Jim Collins: Momentum Favorites
10/31/2003 12:00 am EST
With over four decades of experience, money manager and newsletter editor, Jim Collins, has developed one of the financial world's most successful momentum-based systems. Indeed, his portfolios are up over 80%, year to date, and he scores the top among newsletters over the past 15 years. Here's his outlook and his top picks.
"We’re investing only in small, rapidly-growing companies that have solid fundamentals and whose stock prices have been beating their benchmarks by perhaps the past six months. We would emphasize that t his is not a phony recovery. Interest rates are low and are going to remain low for an extended period of time. Things are just about as good as they get. Fiscal policy and the economy are working to really lift these companies up. Are their p/e multiples high? Yes. But if you focus only on price to earnings ratios you will miss a lot of opportunities in the market. When we first bought Microsoft about 15 years ago the p/e was probably 80. We bought Cisco about 14 years ago with a p/e of 90. Our focus is not on what happened before, but what will happen to earnings and sales in the future. If sales and profits are growing very rapidly and the companies have a very strong niche in the marketplace, and if you have a decent economy, chances are that those stocks will continue to run. One of the things that is driving small-cap growth now is upward revisions on earnings estimates--and these are significant revisions on the upside. With this in mind, here are three good, niche-type companies.
"We still like what we see at Amazon (AMZN NASDAQ). Amazon is partnering with other companies to handle third party sales. As a result, Amazon allows you to expand your sales base without your having to add employees or take up additional floor space. In turn, Amazon gains a lot of leverage. For example, its sales this year may rise 35%, but earnings for 2003 will increase 256%. We’re projecting a 20% to 25% growth rate for next year, with earnings up around 51%. This is a unique situation. There is a tremendous market size out there and I think they are doing a great job.
"Sina.com (SINA NASDAQ) has advertising revenues that is more than the combined ad sales from its peers combined. China has about 68 Internet users, and I’ve seen recent estimates that suggest that number is now about 85 million. That’s the country with the second largest use of the Internet and in 2005 it will pass the US. They are also into the game business and the market size over there is about $120 million. This will double next year. The short-term messaging unit that is being offered over there, we saw 95 million messages sent last year. That will double this year. So there is tremendous growth there. The company has just begun to earn some money. The stock is up sharply, but we think it’s still got a long way to go.
"Here’s another unique company. Most people wouldn’t think you can make a lot of money from soy or organic food products. But there is a company called Stake Technology (STKL NASDAQ). We note that effective Oct. 31, the company’s name will change to SunOpta. Inc. The company is doing about $200 million a year in sales. One of its largest customers–in this case, Dean Foods–is going to spend $150 million in advertising pushing soy-based products and Stake is supplying about half of what they are selling. That’s a good position to be in."