4 Picks to Hit the Ground Running in 2012

01/06/2012 7:30 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

These stocks are in the sweet spot for continuing their winning ways into this year and beyond, writes Richard Moroney of Upside.

Cascade (CASC)
The leading maker of materials-handling equipment in North America, this company is highly leveraged to demand for forklifts. Its primary end markets include pulp and paper, grocery products, textiles, and consumer goods. Cascade has rallied 12% since announcing impressive October quarter results on December 1.

Per-share earnings were $1.74, up from 79 cents and handily above the consensus of $1.20. Results reflect lower interest expense, a favorable tax rate, and improved gross profit margins. Total revenue increased 29% to $138 million and beat the consensus by $5 million. Sales have topped expectations in five of the last six quarters.

At 11 times trailing earnings, the stock trades at a 19% discount to its peer group median. Cascade is being initiated as a buy.

Ebix (EBIX)
A leading provider of software and services to the financial industry, Ebix boasts solid operating momentum and an attractive valuation. More than 75% of revenue is recurring, providing a steady platform for growth. Excess cash flow is earmarked for expansion and potential acquisitions, particularly in fast-growing foreign markets.

Two analysts provide estimates, with per-share profits expected to rise 8% in 2011 and 7% in 2012—a conservative estimate, in our view.

Nearly 38% of Ebix’s tradable shares are sold short, the highest percentage of any stock recommended in Upside. Worries stem from the company’s reliance on acquisitions for growth and the accounting impact of past deals.

Trading at 14 times trailing earnings, a 13% discount to the five-year average, the stock appears to discount considerable uncertainty. Ebix is being initiated as a buy.

FEI (FEIC)
This company is thriving in a challenging environment. In the nine months ended September, per-share profits surged 120% and revenue jumped 37%.

A leading provider of tools used for nanoscale applications, FEI is benefiting from strong demand from researchers, life-science companies, and electronics manufacturers. FEI’s systems provide 3-D imaging, analysis, and prototyping with resolutions down to atomic levels. Advances in material science and nanotechnology, coupled with an expanding international presence, should drive results.

Rising analyst estimates target 2011 earnings per share of $2.45, up from $1.24. Revenue is expected to jump 30%, partly aided by acquisitions. For 2012, the consensus is $2.64, implying 8% growth. Per-share profits have outstripped the consensus in four straight quarters, by an average of 8 cents.

Shares rallied 61% in 2011, yet still trade at 18 times trailing earnings, a 34% discount to its five-year average. FEI is being initiated as a buy.

Preformed Line Products (PLPC)
Founded in 1947, this company makes equipment for the construction and maintenance of networks for energy, telecom, cable television, and data communications. Core products help support, connect, and secure cables and wires. The company also sells solar hardware systems.

For the nine months ended September, revenue jumped 30% as income rose 29%. Strong US sales were fueled by utilities upgrading the power grid and the construction of new lines for transmitting renewable energy. Looking ahead, product launches and acquisitions should help sustain growth.

For 2011, the single analyst estimate calls for per-share earnings of $5.54, up 28%. For 2012, the single estimate is $5.89, implying 6% growth. Preformed Line Products, capable of reaching $68 in the year ahead, is being initiated as a buy.

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