3 Stocks to Buy, and 3 to Avoid
07/10/2012 12:53 pm EST
Trend investing expert Chris Versace explores today’s dominant trends and comes up with a handful of stocks to buy and to run away from.
Three good ones and three bad ones with Chris Versace. Chris, in this kind of stock market it’s a stock pickers market, and so it’s important to know what to buy and what not to buy.
Oh absolutely, absolutely. And the great thing about Power Trends is it really tells us and identifies and tells us companies that we should be owning and companies that we should either be selling—or for those risk-tolerant investors, potentially even shorting.
Some of the names that we’re avoiding here include Nokia (NOK), as it continues to be battered in the mobile phone business. Really, really behind the curve in transitioning its business to smartphones and tablets. That’s part of my "always on, always connected" Power Trend.
We also don’t like The New York Times (NYT). It’s no secret that the company has been, you know again, battered with falling advertising rates as advertising dollars shift from print and related media to online.
It’s interesting with those two as well, with those trends, in that they are two enormous, almost monolithic companies that haven’t made the transition. Just like you were saying with your Power Trends, that they are on the back end of this, where the ascendency was theirs with size and mass, but they don’t have the nimbleness.
That’s right. They clearly did not see what was coming together in that inner section of drivers for Power Trends—economics, demographics, psychographics, mixed with a little technology—and they missed that inflection point. As such, they were left behind.
Another company that was left behind, in my opinion, was AOL (AOL), which had its heyday back in the day. The last couple weeks the stock has popped, but the issue is, when was the last time you heard somebody say that I’m going to check my AOL mail or I’ll send you a message on AOL? You simply don’t.
The stock has moved higher on the news of a patent sale recently, which has inflated the cash per share. But the reality is it has not addressed the underlying problems in the company’s business. I would absolutely avoid that.
A lot of brain drain too in that sector.
In terms of three names that we like, we continue to like Weight Watchers (WTW). The stock has gotten battered; in our view, it’s a great time to be entering that name as part of my "living longer lives" Power Trend.
The reason I really like Weight Watchers is, yes, it does deal with the obesity epidemic going on in the country and arguably around the world. But looking under the hood, the company is transitioning its business model to a higher-margin online business. That’s really going to drive incremental margins and EPS in the coming quarters, so we like it for that.
Sure, and it’s a trend that’s certainly not going away. It’s in its infancy, I would imagine.
There is no slowdown in the obesity epidemic, here or outside the United States.
Right, as those developing nations, their middle class grows, they get more access to candy and other foods that they didn’t necessarily have access to…it’s just a matter of time.
Well, it’s the bittersweet side, if you will, of exporting the American lifestyle.
Another one is International Flavors and Fragrances (IFF). The company is a great play given its domestic customers, which include PepsiCo (PEP), Colgate-Palmolive (CL), Proctor & Gamble (PG), as well as Unilever (UL), so it’s very well entrenched in products that we consume every day.
Given the nature of its business, it’s proprietary formulations in flavor and fragrance, it’s very sticky with their customers. But, the real reason I like the name is that it is well-positioned for the exploding middle class—like we just talked about, outside the United States—and it’s being pulled into those markets where we’re seeing greater disposable income and a step up in purchasing power because of its customers that I’ve just mentioned, so PepsiCo, Colgate-Palmolive, P&G, Unilever and the like.
The great thing too is ten years of consistent of earnings growth, and a consistent grower of its dividends. I really like that name. One last one if we have time…do we have time?
Real quick, it will be a company call ComScore (SCOR). It’s a digital analytics company, and as the negative of The New York Times is that shift to online advertising, this company tells you the who, what, where people are going and sells that information to advertisers.
It’s a win-win, and think of what’s coming up this summer: We’ve got the Olympics, and then millions and millions, if not billions of dollars to be spent on the presidential election. That’s a great catalyst for the name.