The Year in Review Looking to the Year Ahead
Five Great Value Stocks for 2013
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The stock market produced reasonably good results in 2012, despite the slower global economy and myriad other problems throughout the world. During 2012, the Dow Jones Industrial Average gained 7%, the Standard & Poor’s 500 Index rose 13%, and the Nasdaq climbed an impressive 16%.
If your stock performance varied widely from stock to stock, you’re not alone. Stocks in the Home Construction Industry soared 84% but Coal stocks dropped 32%. Apple (AAPL) started the year at 405, rocketed to 705 on September 21, then fell to close out 2012 at 532.
But that’s old news. What will happen in 2013? Which stocks will make big moves?
Whoa! I forgot one thing. Did you have some serious losses in 2012? If so, figure out where you went wrong and try your best not to make the same mistakes in 2013. Investing is a constant learning experience. We all need to review our past performance, and adjust or tighten up our methodologies to do better in 2013 and beyond.
What about 2013? The year is already starting off with a lot of uncertainty, and stock investors don’t buy stocks when uncertainty prevails. It seems like all of the usual factors that affect the stock market, including politics, the economy and corporate profits, are especially hard to predict for the coming year. Therefore, I think we can expect a so-so year for stocks.
The 2013 U.S. stock market will have plenty of ups and downs, but I don’t believe a severe drop will occur despite some analysts’ predictions. Even though the many political problems will continue, there will always be hope that solutions will be found, eventually. Stock market values are built on the outlook for sales, earnings and dividends rather than political banter, bickering and grandstanding.
Based upon my quantitative fundamental analysis, the low for the Dow Jones Industrial Average will be 11,440 in 2013, and the high will be 13,871. The Dow will end 2013 at 12,655, in the middle of my forecast range and slightly below the current reading of 13,104.
A lot could happen in 2013 that would force me to revise my forecast. If the quagmires in Washington and Europe can be resolved with some real long-term solutions, the U.S. stock market could rise considerably higher than 13,879. But if big banks start to fail in Europe, the Dow will drop.
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In a recent issue of my Cabot Benjamin Graham Value Letter, I suggested buying 18 value stocks. Included in the list were Celgene (CELG), Cognizant Technology (CTSH) and Mindray Medical (MR). Rather than buy these three stocks at the current price, I strongly urged my subscribers to buy only if the stock prices declined to their Maximum Buy Prices (targets) of 71.54, 64.33 and 32.96 respectively.
CELG, CTSH and MR declined to my computer generated targets briefly and have since produced profits of 10%, 15%, and -1% in less than two months while the Standard & Poor’s 500 Index was up 1%. CELG and CTSH, as expected, are well on their way to producing more profits for my happy group of subscribers. MR will follow soon.
These examples illustrate what my Cabot Benjamin Graham Value Letter is all about: Buy at the suggested Buy Price, then Hold, until the stock reaches my suggested Sell Price. No, the system doesn’t work perfectly every time, but the results indicate that this is the most profitable system with the least amount of risk anywhere!
For my faithful subscribers, I publish Maximum Buy and Minimum Sell Prices for CELG, CTSH MR and 247 other stocks. Right now, one of my stock recommendations is very close to its Minimum Sell Price after gaining 96% during the past 30 months!
To find out how you can increase your profits and dividends using a safe, sensible system, click here and get started today! https://secure.cabot.net/?id=90&s&source=er02
Which stocks will perform well in 2013? As the Editor of the Cabot Benjamin Graham Value Letter, I follow value stocks closely. For the past several decades, value stocks have outperformed growth stocks consistently, but during the past 15 months, growth stocks have outperformed value stocks.
During the past three months, though, value stocks have begun to outshine growth stocks. I believe 2013 will be an exceptional year for great value stocks. Top-notch companies in leading industries are clearly undervalued and look very attractive.
I scanned my database to find five stocks with the right credentials to perform very well in 2013. My five picks are the stocks of U.S. companies with exceptional prospects for 2013. All of my stock choices pay dividends, and all are selling at bargain prices. The Gold ETF does not pay a dividend but is selling at a bargain price.
My first recommendation is BlackRock (BLK: 206.71). BLK is the largest publicly traded investment management company in the world, with assets under management totaling $3.7 trillion. The company offers a variety of investment and advisory products and services to institutional and individual investors. The 2009 acquisition of Barclays Global Investors, manager of all iShare ETFs, doubled BlackRock’s revenues and added significant profits.
Black Rock is best known for its expertise in fixed income asset management. The company has benefited from the globalization of capital markets and the growing demand for more sophisticated risk management tools and solutions. The firm has been gaining market share, aided by its size and untarnished reputation in the marketplace.
Sales and earnings growth slowed during the past 12 months, but a rebound is under way. Sales will likely rise 9% and EPS will increase 11% in 2013. New business from banks and governments seeking help to manage asset risk and to help unload troubled assets could push sales and earnings higher than expected. BLK is Low Risk, share price volatility is below average, and the dividend yield is attractive at 2.9%. Buy now.
Kroger (KR: 26.02), founded in 1883 in Cincinnati, is one of the largest U.S. grocers, with 2,422 supermarkets in 31 states. The company also operates 790 convenience stores, 344 jewelry stores and 1,141 supermarket fuel centers. Kroger’s typical format includes food and drug stores containing bakeries, delis, seafood, meat and floral shops, pet centers and high-quality fresh items such as organic produce.
Management recently introduced an ambitious program to boost the number of new stores. Kroger will also expand its business by launching discount stores and restaurants. Management is committed to improve sales and earnings growth considerably during the next couple of years and beyond.
Recent quarterly financial results have been impressive. Kroger’s “Customer 1st Strategy” continues to raise customer loyalty, boost same supermarket sales and increase market share. Management lifted its earnings guidance for the current quarter and forecast accelerating sales and earnings for 2013. Kroger is taking market share despite formidable competitors such as Wal-mart.
At 11.3 times current EPS and with a dividend yield of 2.3%, KR shares are undervalued. The balance sheet is solid, and Kroger shares are less volatile than the shares of most companies. Buy now and sell at my Minimum Sell Price of 35.35.
Microsoft (MSFT: 26.71), the world’s largest software company, develops, manufactures and licenses software products and services for different types of computing devices. Computer software includes the Windows operating system, the Office application suite and cloud computing services. The company also designs and sells hardware, including entertainment products, digital music devices and personal computer products.
MSFT’s new Windows 8 operating system designed for computers and tablets is enjoying strong demand from users. In addition, Microsoft’s new tablet computer, called the Surface, has won high praise for its innovative features. The company’s Xbox consoles and Kinect move games continue to gain market share. MSFT’s Skype voice over Internet protocol service (VoIP), acquired in May 2011, is providing rapid growth.
I forecast 11% sales growth and 10% EPS growth in 2013. The company could beat my forecast if new products, such as the Surface, exceed expectations. At 9.1 times my 2013 forecast EPS of 2.89, MSFT shares are undervalued. MSFT shares will likely advance to my Minimum Sell Price within one to two years. MSFT is very low risk.
SPDR Gold Shares (GLD: 162.02) is an Exchange Traded Fund (ETF) that seeks to replicate the performance of the price of gold bullion. The fund physically holds gold bullion and no other assets. The fund, created in 2004, maintains a low management fee of 0.40%.
Gold mining companies, such as Barrick Gold and GoldCorp, are experiencing declining mine production while incurring higher mining costs and higher labor costs. The uncertain near-term future of gold mining companies can be avoided by buying a gold ETF. And SPDR Gold Shares are a lot less volatile than most gold mining company stocks.
I believe the price of gold has hit bottom and will rise in 2013, which will benefit SPDR Gold Shares. Gold production has risen only 0.6% annually during the past 12 years despite a rapid rise in the price of gold.
The threat of debt defaults, both domestic and foreign, increases the appeal of gold as a safe haven. In addition, the new Federal Reserve bond buying program is expected to cause gold prices to rise during the next several months. The recent drop in gold prices provides an excellent buying opportunity. GLD does not pay a dividend and is low risk.
Walgreen (WAG: 37.01), founded in 1901, is the largest drug store retailer based on sales. In addition to 8,200 drug stores, the company operates 700 health clinics within existing stores and on employer work sites. Walgreen’s clinics offer primary and acute care, pharmacy and disease management services, and health and fitness programming.
Sales decreased in 2012 due to the loss of Express Scripts’ prescription business from January 1 until September 15. In addition, Walgreen will no longer be included in the Defense Department’s Tricare health plan network.
Walgreen is headed in a new direction. The company purchased a 45% stake in Alliance Boots GmbH for $6.7 billion in cash and stock. Boots is a leading drugstore and wholesale pharmaceutical operator in Europe. Based in Switzerland, the company operates 3,330 health and beauty retail drug stores in the U.K., Norway, Ireland, the Netherlands, Lithuania and Thailand. Boots’ pharmaceutical wholesale business supplies medicines and healthcare products to more than 170,000 pharmacies, doctors, health centers and hospitals from 370 distribution centers in 21 countries.
Sales and earnings at Boots are growing at a 10 to 15% pace, which will greatly enhance Walgreen’s growth in the future. WAG is expected to purchase the remaining 55% ownership within three years. Together, the two companies will operate over 11,000 pharmacies in 26 countries. The opportunity for Walgreen to expand globally is exciting, but I expect earnings to lag during a 12 to 18 month “transition” period before accelerating rapidly in future years.
Walgreen shares are undervalued at 13.0 times my 2013 EPS estimate of 2.84. The recently increased dividend now yields an attractive 3.0%. WAG’s stock performance has lagged the stock market during the past five years, but the current price presents an excellent opportunity to buy a blue-chip company with improving growth prospects. I believe WAG shares will reach my Min Sell Price within two to three years. WAG is very low risk.
I will continue to follow BlackRock, Gold, Kroger, Microsoft, Walgreen and other blue-chip, high-quality investments in my Cabot Benjamin Graham Value Letter. My next issue, coming soon, will focus on undervalued Canadian stocks. I hope you won’t miss it!
Finally, I wish all you and your loved ones a safe, healthy and prosperous new year!
Sincerely,
J.Royden Ward
Editor of Cabot Benjamin Graham Value Letter
Editor’s Note: You can find additional stocks selling at bargain prices in the Cabot Benjamin Graham Value Letter. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks plus my up-to-date predictions for the Dow Jones Industrial Average.
Click here to get started today!
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