You Will Love These Stocks More in 2013
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I am always on the hunt to pick up those stocks which the investment managers are betting upon aggressively. My ideology is plain and simple -- to identify who has skin in the game. This time i took into my analysis Wedbush Securities.
For the third consecutive time, Wedbush Securities made a sweeping victory in Barron's-Zacks top stock pickers. The firm grabbed the gold medal with a strong 73% return over its 36-month performance period. This news made me browse through the recent 13F filings of Wedbush Securities.
The firm has its concentration mainly on financial stocks, which constitute 31% of its portfolio, followed by the services sector with a roughly 14% share. Screening its portfolio this time, I picked up three stocks: General Electric (NYSE: GE), Pfizer (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).
Both General Electric and Pfizer are among the top five holdings of this firm, whereas with a reduction in holdings of 2%, Johnson & Johnson stands at No. 12. All the three companies are known for their good dividend yields, so you will love them if you are an income investor. Also, looking at their long term growth plans, these stocks also offer an appealing opportunity to value investors.
Let's discuss these stocks in detail.
Source: Yahoo Finance
General Electric, the conglomerate, has always remained a favorite among the investors with its attractive dividend yield. The company has given a dividend yield of ~4.20% in the last five years. In December 2012, the company further increased its dividend by ~12% which was the fifth increase in the last three years. Its forward dividend yield currently stands at ~3.40%.
My confidence in the stock was further strengthened when I had a look at Q4 12 as well as FY 2012 results. The revenue of the company was up by ~4% in the quarter with its industrial segment revenue up by ~9%. Despite the mixed global environment, GE has the strongest-ever backlog for equipment and services at around $53 billion and $157 billion, respectively. With this largest ever backlog, I sense great opportunities for the company for good organic growth in 2013.
Recently, General Electric announced the sale of its remaining 49% equity stake in NBC Universal to Comcast (NASDAQ: CMCSA) for ~$16.7 billion. This followed the company's earlier step of reducing its ownership in NBC Universal from 80% to 49% in 2011. This deal is a win-win situation for GE as well as Comcast. With this deal, GE will get cash to focus more on its core business segments. On the other hand, Comcast will be benefiting by the ever increasing prices of sports and other TV programs with its majority stake in NBC.
I expect that GE will use the money from this deal to further speed up its share buyback plan for around $10 billion in 2013. This will enhance the total cash return to its shareholders to ~$18 billion in 2013. Also, via this money, GE will continue to invest in its highly profitable segments such as its industrial business. With balances capital allocation policy and better than expected results, I expend an uptrend in this stock for the rest of the year and advise it to be a buy.
Pfizer's stock has given a return of around 26% in the last year. This even surpassed the ~19% return estimated by the NYSE ARCA Pharmaceutical Index of large US and European pharmaceutical companies. This was mainly due to its strong portfolio of products and the company's efforts to divest/spin-off its non-pharmaceutical segments to focus more on its core operations. Pfizer used the cash proceeds from these spin-offs towards its shareholder's return via bigger dividends and share buybacks.
The company last month reported its Q4 12 and FY 2012 earnings which showed the reviving sales in the emerging markets. Its sales from the emerging markets increased ~17% q/q to ~$2.65 billion.
Talking about product pipeline, Pfizer has in its bag some recent approvals for new drugs which will help it in posting better sales figures in 2013. The most important of them is the blood clot preventer "Eliquis" that it has jointly developed with Bristol-Myers Squibb Co. The drug is already approved by Japan's and Europe's agencies for use on arterial fibrillation patients. In late December 2012, it was also approved by the US FDA, which will further open a bigger US market for this drug.
This was a great achievement by the company, since the approval was earlier denied twice by the FDA, and any further decision was expected only until March 2013. However, this early approval will help Pfizer to give a tough fight to its closest rival, Johnson & Johnson, which already has an approved drug for this category. Various analysts are forecasting annual sales of around $5 billion for Eliquis.
Along with this, Pfizer's rheumatoid arthritis drug Xeljanz also got approval from the US regulator in November 2012. This is another strong growth point for the company, since this drug will enter the high volume RA treatment market, which accounts for ~$20 billion of sales annually. Xeljanz is expected to generate ~$2 billion of sales annually for Pfizer.
I am extremely positive about the company's future performance, looking at its impressive pipeline of experimental drugs.
Johnson & Johnson
Johnson & Johnson last month posted its fourth-quarter and full year results for 2012. The company had sales of ~$17.6 billion for the quarter, which was an increase of around 8% year over year. However, the worldwide consumer sales for FY12 saw a decline of ~3% year over year at ~$14.4 billion, mainly due to the negative impact from currency fluctuations. Going forward, the short investors can expect some headwinds from the consumer segment looking at the stiff competition in this sector.
However, for the long investors, this stock presents a rosy picture. The company recently presented its blueprint to enhance growth for its Medical Devices & Diagnostics segment (MD&D). The MD&D segment got a boost via the acquisition of Synthes in 2012, which contributed ~8% to the worldwide operational sales growth.
I believe in 2013, J&J will fully integrate its Synthes acquisition for both sales as well as operating synergies. This synergy will add ~$0.03-$0.05 to the company's EPS in the short run. As Synthes already has a meaningful amount of business in the emerging markets, J&J will also be able to expand its presence in markets like Russia, China, and India in the future. The company is forecasting a growth of around 10%-13% in the emerging markets as compared to just 2%-4% growth in the developed markets.
Additionally, the company's list of recently approved or to be approved drugs increases my confidence for improved growth in 2013. Let us have a look:
- J&J's pharmaceutical segment will provide great support to the company with some promising blockbuster drugs. Pipeline products include Canagliflozin (diabetes), Simeprevir (Hepatitis C), Ibrutinib (chronic lymphocytic leukemia) and Simponi IV (rheumatoid arthritis). These drugs will definitely help the company to sustain the growth in pharma sales in the long run.
- With recent approval of its prostate cancer drug Zytiga for earlier stages of the disease I expect Zytiga to provide more revenue per patient because of higher pre-chemo use in 2013.
Overall, I believe J&J presents an attractive total return package for the investors with its high dividend yield and long-term growth fundamentals.
All three stocks discussed above will be great additions to any investor's portfolio. Apart from their strong dividend history, their long-term growth prospects also remain intact. The good quarterly results of these companies have further warmed the investors with higher expectations.
For GE, its improved focus on its profitable and core segments will help it in achieving the targeted growth in 2013. Plus the company's capital allocation policy is like an icing on the cake for the investors. On the other hand, pharma giants Pfizer and J&J are on long-term growth trajectory with their robust portfolio of drugs. I recommend a buy rating on these three stocks.
ShwetaDubey has no position in any stocks mentioned. The Motley Fool recommends FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!