Roundtable: 1 Stock to Buy in February


As we do each month, we asked a handful of our top analysts across sectors for one stock that looks especially compelling right now. Here are the companies they singled out.

Innovations in drilling techniques have opened massive new energy fields in the United States, particularly in natural gas. These resources need to be transported, and the near future should, according to energy experts, produce a wealth of profitable transport projects. That's where Kinder Morgan comes in.

Kinder Morgan is an energy infrastructure and pipeline giant in holding company form. It owns a mix of midstream assets including general or limited partner interests in Kinder Morgan Energy PartnersEl Paso Pipeline Partners , and Kinder Morgan Management . Ownership of a pipeline is a tollbooth business. Once a pipeline is in place, competitors have little motivation to build competing capacity -- in fact, regulations forbid it without a "demonstrated economic need." As such a pipeline is essentially a monopoly with prices set by regulatory agencies. Thus, Kinder Morgan has a very strong competitive position.

It also has great management. Kinder Morgan is led by its eponymous founder, Rich Kinder, who has been described as an industry visionary, having built the Kinder Morgan system from the ground up. He owns 23% of the company, and collects $1 per year in salary with no bonuses or options. He maintains strict control on costs, and the company is focused on rewarding shareholders. Last year, it paid a healthy 4.8% dividend yield; management plans to increase the dividend by 8% in 2014.

Travis Hoium:Apple may be a boring stock to most investors at this point, but in a market where value and stability are hard to find I think that makes it a great stock to buy right now. Consider the fact that Apple had $158.8 billion in cash and investments at the end of last quarter, has generated $37.0 billion in net income over the past year, and just sold more iPhones and iPads than it has in any quarter in its history.

As much as I like the value Apple gives investors at 8.2 time earnings after pulling out cash, I like it even more because it contains what I like to call upside risk. If Apple introduces any number of game-changing products this year the stock could go for another wild ride higher as market sentiment changes. I think the TV market is ripe to be upended by a company like Apple and wearable devices certainly present a major opportunity for the company. These products would be pure upside for investors.

The market is pricing Apple as if it's a dying company but millions of users (including myself) are locked into an ecosystem that will generate new device sales and recurring music, movie, and app revenue for years to come. The downside risk is low and the upside potential is tremendous, which is why this is my top stock for February.

Like Travis, I'm also interested in Apple right now. The stock is down nearly 10% year to date, and down nearly 30% from its peak seen in September 2012. This is all while it has steadily reported phenomenal results quarter after quarter, and in the six reported quarters since then has had $58.3 billion in net income on $265 billion in sales.

Certainly Apple has changed and it may not be the high-flying growth stock we thought it could be -- it has a $450 billion market capitalization after all -- but it still remains radically inexpensive when compared to the market with a price-to-earnings ratio of 12.6 versus an 18.7 seen by the broader S&P 500, and the 31.6 held by Google. Even if Apple is never able to put out another great product and simply stays the course with its current offerings -- which is highly unlikely -- at the prices it trades at today, it still remains as an attractive investment consideration.

Jim Mueller: Homebuilder Meritage Homes reported what I consider to be a solid quarter earlier this week and the drop in price would give you a nice chance to enter the stock. The price drop is likely due to a year-long slowdown in year-over-year orders growth. In 2013's first quarter, it grew orders by 35%; in the just-reported Q4, that had dropped to 3% and management is expecting flat Q1 results year-over-year.

Last year's comparables are a tough hurdle, but there is still a lot of pent-up demand for homes. The economy is continuing to improve (slowly, I'll grant) which helps that demand. Home prices climbed a lot last year, but with that growth moderating, unit sales should be quite healthy (as people don't get scared out of the decision to buy).

Besides, as a Fool, I'm looking to own shares for the next several years, not the next quarter or two, unlike Wall Street and other traders. A trailing P/E of 15.4 is a quite reasonable price to pay for a management team led by CEO Steve Hilton (he founded the company nearly 30 years ago and owns 4% of the company). If you're looking to add a housing recovery company to your portfolio, you could do a lot worse than Meritage Homes.

Daniel Ferry: This February I'll be taking advantage of General Motors' (NYSE: GM) current unloved status to double down on shares before the market gets wise to how well the new GM is executing. General Motors has basically done everything I'd hoped it would do since emerging from bankruptcy protection: introduced award-winning new vehicles, improved its cost structure, got out from under government ownership, and installed forward-thinking new leadership. It reinstated its dividend last month.

Yet despite these signs of progress the market is still heavily discounting the company's stock, with GM's forward earnings valued at less than half the S&P 500 average. It's true that the company hasn't solved all its problems, with a tough sales environment in Europe and a looming pension obligation yet to be tackled.

However, 2014 looks to be an excellent year for the company nonetheless, with GM expecting total U.S. auto sales to be at their highest level since 2007. GM's aggressive moves toward making its product line more profitable will allow the company to generate outsized earnings from a bounce in the U.S. market, leaving the company a buy at this price despite some headwinds.

Maxx Chatsko: You may not want to steer your portfolio toward the sea of uncertainty called biofuels, especially considering the across-the-board proposed volume reductions announced by the U.S. Environmental Protection Agency, but the rock-solid management team and balance sheet of Renewable Energy Group will anchor you through any potential storms. The nation's largest biodiesel producer had $136 million in cash and $567 million in shareholders' equity at the end of the third quarter, representing a book value of $15.88 per share. While the company's cash position has decreased and share count has inflated by 14% after the acquisitions of Syntroleum and LS9 since the third quarter, both acquisitions will set up long-term growth opportunities in higher-margin products.

Management's focus on the long term -- rather than on making knee-jerk reactions to counter short-term uncertainties to please Wall Street -- is one of the biggest reasons investors should consider adding shares of Renewable Energy Group to their portfolio. Sure, the expiration of the blender's tax credit in 2014 will squeeze margins, but the same situation unfolded years ago, only for the credit to be retroactively reinstated in 2013 -- sending profits skyward. A lot of people panicked, but a buy-and-hold strategy would've netted you at least a double.

Today, a lot of people are panicking over the recent acquisitions. Are they right? Let's put it this way: if investors assume the recent acquisitions result in no net gain in shareholders' equity and account for the additional shares, then Renewable Energy Group still sports a book value of $13.94 per share. Factor in the growth ahead and the company looks like a long-term steal.

Simon Erickson: Now is the time to buy Stratasys . Yes, I know; it's been a bad week for 3-D printing stocks. A poor earnings report from 3D Systems and recent short-seller comments have helped knock down Stratasys' stock price by 18% already this year. But let's not mistake the forest for the trees. Earnings reports are backward-looking, and forward guidance is only for a one-year period. If we widen our lens a bit, we'll see that many industries - health care and energy, for example - are just starting to figure out how 3-D printing could be applicable to them. Stratasys is a first-mover in the space and already has an extensive installed base with customers. That installed base will give them not only years of recurring revenue (from consumables and service contracts), but also a technological edge with preferred customers. And there are growth opportunities all over: Stratasys can now print using multiple materials and colors, and it recently partnered with to improve distribution. I'm a believer that the 3-D printing game is still in the very early innings.

Tim Beyers: For as much as we talk about the death of radio at the hands of premium services such as Sirius XM and Spotify, it's easy to forget that advertisers spend more than $30 billion a year on pitches delivered via radio.

Imagine if a fraction of that -- even 10%, or $3 billion -- were to shift to audio streamer Pandora Media . The stock commands about $7 billion in market value on $600 million in sales as of this writing. A material gain in ad share could drive the stock sharply higher from today's prices.

And yet the beauty of Pandora isn't so much that it's a radio replacement as it is a personalized tool for music discovery that travels with you. That's important when you consider that users are consuming more data than ever on mobile devices, including using smartphones to broadcast streams to bluetooth-connected speakers such as the Beats Pill.

The risk, of course, is that Pandora isn't cheap and even a slight miss of Wall Street's targets could send the stock plummeting. Thursday's 10% intraday slide is partly attributable to weaker-than-expected guidance and a slight sequential decline in active listeners from December to January.

So be it. Pandora is still best positioned to profit from the various shifts from terrestrial radio to streaming, and on air to mobile advertising. In fact, mobile ad revenue soared 60% in the fourth quarter versus 39% overall for ad revenue. Expect the trend to continue now that management has lifted limits on listening hours for mobile users.

Or in simpler terms: This sell-off couldn't have come at a better time.

Andrés Cardenal: Fashion is usually considered a fickle and competitive business. However, it can also be enormously lucrative for companies with strong competitive advantages positioned on the right side of the trend. Michael Kors is one of the most explosive growth stories in the industry over the past years, and the recent earnings report confirms that the company is truly firing on all cylinders.

Michael Kors sells handbags and accessories in the "affordable luxury" segment of the pricing spectrum. Brand value and exclusive designs generate competitive differentiation for the company, and pricing power means gigantic profit margins for investors in the area of 34% of sales at the operating level.

While many other companies linked to the consumer are reporting lackluster financial performance lately, Michael Kors delivered a blowout earnings report for the last quarter of 2013: Sales jumped by 59% and earnings per share soared by 73% versus the same quarter in the prior year. Both numbers came in substantially above analysts' estimates.

The company has plenty of room for expansion, both in the U.S. and in global markets, especially considering that demand remains as hot as it gets. Michael Kors trades at a forward P/E ratio near 25 times earnings estimates for the year ending on March 2015, hardly an excessive valuation for such an extraordinary growth company

Matt Frankel: If I had to choose one stock to buy right now, it would have to be Citigroup . The financial sector as a whole is trading very cheaply right now, and Citigroup is cheaper than most. Shares are currently trading for just 86% of their tangible book value, which is unheard of on a historical basis. To put this in perspective, consider that Citigroup traded for between 3.5 and 4 times its TBV up until the financial crisis, and its current valuation pales in comparison to competitors like Bank of America (1.25 times TBV) and Wells Fargo (2.12 times TBV).

The current stock price is simply too low considering the kind of money Citigroup is making and the kind of growth that analysts are projecting. Citigroup's 2014 earnings are expected to be 15% higher than 2013's, and are expected to climb another 16% in 2015.The company has also done an excellent job of improving its asset quality, and has done a great job of winding down Citi Holdings, its riskiest assets, which produced a loss of just $171 million in the most recent quarter as compared with more than $3.6 billion in the same quarter a year ago.

So, while it is true that Citigroup is not quite out of the woods yet in terms of lingering fallout from the financial crisis, I think the current valuation more than makes up for any risks involved.

Justin Loiseau:Spectra Energy Corp. just beat estimates on its Q4 earnings -- and it's hardly a fluke. This natural gas company has been steadily growing sales and assets since Duke Energy first spun it off in 2007. A subsequent spinoff of master limited partnership Spectra Energy Partners put this company in a unique position to capitalize on natural gas while staying diversified and enjoying low tax rates.

Spectra Energy is in the midst of $25 billion worth of near- to mid-term growth projects, giving this dividend stock significant growth potential. It's consistently increased its dividend distribution (up 34% in five years), while saving sales for profitable projects. The company and its subsidiaries currently transport around 12% of all natural gas demanded in our nation, and hold 7% of our nation's storage capacity. As natural gas infrastructure continues to build out across America, Spectra will be there to continually collect its midstream "tollbooth" revenue, padding dividend stock investors' portfolios along the way.

Tamara Walsh: The market's love affair with Tesla Motors is far from over. Therefore, what better month to own the electric-car maker than the month of love? Tesla has a lot of momentum heading into the new year, particularly as it enters the world's largest auto market (China) and readies its crossover Model X for delivery by year's -end. On top of this, Tesla kicked off February having officially connected its East Coast and West Coast Supercharger network. This means that Model S drivers can now make cross-country trips without ever needing to stop at a gas station.

Tesla's Supercharger technology delivers the fastest electric-vehicle charge in the world today, and it does so without costing Tesla drivers a dime. Moreover, on Feb. 2, Tesla finished a coast-to-coast drive that took approximately 76 and a half hours -- a feat that could set EV speed records in the Guinness World Records. As Tesla continues to add more Supercharging stations throughout the U.S. in the year ahead, investors can expect the company's value proposition to grow as well.

: The Walt Disney Company looks unusually juicy right now. In fact, this is more than a mere recommendation --- I'm backing this up with real dollars, having bought Disney shares just a few days ago.

Disney crushed the market in 2013 with a 55% share price gain, despite a seemingly lackluster box office slate and a massive flop in Gore Verbinski's Lone Ranger.

Iron Man 3 carried the Marvel banner surprisingly well, and Frozen became a surprise hit with nearly $900 million in global ticket sales so far. There's always another title to shoulder the load when one of Disney's big bets turns out to be a stinker. And the company hasn't even begun to reap value from its $4 billion Lucasfilm buyout yet.

These titles are the lifeblood pumping through Disney's massive money machines, ranging from ticket and Blu-ray sales to theme park rides, lunch boxes, and themed cruise ship getaways.

On top of all this fundamental business strength, Disney shares look cheap compared to less accomplished industry rivals. The stock had been down year-to-date prior to its earnings report this week. The long-term value and current discount on this stock are undeniable in my eyes.

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The Motley Fool recommends 3D Systems, Apple, Bank of America, El Paso Pipeline Partners LP, General Motors, Google, Kinder Morgan, Meritage Homes, Michael Kors Holdings, Pandora Media, Spectra Energy, Stratasys, Tesla Motors, Walt Disney, and Wells Fargo. The Motley Fool owns shares of 3D Systems, Apple, Bank of America, Citigroup, Google, Kinder Morgan, Sirius XM Radio, Stratasys, Tesla Motors, Walt Disney, and Wells Fargo. 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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