3 Diversified Stock Ideas for Your Watchlist
Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I have been watching three sectors in the quest for promising mid-caps. With the S&P 500 up 9% so far this year, it makes sense to take a look at companies that might not usually be on investors' radar. Here, I will analyze three companies in three different sectors that might serve as useful equity ideas for your portfolio. Let's take a sector-by-sector look.
An idea from consumer goods
My pick in the consumer sector is Jarden (NYSE: JAH). It is a provider of niche consumer products (such as Quickie or Spontex cleaning products) and continues to execute well in a challenging environment. The company is, as a matter of fact, a consumer products conglomerate with hundreds of brands under its umbrella.
Since 2008, Jarden has consistently delivered organic sales growth, healthy gross margin expansion, and double digit EPS growth (up 34% in 2012). Despite such great characteristics, the shares trade at a trailing P/E of 19, not fully reflecting the potential upside to estimates and the company's sum-of-the-parts valuation.
One of Jarden's strengths is its sub-sector diversification. The company learned how to operate multiple product lines and the economics of each of them. It had operating earnings of $576 million for the financial year 2012, and has boosted its sales by 300% since 2008. I do not think such growth is sustainable at all, but seems enough to justify a P/E multiple higher than 19x.
Energize your portfolio with Comstock
My top mid-cap pick here is Comstock Resources (NYSE: CRK), the independent energy company primarily focused in Texas and Louisiana With 2013 revenue expected at $500 million, Comstock is shifting its operating focus away from its Haynesville gas play to its much more profitable oil plays in the Eagle Ford Shale and Permian Basin.
Actually, oil comprised 14% of the total production in 2012 (up from 5% in 2011) and is expected to be 20% of the production in 2013. Besides, Comstock's recent acquisition of approximately 60,000 acres in the Delaware Basin provides the company with an extra oil area that assures future earnings growth through oil production expansion. Even if Comstock is still losing money, I am sure its results will ameliorate aggressively as strategy shifts. Selling for just $744 million, I expect Comstock to be an M&A target at some (not so far) point of time in the future.
My top pick from the sector is Praxair (NYSE: PX). The specialty gas trader is operating in a growing industry with great market positioning and is well managed. According to an analyst from Credit Suisse, "The industrial gases sector is an oligopoly that consistently grows at a multiple of GDP."
Taking that last phrase into account, Praxair's top market position in Brazil, India, and China already makes the company a compelling proposition. Trading at a P/E multiple of 18x, Praxair's 15% ROIC looks like a compelling investment idea that you can research further.
All these three companies listed above are U.S.-based, and represent long-only equity ideas on growing sectors of the American economy. The idea is to give you hints on companies that are not very much covered by the financial press, but they are expected to grow fast in the years to come. Just add this three to your watch-list and keep a close eye on them.
Federico Zaldua has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!