5 Stocks For A Blockbuster 2013 Portfolio
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I felt it about time to pick my five favorite stocks for 2013. Stock prices, to some extent, are emotionally driven by fears, and also driven by events often not in the companies' control, such as government debt problems, interest rate issues, and foreign economies in Europe and China. But, without further ado, if I had a clean slate, here is what I would be looking to invest in, right now.
McCormick & Company (NYSE: MKC) is my defensive pick of the year. This leading spice and condiment company had a terrific 2012, with its stock price up 26% for year, causing its dividend rate to fall to 2.1% by year end. The company is a “dividend aristocrat”, having raised its payout now for 27 years in a row. Despite that, the payout ratio has been static at about 40% each of the past six years, a testament to McCormick's consistent earnings.
McCormick has roughly a 50% market share of spices in the United States though its own brand and as the maker of private label brands. It has also gained a substantial toe hold in Asia, and has the financial resources to continue making add on acquisitions to bolster its foreign presence. By 2015, the company expects 20% of its sales to come from emerging markets, nearly doubling where it is today. McCormick will never be a growth company, but is capable of continuing to raise its profits close to 10% annually. Its stability, as evidenced by its Beta of 0.45, suits a conservative investor, and this is the kind of company I like to set the ballast for the riskier projects I have planned for 2013.
I spend most of my time covering banks and financials. One bank I have had my eye on for quite some time is Puerto Rico's Popular Bancorp (NASDAQ: BPOP). This bank, with a little under $40 billion in assets, lost over $2 billion cumulatively from 2007 – 2010, and its stock price is only in double digits due to a 1:10 reverse stock split early in 2012. But things have turned around nicely, and the bank is on track to earn about $220 million, or $2.15 per share in 2012.
Looking ahead, Popular's annual reserve for loan losses are still very high relative to a bank of its size. In 2012, it looks to be setting aside about $580 million, and that has plenty of room to fall further with an improving economy going forward. Popular is well capitalized with a Tier One level of 16.5%, nearly triple the amount considered to be “well capitalized.” It also enjoys an overall net interest margin of over 4%, far higher than the average bank, due to generally higher interest rates in Puerto Rico than in America. Paying back its TARP debt of almost $1 billion as the bank intends to do this year, will lower interest payments. As this bank's other credit costs also fall going forward, I can see earnings chugging ahead 25% or so this year over 2012.
Popular has tremendous growth potential over the next several years, and those with value orientation should note that it is currently selling for only about half its book value. January 2013 is not too early to start. Beware that with this great potential comes higher than average risk.
Time Warner (NYSE: TWX) is a diversified print and media news and entertainment company. This is an opportune time in the lifecycle of Time Warner, as it will be renegotiating contracts with all of its various distributors sometime in the next three years. The double digit prices increases Time Warner plans to seek will flow to aid both the top and bottom lines in the years ahead. Even before then, Time Warner will get a small bump from its recent deal to provide content to Netflix (NFLX).
Time Warner's stock climbed about 13% in 2012, roughly in line with the market as a whole. I see earnings, and Time Warner's stock price both rising more in the double digit area in 2012. Toss in the 2.1% yield, and I see the company as a winner not just in 2013, but beyond as well.
Cirrus Logic (NASDAQ: CRUS) manufacturers and sells high performance microchips and mixed signal systems. Its own products are sold under the “Crystal” brand name. After being a high flyer in the 1990's, the company went through a long and lean period with its stock never rising above $10 per share from 2003 through 2009. The company's largest single customer is Apple (NASDAQ: AAPL) to whom Cirrus supplies sound related hardware for Apple's iPhone 5.
Earnings for this company, whose fiscal year ends at the end of March, should be well over $3.00 per share in fiscal 2012 compared to $1.36 per share in fiscal 2011. And as long as Apple iPhone sales hold up, I don’t see any reason why Cirrus revenues and profits won't continue to advance in fiscal 2013. With its debt free balance sheet and its minuscule PEG of 0.34, Cirrus is a winner for anyone not needing current dividend income.
Apple is a shell of its former self. Its' stock has plummeted about 25% in the past six months, beaten down by profit taking, absurd expectations, and some profit margin issues due to promotional costs involved in new product releases. Those product releases also tend to tamp down sales of the involved item as consumers await the latest and greatest. These are not permanent weaknesses, and Apple has been grossly oversold. Fiscal fourth quarter earnings for Apple were a disappointment, but were still 23% above the year ago quarter.
By the second half of 2013, assuming that macroeconomic conditions in Apple's markets are decent at least, margins will expand again. Earnings comparisons may not be great as Apple's first two quarter of fiscal 2012 were stunning. But the second half of 2013 should propel the company forward with its customary zeal. I see the price collapse as a terrific buying opportunity, as the company is now selling for a price earnings ratio of less than 12, and a PEG of 0.51. There has never been a better time to jump in with both feet.
StockCroc1 has no position in any stocks mentioned. The Motley Fool recommends Apple and McCormick & Company. The Motley Fool owns shares of Apple and Cirrus Logic. 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!