Navellier: Only the Best
05/21/2004 12:00 am EST
Modern portfolio theorist Louis Navellier covers factors such as sales growth, profit margin expansion, and earnings momentum. (Statistics on over 5,000 stocks are available through his website.) From his proprietary analysis of this data, he offers his top current buys.
"I’m a big bull for a very simple reason. Cash flow is at a record high. When you look at earnings, they can be manipulated. But you can’t manipulate cash flow, and this measure is at a record high. Companies are redeeming a lot of their debt, and paying down their bonds. A lot of companies are buying back their stock before they declare new dividends. That’s very bullish, And in terms of earnings, they are also at a record high. It’s quite incredible. Earnings in the last three quarters have been the strongest since 1993. We just finished the third quarter in a row in which earnings were up over 20%. And they will be up another 20% for this year’s second quarter. In fact, earnings could be up 20% for every quarter of this year.
"Now, of course, the market hasn’t gone up– despite these good earnings. As a result, p/e ratios are plummeting. In fact, some of the p/e ratios we are seeing are truly ridiculous, with many good stocks trading at less than 20 times earnings, despite strong growth. That’s the good news. The bad news is that the market is getting more narrow. We have seen a move from small cap to large cap and when this occurs, there are fewer stocks–so the breadth and power of the market decays. Last summer, the top 32% of stocks in our database had a ‘buy’ or ‘strong buy’ rating. Not too long ago, it was the top 24%. Now it looks like only the top 18% have these buy ratings. So this market is losing breadth and power. But those remaining buy-rated stocks look phenomenal. We want you to own the best stocks.
"We like AU Optronics (AUO NYSE). The company makes LCD monitors for Dell, Hewlett-Packard, and Sony. They make the little hand-held LCD screens. And also, they are making LCD televisions now. The TVs, particularly the high-definition TVs–are becoming increasingly popular and they are more reliable and last longer than plasma screens.
"Alcon (ACL NYSE) is a Swiss company that makes medicine for degenerative eye diseases, like glaucoma. Over 200,000 in the US alone get glaucoma each year. This is the number one blue-chip growth stock right now.
"We also like the orthopedics sector, and my favorite stock here is Zimmer Holdings (ZMH NYSE). The company makes new knees and hips, and we’re all getting older and one day we’re all going to need those new parts.
"I also like International Game Technology (IGT NYSE) right now. This company makes slot machines and gaming continues to expand. I live in Reno and I know the IGT executives very well. Their business is booming, gaming is booming, and California is expanding its Indian casinos to get more money for the state. And in this situation, IGT wins.
"Georgia Pacific (GP NYSE) is a simple pick. Lumber prices are very high, due to demand. There’s a building boom underway. In addition, the company benefits from the strong Canadian dollar. The company is reporting record profits. Most people have more money in their homes than in stocks, and Alan Greenspan doesn’t want to pop the housing bubble. So I think the housing market will stay strong and demand will continue.
"Occidental Petroleum (OXY NYSE) is probably the best managed international petroleum stock in the world. It has a 2.6% dividend yield, so this stock should be steady. This is an excellent way to profit from strong oil prices. It may also benefit from some big Libya contracts.
"Valero Energy (VLO NYSE) has just been added to our blue-chip list. It’s a refiner. I know oil prices are very high, but demand is even higher. We haven’t had a new refinery built in the US in over 20 years and Valero is the biggest independent refinery in the country."