foreign markets, including 56% from developing countries."
As sales in developing countries boom, The Stock Advisors expect sales to rise 10% or more, and "EPS will likely increase 21% during the next 12 months, boosted by strong sales in the U.S., Canada and emerging market countries."
Want more information on these names? We gathered some basics below. (Click here to access free, interactive tools to analyze these ideas.)
1. Caterpillar: Farm & Construction Machinery Industry. Market cap of $55.95B. Price as of 9/16 at $86.13. The stock has gained 22.52% over the last year.
2. Coach: Textile Footwear & Accessories Industry. Market cap of $17.19B. Price as of 9/16 at $59.27. The stock has had a couple of great days, gaining 8.64% over the last week.
3. JB Hunt Transport Services: Trucking Industry. Market cap of $4.81B. Price as of 9/16 at $40. The stock has gained 15.67% over the last year.
4. McKesson: Drugs Wholesale Industry. Market cap of $18.58B. Price as of 9/16 at $76.01. Relatively low correlation to the market (beta = 0.77), which may be appealing to risk averse investors. The stock has gained 22.07% over the last year.
5. Ross Stores: Apparel Stores Industry. Market cap of $9.13B. Price as of 9/16 at $80.33. Relatively low correlation to the market (beta = 0.73), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 5.38% over the last week.
6. Tupperware Brands: Packaging & Containers Industry. Market cap of $3.72B. Price as of 9/16 at $61.42. It's been a rough couple of days for the stock, losing 6.18% over the last week.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.
At the time this article was published The Motley Fool owns shares of Tupperware Brands, Coach, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of McKesson, Wal-Mart Stores, and Coach. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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