Jubak's Picks: Two New Buys
09/19/2003 12:00 am EST
Jim Jubak is a columnist for CNBC on MSN Money; his "Jubak's Journal" is one of the most popular financial features anywhere. As part of his column, he maintains a list known as "Jubak's Picks " - his current favorite stocks. He has just added two new picks to that list.
"Buy Reliance Steel and Aluminum (RS NYSE). Consider this stock a proxy for the recovery that seems to be gathering strength in the manufacturing sector of the economy. The company is coming off the bottom of a deep cyclical earnings trough. I think there’s good value in a stock trading at 16 times projected 2004 earnings and has the potential to grow earnings 60% in the same year. It doesn’t hurt that the company has exceeded Wall Street earnings estimates by 20% and 11% in the last two quarters. Despite the stock’s recent momentum, it remains a good value on projected 60% earnings growth for 2004. What happens if the market turns down? Because it’s a value stock, Reliance is less volatile than the market as a whole. The shares also recently hit a 52-week high, but momentum indicators say that this one is headed higher. And the stock’s relatively small market cap of just $740 million gives "Jubak’s Picks" some much needed exposure to the small cap sector. I’m setting a target price of $32.20 for Reliance Steel by July 2004.
"Buy HCA (HCA NYSE). The country’s largest hospital chain, HCA did nothing but disappoint investors for the year that began in June 2002 when the stock traded at $51.90. Disappointing earnings and a federal investigation into alleged Medicare overcharges dropped the stock to a low of $27.85 by April. But, with the Medicare settlement behind it, HCA looks as if it will start churning out earnings again. Earnings per share should rebound in 2003 to $2.81 from $1.56 a year ago. Its 2004 earnings may reach $3.07 a share. That puts the P/E ratio at 14 on 2003 earnings and 12 on 2004 earnings, down from 24 on trailing 12-month earnings per share. HCA has moved up steadily since June, when value investor Warren Buffett began accumulating shares (Berkshire Hathaway didn’t disclose that its Geico subsidiary bought 10 million shares until an August filing with insurance regulators). I’m adding this one to "Jubak’s Picks" with a target price of $54 by September 2004."