The December retail sales report was a disaster, notes Landon Whaley, who recommends shorting the SP...
15 Top Earnings Performers
08/10/2011 7:00 am EST
Even amid the technical damage in the market, keep your eye on companies expected to report solid profitability in the coming years, says Jim Collins, who tells MoneyShow.com’s Kate Stalter why some of these companies could be among the next crop of big price winners.
Kate Stalter: We are speaking today with Jim Collins of Insight Capital Research and Management Inc., located in Walnut Creek, California. Thanks so much, Jim, for joining us today.
Jim Collins: Well, it’s a pleasure Kate.
Kate Stalter: I’ll start by asking you what I generally begin with in these interviews: Give us your view on the current market conditions, given that there has been a lot of volatility and uncertainty lately. Give us some context on that, and what individual investors should be aware of.
Jim Collins: Well, I think that on a short-term basis, the market has definitely oversold, and it has oversold because of just what you said: Uncertainty, and also there is low confidence. Put those two factors together, and you get a lot of fear and a lot of selling in the market.
A lot of uncertainty comes out of what has been going on in Washington, DC recently. Also, there is concern about what is going on in the Eurozone, in particular the economy. But where we come out on the economy is that we are looking at slow growth going forward—we are not looking at a second recession, or entering into a "double dip," if you will.
We do believe that the economy will continue to grow at about 2%, maybe 2.5%, and in that environment you can still find good opportunities to invest in growth stocks. I think on a long-term basis that this market is a buy.
There are certainly companies out there that are selling at very low prices, when you look out a year-and-a-half to two years from now. I wouldn’t buy any bank stocks in particular, but if you are a very long-term investor, how often can you find a JPMorgan Chase (JPM) at the price it is selling at today?
On a long-term basis, we are positive about what is going to happen. I will say this: There is going to be kind of a cloudy, murky, volatile market going forward, and investors should realize that this is really a stock pickers’ market; it is a AAA stock pickers market.
I would suggest that a good way to work this market is to dollar average or use a professional money manager. This is a difficult market for individual investors.
Kate Stalter: What are some areas of the market where you do see some particular strength at this time?|pagebreak|
Jim Collins: Well we have certainly seen a lot of opportunities in the consumer area. For example, a stock that we have been in, in the past, and we still like today is Green Mountain Coffee (GMCR).
Most of the companies that I will mention have very rapid growth in sales. This is another thing that investors should be aware of. If
you are going to invest in growth stocks, you are looking for companies that are growing earnings and sales at a very rapid pace.
Coming back to Green Mountain Coffee for just a second, this company has a fiscal year ending in September; this coming September. Earnings will be up 135%. In September, 2012, it will be 58%. For 2013, we are projecting another 48% growth. That is what I mean by rapid growth.
We are also finding companies where individuals are still buying products. One company that stands out for us is in the accessory and jewelry business, Fossil (FOSL). Again, we are looking at 26% growth in earnings this year, followed by a couple of years at better than 25%.
Shoe companies seem to be doing very well. Our old friend Crocs (CROX) is still a buy; we are looking at earnings this year up 85%, followed by 20% and then 16% over the next two years.
We uncovered this company many years ago at about $3 or $4 a share, and what turned us on was that we found that people were selling those little rubbery type shoes at about $18 a pair. Crocs was having them made in China for about $3 a pair, so there was a large profit margin. The company is still growing very well today.
There is another shoe company that we have looked at in the past and still like, to date. I’m not trying to single out shoes, but in the apparel area there are some niches where you can make some money. The other shoe company is Steven Madden (SHOO), which is also growing.
Moving over to the healthcare area, we like a company called QuestCor Pharmaceutical (QCOR). This is a prescription drug company that produces drugs that deal with diseases and disorders of the central nervous system. A small biotech company that we like is Alexion Pharmaceutical (ALXN). It produces therapeutics to treat cancer and autoimmune disorders and transplant problems.
Another area that really stands out in the market is in the oilfield-services area. A small company that we like that provides well-site services to about 2,000 companies drilling for oil and gas is Basic Energy Services (BAS). We are looking for earnings for this company to be up 282% this year, 50% next year, and 47% in 2013.
Another area of interest right now is restaurants. We might have 9% unemployment in this country, but you have got to remember that about 91% of the people are still going to work and are still spending money, and people do like to dine out.
Some of the smaller companies...Chipotle Mexican Grill (CMG), is an interesting company. There’s Buffalo Wild Wings (BWLD), and even McDonald’s (MCD) is holding its own. To give you some comparison, McDonald’s is growing earnings about 10% to 13%. These other two companies are growing their earnings over 20% a year.
Just to put a little frosting on the cake here, I know a lot of people are interested in Apple (AAPL). The iPhone 5 is coming, probably in November, and we are still looking at very rapid growth for Apple.
Even though Amazon’s (AMZN) earnings might be down this year, we still like that company very much. So here are a few ideas for you.
A couple of other smaller companies, one in particular we like is Herbalife (HLF). The company is in the weight-management and nutritional supplement field.
There is another company we have been investing in over the years and that is Gilead Sciences (GILD). It is a therapeutic company to treat viral, fungal, respiratory, and cardiovascular-type problems.
Let me stop and pause here, because we are finding plenty of opportunities here and it is kind of ironic that when you turn on the television or watch CNBC these days, that all the news seems to be very, very negative. But in particular, what we have seen and heard coming out of Washington has been very negative. Even so, we are still finding some very interesting candidates to invest in.
Kate Stalter: Right, there are always names setting up. But let me turn to kind of the second part you just alluded to there, which is the negativity and some of the names that are not performing so well. What are areas, maybe sectors or global regions, that you would advise individual investors to avoid at this point?|pagebreak|
Jim Collins: I would certainly stay away from banks, even though I mentioned J.P. Morgan earlier. If you had a three-year horizon, then some of these companies would be worth taking a look at...but on a one-year basis, I don’t think you are going to see banks do very much from here.
They have sold off dramatically and do represent very good values, some of them do, and I think Wells Fargo (WFC), as well as J.P. Morgan would fit into that area, but I would be very, very careful about investing in those types of companies.
Anything having to do with building, homebuilding, or even commercial building, I would stay away from that type of company. Steel producers don’t look very good either.
REITs that are developing and managing senior-care facilities or nursing homes, there is a possibility that the government is going to cut the reimbursement by 11% to those types of companies, so I would certainly stay away from those.
Leisure/lodging is another area that doesn’t seem to be too attractive. Those are some areas to avoid right now.
Kate Stalter: You named a number of these stocks that are showing this terrific technical and fundamental strength right now, but are there any other investment vehicles that you are currently using to meet your client’s objectives?
Jim Collins: Well we tried our hand at managing ETF portfolios and international portfolios, and we produced some good results, but I look at ETFs as trading vehicles you have to go in and out of. But there are two that investors should take a look at.
Gold has certainly been doing very well, and the ETF there (GLD) is worth considering. I know that silver has been outperforming gold, but GLD might be one that investors should take a look at.
Also, I think the mid-cap growth area is another area that should work very well going forward. There is a lot of interest in that part of the marketplace, and the iShares S&P Midcap 400 Growth (IJK) is worth considering.
So those are a couple of areas, but there are a lot of things out there that still look very good. Goods are still moving across the company. FedEx (FDX) looks like its earnings are going to continue to grow here. There are a number of things here on the bottom line.
When you look at the earnings reports, and what companies are saying about the future, I would say that over 50% of the companies are providing positive forward-looking numbers, and about 75% to 80% of the companies that have reported earnings for this last quarter have come in and beat estimates.
I think what we are going through here, and where we are getting jerked around a bit, is that everyone is deleveraging; individuals, as well as large corporations. Corporate America has never been healthier; they have the strongest balance sheets I have seen in 40 years.
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