The best corporate managers are always one step ahead. Salesforce is the second coming of Amazon.com...
08/26/2005 12:00 am EST
Joe Battipaglia, chief investment officer for Ryan, Beck & Co., is a noted bull on the investment markets and is deservedly a favorite of the financial media and one of the most popular speakers at Money Shows. Here, we look at a five-pack of his favorite ideas.
"The US economy has demonstrated how vital and strong it is, despite having faced high energy prices, a readjustment in the value of the dollar, a couple of inflation threats, and geopolitical issues. I would argue that it will continue to surprise the experts by growing at 3% in real terms this year and into next year, allowing American corporations to power ahead with their business plans and achieve profit growth – measured by the S&P 500 – in the area of 10% this year and into next. As a result, the market has more to go.
"I would further argue that whatever risks are out there that we are living through are already reflected in valuations. Stock multiples now, to my mind, are cheap when you consider the dynamics of our economy, the lack of real leverage in the economy, and the financial cash throw-off that is going on right now at the corporate level. I think the signs are very good that this bull market will actually expand. It looks like the stock market is undervalued by 5% from here to the end of the year, and the stock market will give investors a better return relative to bonds and cash alternatives.
"Meanwhile, the stocks I’ve highlighted have come through our screening program, and what is common to them is that they have strong cash flows and very high returns on investment capital.
"Capital Title Group (CTGI NASDAQ) is in the title insurance business. They have moved aggressively into the commercial area, which is growing rapidly. There is a ‘big 5’ in this industry, and this move makes them the ‘big 6.’ They are the only one of the group of six that will show double-digit growth this year in their base business. It trades at a low cash flow multiple and at a discount to earnings to the group. The stock is probably worth somewhere between $10 and $12 a share.
"Dell Computer (DELL NASDAQ) is a great stock. The latest quarter disappointed some, and the stock recently sold off. However, this is the world’s low-cost producer of hardware, come hell or high water. They produce computers, laptops, printers, and they do it cheaply. This puts them in the sweet spot on a global basis whenever there is demand for hardware. The stock is up 70% from its low in 2003. This looks like a good opportunity to buy a well-capitalized company with huge cash flow that will also be a play on the introduction of new operating software from Microsoft in 2006. Right now, the stock has become attractive again for investment.
"Green Mountain Coffee Roasters (GMCR NASDAQ) is a coffee roaster with a unique brand. They are becoming a national company versus being a regional company out of Vermont. As a result, we see high cash flow, rapid earnings growth, and an attractive valuation.
"MicroStrategies (MSTR NASDAQ) is a technology company selling into the e-business space. It has a very strong customer list, which is growing. It has a new platform that they rolled out, yet the stock trades at a below market multiple. The knock on this company is that management has a terrible time articulating where they are going and what is ahead. In fact, in the first quarter they had a conference call that caused the stock to go down because they provided no answers. So in the second quarter, they said there will be no conference call. The stock was up 15%. So that might be a message to more managements to stop talking.
"Take-Two Interactive (TTWO NASDAQ) is in the video game entertainment space. I expect a very big year for the game industry going into the fourth quarter, and this company looks good on a valuation basis, with high cash flow."
Now about new highs being celebrated, amidst deterioration of a slew of internals: This suggests nei...
In part 1 of our commentary, we discussed the current Fundamental Gravity of our “Slowing Drag...
Some analysts are making the case that it’s time to look outside the U.S. at stocks in non-U.S...