Top 10 Stocks 2011#1: AboveNet, Inc.
by Neil Macneale, editor 2 for 1 Stock Split Newsletter
AboveNet, Inc. (ABVT) is my pick for the single best stock for 2011. AboveNet provides broadband services to commercial and government clients requiring secure, very high-speed connections between major metropolitan areas in the US and the UK.
AboveNet's fiber-optic network is utilized by financial institutions, media companies, social networking companies, law firms and medical and health care institutions. ABVT is highly profitable with strong cash ?ow and a solid balance sheet. ABVT does not pay a regular dividend but did declare a special one-time payout of $5.00 per share in November, 2010, indicating a high level of confidence as to future sales and earnings.
AboveNet appeals on several levels.
1. The business of providing high-speed connectivity is booming and can only grow as more and more companies become dependent on Web-based applications, data mining and storage, global supply chains, etc., etc. AboveNet is very well positioned to capitalize on this growth.
2. With a PE of less than 6 and a price-to-book ratio at around 2.2, ABVT seems underpriced at its current $57 level.
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3. Somewhat akin to a mining company, AboveNet's most important assets are in the ground, i.e., its fiber-optic cables are in place, paid for, and will only grow more valuable as demand for broadband capability grows.
4. ABVT stock is far less volatile than the overall market, something all investors should be looking for in 2011.
Top 10 Stocks 2011#2: Aeropostale
by John Reese, editor Validea Hot List Newsletter
A financial crisis, severe recession, a supposedly "tapped out" U.S. consumer -- none of it has been enough to derail Aeropostale (ARO), the New York City-based teen clothing retailer. While other companies have struggled to survive in the past few years, the mall-based firm upped both earnings and sales in 2007, 2008, and 2009, and it's on track to do so again in 2010
Despite its impressive performance, Aeropostale's shares have been hit hard since this past summer, as profit gains slowed in the firm's third quarter and it issued fourth-quarter guidance below year-ago profit levels.
But the dip has created an opportunity to get shares of a very strong company on the cheap, according to my Guru Strategies (each of which is based on the approach of a di"erent investing great).
In fact, the stock is the one of the highest-rated of nearly 8,000 stocks I track on Validea.com.
The firm, which targets youngsters age 14 to 17 through more than 900 stores in 49 states, Puerto Rico, and Canada, and 7- to -12-year-olds through its P.S. from Aeropostale stores, earns approval from four of my models. One of the strategies highest on Aeropostale is model I base on the writings of hedge fund guru Joel Greenblatt.
In his Little Book that Beats the Market, Greenblatt unveiled a remarkably simple, highly successful strategy that looks at just two variables: earnings yield and return on capital.
With a 21.1% earnings yield and a 65.6% return on total capital, Aeropostale is the 12th-most-attractive stock in the market, according to my Greenblatt-based approach. Another strategy high on Aeropostale: my James O'Shaughnessy-based growth stock model. This approach looks for stocks with market caps of at least $150 million, a price/sales ratio below 1.5, and a track record of having upped earnings per share in each year of the past five-year period.
Then it takes the 50 stocks from that group with the highest relative strength over the past year and gives them final approval. Aeropostale's $2.3 billion market cap, strong earnings history, 0.95 P/S ratio, and relative strength of 59 are good enough to make the grade.
My Peter Lynch-based strategy also likes Aeropostale. It considers the firm a "fast-grower" -- Lynch's favorite type of investment -- thanks to its impressive 33.6% long-term EPS growth rate. (I use an average of the three-, four-, and five-year EPS figures to determine a long-term rate.)
Lynch famously used the P/E/Growth ratio to find bargain-priced growth stocks, and Aeropostale's 0.3 P/E/G falls into my Lynch model's best-case category (below 0.5).This model also likes that Aeropostale has no long-term debt.
Finally, my Warren Bu"ett-inspired strategy sees a lot to like about Aeropostale. While the firm isn't the sort of large, big brand name company Bu"ett's Berkshire Hathaway usually keys on, it does have many of the fundamental, quantitative characteristics Bu"ett reportedly looked for while building his empire. Among those qualities: a lengthy history of increasing annual EPS (Aeropostale has upped earnings in each year of the past decade); manageable debt (it has no long-term debt); and a high return on equity, which is a sign of the "durable competitive advantage" Bu"ett is known to seek (Aeropostale's 10-year average ROE is 32.9%, more than doubling this model's 15% target.)
While Aeropostale's shares have stumbled in recent months, the firm's track record of impressive performance in good and bad economic times, strong balance sheet, and attractive valuation metrics -- combined with a U.S. consumer who has been surprisingly resilient recently -- make the stock one to watch in 2011.
Top 10 Stocks 2011#7: MV Oil Trust
by Carla Pasternak, editor High Yield Investing
MV Oil Trust (MVO) is a U.S. royalty trust which receives 80% of the royalties on all properties of MV Partners; these properties are located in the oil-prone regions of Kansas and Colorado Currently yielding 7.8%, I have selected the trust as my favorite investment idea for the coming year.
The trust had proved reserves of 8,800 thousand barrels of oil equivalent at December 31, 2009, from which it produced about 780 thousand barrels of oil equivalent, giving it an estimated 11.3 years of remaining reserve life.
However, according to the trust agreement, the trust will terminate on the later of June 30, 2026 or when 11.5 Mmboe (millions of barrels oil equivalent) have been produced. To date, less than 4 Mmboe have been produced over the five years since inception in 2006. At the current rate, the trust should have about 10 more years before it expires. The average price MVO receives for its oil has varied dramatically depending on market conditions. This variation has led to historically wide ?uctuations in quarterly distributions.
Over the last four quarters, MVO has distributed a total of $2.76 in variable quarterly payments, for a trailing yield of close to 8% at recent prices. Most of the distributions are treated as return of capital, so the trust can be held in a taxable brokerage account.
At less than 13 times trailing earnings of $2.76 per unit, the units are trading at a discount relative to the S&P 500's almost 15 times.
And considering the shares carry a yield that's about four times more than that of the U.S. equity benchmark, the shares look extremely attractive. The average daily volume of around 118,000 shares a day also provides reasonable liquidity. For income investors looking for an oil play, this trust o"ers a superior yield and capital gains upside.
Top 10 Stocks 2011#8: Northern Dynasty
by Tom Bishop, editor BI Research
Northern Dynasty (NAK) -- my top pick for 2011 -- is an exploration and development mining company that has discovered and drilled o" one of the largest gold-copper deposits in the world.
The Pebble deposit, discovered by and still 50% owned by Northern Dynasty, is located in southwestern Alaska and contains 80 billion pounds of copper and 107 million ounces of gold.
In addition it is the 5th largest copper deposit ever discovered on the planet. But that's not all.
In addition the project contains 5.6 billion pounds of molybdenum (moly), so much in fact that the moly is expected to account for 15% of Pebble's revenue stream on average, producing an amount equivalent to 18% of world production. In a joint venture with 50% partner Anglo American (which is paying for the next $1.4 billion in expenditures to earn a 50% interest), the Pebble project is being advanced toward a preliminary feasibility study.
Also Rio Tinto purchased a 19% shareholding in Northern Dynasty and Mitsubishi owns another 11%.
Interesting to note, this week word surfaced that Rio Tinto will provide $1.8 billion in project financing and increase its stake in Ivanhoe to 43%.
Investors and institutions that made big money in Ivanhoe can see the end in sight there now ? and are looking for the next big play, and Northern Dynasty took o". This project is just too huge and I expect management to sell to the highest bidder in the next year or so.
Meanwhile, little significant new supply is coming on and production continues to decline. The International Copper Study Group recently said that it expects global copper supply/demand to swing to a 400,000 tonne deficit in 2011. For all these reasons I am looking for a $25 to $40+ a share takeover o"er for Northern Dynasty over the next year or so.
Top 10 Stocks 2011#9: Kaminak Gold (KAM)
by Brien Lundin, editor The Gold Newsletter
Kaminak Gold (KAM), a gold exploration firm which trades on the Vancouver exchange, is my top pick for the coming year.
The 'geological baristas' at Kaminak's Co"ee property in the Yukon's White Gold District continue to brew-up a strong blend of results.
The first-ever drilling on the property certainly lived up to expectations. Kaminak intersected significant near-surface, high-grade gold along anomalies measuring more than 10 kilometers in length, resulting in a half-dozen gold discoveries. Plus, Kaminak discovered significant new gold trends from soil sampling, which has proven to be a highly e"ective exploration tool for the company. Kaminak also discovered a significant gold-in-soil geochemical trend 20 kilometers southeast of the Supremo Zone.
Further, nine of 10 holes drilled at the Americano zone intersected gold mineralization.
The gold-bearing potential of these rocks will be a focus of next year's exploration. As we had hoped, the stock has cooled down a bit as the exploration season in the Yukon has come to a close, and the share price has dipped a couple of times into tempting territory around C$2.70.
Frankly, I think Kaminak will be the next Yukon area play to be taken over; potential bidders may not want to allow Kaminak another drill season to prove up additional value on its property.
So Kaminak is a strong buy, especially on any probes downward toward C$2.70. And the lower it goes, the more-aggressive of a buy it will be in my book. I my view, the next drill season will be very exciting for Kaminak...if the company gets to see it.
Top 10 Stocks 2011#10: Longwei Petroleum Investment Holdings
by Jim Trippon, editor China Stock Digest
Longwei Petroleum Investment Holdings Ltd. (LPH) is one of the leading diesel, gasoline, fuel oil and solvent oil distributors and wholesalers in Shanxi Province, China (near Beijing).
The company sells its products mainly to large-scale gas stations, coal plants and power supply companies, and on a smaller scale to small, independent gas stations. Shanxi Province, where Longwei operates, has no oil fields or oil refineries and thus provides a unique market space for fuel oil and petroleum products.
Longwei serves the heavy industries in this rapidly growing region. Shanxi Province's demand for fuel oil has experienced double-digit growth in the past several years. Despite the recent setback caused by derivative contracts, we share Longwei's optimism about future performance. That's why we have set such a high target sell price of $20.00 relative to the current share price.
The company has a forward P/E ratio below 4.0, and a profit margin of 12.07 percent. The company is looking for strong future growth based on rapidly increasing auto usage in China as well as rising industrial activity.
Longwei says China's rapidly growing economy will drive energy demand growth rates of four to five percent annually through 2015. Production and distribution of energy will be one of China's greatest challenges in the coming years. In its earnings report released in November the company increased its profits by a stunning 131 percent to $50.2 million for the year ending June 30, 2010 (the end of its fiscal year).
The company surpassed its revenue guidance for the period by 10 percent. In its guidance for fiscal 2011 the company projects revenues to exceed $500 million and adjusted net income to exceed its forecasted $73 million (the adjusted net of derivative and financing costs).
Top 10 Stocks 2011#3: Under Armour
by Bernie Schaeffer, editor Schaeffer's Investment Research
Athletic apparel manufacturer Under Armour (UA) has been a solid performer in 2010, gaining 110 percent year-to-date.
The stock -- our top pick for 2011 -- has been in a strong uptrend since early September, and is trading above all major moving averages.
On the fundamental side, the company has reported earnings per share that have surpassed analysts' estimates for seven consecutive quarters.
UA reported third-quarter revenues that rose 21.9 percent year over year.In fact, the company has reported revenue growth of more than 15 percent in each quarter since the first quarter of 2008. UA also issued upside guidance for the third straight quarter.
Despite the strong technical performance and solid fundamental results, the stock faces a particularly pessimistic backdrop.
Analysts have remained on the sidelines during the equity's run higher, as currently only five of the 25 analysts covering the stock rate it a "buy."
Should the company continue to outperform expectations, analysts could begin to change their tune, potentially pushing the shares higher.
Short sellers appear to be in the early stages of recognizing the company's consistently improving outlook.
Since reaching a peak in September 2010, short interest has been steadily declining. However, nearly 14 percent of the stock's ?oat remains sold short, representing significant pent-up buying pressure.
A continuation of this short-covering as we move into 2011 could also continue to drive the shares higher.
UA looks poised to have another solid year in 2011 on the heels of positive fundamentals and the unwinding of the surprisingly large amount of pessimism surrounding the shares.
Top 10 Stocks 2011#4: United States Oil Fund
by John Nyaradi, editor Wall Street Selector
Oil prices have been on a roller coaster ride during 2010, and as we look ahead to 2011, "black gold" looms as one of the potentially most lucrative markets for investors around the world.
For bullish investors wanting to participate in this market, my top pick for 2011 is United States Oil Fund (USO).
Oil is a confusing market because the bulls argue that as the recovery in the United States and around the world gathers force, there will be growing demand for oil and energy.
On the other side of the argument, bears say that demand is still weak, global supply is high and unemployment will be an inevitable drag on the price of oil going forward. United States Oil Fund is an Exchange Traded Fund that tracks the price of West Texas Intermediate Crude Oil, "light, sweet crude."
It's a widely traded ETF with daily volume in the millions and widely used by both institutions and retail investors.
USO gives retail investors the opportunity to participate in the commodities markets without actually buying futures contracts directly.
The fund buys oil futures contracts, forwards and swaps and is organized as a limited partnership and so has some tricky tax implications that you need to understand before investing.
Almost everyone agrees that the long term outlook for energy prices is higher as the emerging markets build out and their demand for oil increase.
Short term trends are more challenging; commodity trading isn't for the faint of heart or unprepared and the same holds true for exchange traded funds that track commodities and commodity indexes.
However, oil is one of the largest and most important markets as energy makes the world go 'round; in 2011 oil could be a place to look for fast paced profits. Learn more about this financial newsletter at John Nyaradi's Wall Street Selector.
Top 10 Stocks 2011#5: ProShares UltraShort Yen
by Keith Fitz-Gerald, editor The New China Trader
Bloomberg recently reported that China has recorded two straight months of reducing its holdings of Japanese debt. This suggests that the Japanese yen has reached the point where it's become too "strong" for its own good - or at least for China's taste. Considering China has become the world's de facto financier, we'd be wise to pay attention.
Savvy top-tier traders know that we saw China taking similar actions a few years ago with regard to dollar-based holdings... right before the dollar began its most recent slide and other "currencies," like oil, gold, silver, and rare earths, began their appreciation.
My guess, based on 20+ years of experience, is that the yen is now in the crosshairs. We haven't seen similar pricing since April 19th, 1995, when it traded at 79.95 to the U.S. dollar.
I believe that with Japanese debt at 253% of GDP (more by some estimates), the yen is likely to fall, if not because it's risen too high too fast, then because countries like China have decided they want to take profits.
Here's what to do now if you want to play along: Buy ProShares UltraShort Yen (YCS) at market. This is my top speculation for the new year. Or, if you want an even more speculative play, try purchasing YCS call options. Let's talk brie?y about my expectations.
This is a trade that could take a while to come to life so patience is clearly in order. We are, after all, dealing with governmental policy as the catalyst. Normally that's a problem, but in this case, I think it's the fuel we're looking for. Even if the Japanese government doesn't want to bring its currency into line with historical averages, the markets will if given enough time.
Top 10 Stocks 2011#6: RealD
by Mike Cintolo, editor Cabot Market Letter
To choose my top stock pick of the year, I looked for new stocks (recent IPOs are usually under-owned by institutions, which can help the stock price) with big ideas. It's hard to find an idea much bigger than RealD (RLD), a play on the popularity of 3D movies.
The company is the leading provider of 3D technology to theaters and TV makers. At the end of September, 9,300 movie screens were using its technology.
In addition, another 2,000 movie screen are likely to be converted in the fourth quarter. Yet RealD is just scratching the surface of its potential, as tens of thousands of screens around the world are likely to move to 3D in the quarters to come, and since the firm gets paid on a per-ticket or per-movie basis, each installation creates a huge stream of income.
RealD isn't making money yet (though it's close), but revenues are ramping at 50%-plus rates as the company concentrates on grabbing as much market share as it can. And, longer-term, the 3D TV market could be a huge boost as well. As we said, it's a big idea, and the stock, which just came public in July, is o" to a good start. We think it will have a great 2011.
