As a new year approaches, we decided to ask some of our top analysts
for their favorite stock idea for 2014. Here are nine companies that
look compelling right now.
9 Top Stocks to Buy in 2014: It's hard to find a positive word about IBM (NYSE: IBM)
nowadays. Year-over-year revenues have shrunk for six consecutive
quarters, it's losing valuable government "cloud" contracts to upstarts
like Amazon Web Services, and it seems a lock to win the raspberry for
"worst-performing Dow stock of the year award" for 2013.
And yet, the valuation has been punished severely for these sins and
arguably more. IBM is still on track to generate in the neighborhood of
$16 billion or $17 billion in free cash flow in 2013. That cash will be
deployed into its ever-growing dividend (raised 19% annually over the
past decade), and into its aggressive share repurchase plan that has
reduced share count by 37% over that same decade. And the company still
carries the tacit imprimatur of Warren Buffett, who has branded IBM as
one of Berkshire Hathaway's "Big Four" investments.
Something of a contrarian "Dog of the Dow" pick, IBM currently sells
for barely 10 times next year's expected earnings, well below the
multiple on the average stock in the S&P 500. I expect this year's
loser to be next year's winner as the company's cash deployment ratchets
up the share price. A multiple expansion to, say, 12 times earnings
would be gravy -- holiday gravy, if you will.
9 Top Stocks to Buy in 2014: With the calendar turning to 2014, one stock worth considering is e-commerce giant eBay (NASDAQ: EBAY )
. I've never been one to watch the market movements and attempt to make
judgments on a company from those. But the reality is that eBay has
been essentially flat over the last year, while the NASDAQ is up almost
40%, and I think that is largely unjustified.
eBay has continued to deliver strong results, and the most recent
quarter was no exception. Through the first nine months of the year, its
operating income had risen 16.5% relative to the first nine months of
last year. Not to mention its payments business (PayPal) continues to
watch its revenues grow by more than 18% year over year, and eBay's
total quarterly revenue growth has consistently stood at 14%.
So the company is continuing to deliver impressive growth and
results, but its price doesn't reflect that. Consider that its trailing
price to earnings ratio currently stands at 25.5, which is almost
identical to Costco and below the 29 held by Google. I understand that's not exactly a fair comparison, but eBay seemingly still has quite a potential growth runway ahead of it.
The last thing I will note is that many people think eBay is simply a
place where people bid on products, but excluding autos, 75% of its
transactions were made at a fixed price. Amazon is the clear leader in the rapidly expanding e-commerce space, but eBay has a commanding position in the No. 2 spot.
9 Top Stocks to Buy in 2014:
The Fed might slowly be taking away the punch bowl, but that shouldn't
taper the prospect that 2014 will be the year that the housing market
finally hits its stride. In fact, The Fed's tapering move just might be
what jump-starts the still sluggish housing market. That's why I think
homebuilders should do well in 2014, with PulteGroup (NYSE: PHM ) being the stock I'd buy for 2014 and beyond.
The housing market is currently pretty low on inventory, which is one
reason home prices have trended higher. That trend will only continue
as we see the end to historically low mortgage rates. Buyers need to
move fast in order to lock in these low rates.
Where PulteGroup fits into the equation is that its multi-brand
strategy has it well-positioned to really deliver as housing recovers.
For example, its Centex brand focuses on first-time buyers. These buyers
have been cautious to get into the market, but seeing an end to
historically low mortgage rates will likely convince many that the time
to buy is in 2014. At the same time rising home prices nationwide are
freeing up many current homeowners to sell in order to move up into a
nicer home. The Pulte Home brand caters to move-up buyers, while the Del
Webb brand focuses on those in the active adult marketplace that are
now in a better position to retire and enjoy life.
Bottom line, PulteGroup's multi-brand strategy, when combined with
its renewed focus on creating shareholder value, has it well-positioned
to deliver exceptional returns in 2014.
9 Top Stocks to Buy in 2014: If there's one stock I'd consider buying for 2014, that stock would be Kinder Morgan (NYSE: KMI )
. As the largest natural gas transporter and storage operator in North
America, Kinder Morgan is well-positioned to profit from increasing
demand for natural gas. Between coal power plant shutdowns, an aging
fleet of nuclear power plants, and the inherent inefficiency and
unreliability of many renewable energy sources, natural gas is the most
logical candidate for new power generators.
In addition to the electric generating capabilities, natural gas is
generally the cheapest and most common means to heat homes. It's also
gaining significant traction as a transportation fuel, especially among
fuel-hungry trucks. Regardless of how and where it's used, natural gas
needs to get from the shale fields and other sources to where it's
needed, when it's needed. That's where Kinder Morgan shines.
The business case is clear, and the investment case is strong enough that I own shares of Kinder Morgan in the real-money Inflation-Protected Income Growth portfolio.
Take a business model at the center of the energy economy, and add a
reasonable valuation, a covered and growing dividend, and a balance
sheet without too much leverage, and the result is a company whose stock
is worth buying for 2014.
9 Top Stocks to Buy in 2014: Liberty Global (NASDAQ: LBTYA )
is the largest cable company in Europe. It is heavily laden with debt,
generates GAAP losses, pays no dividend, and is exposed to Europe's
economic woes. For those reasons, you might not be interested at first
glance. But, if you dig a bit deeper, the company actually looks very
attractive. It's got great leadership following a proven strategy, and
it's adding new subscribers and revenue per subscriber.
John Malone, the famous "cable cowboy," is Liberty Global's chairman,
and the company is following the same playbook that Malone used to
build Tele-Communications into the largest cable provider in the United
States, before it was sold to AT&T in 1999. Liberty
Global is using cheap debt to acquire smaller cable systems. While it
doesn't generate GAAP earnings, the company does generate healthy
amounts of free cash flow -- over $3 billion in the past year. Malone is
using that cash to upgrade its cable system and aggressively repurchase
Liberty Global shares, both of which should generate long-term value
for shareholders. Using this same basic strategy, Malone generated more
than 30% compound annual returns for Tele-Communications shareholders.
And, despite the economic gloominess in Europe, Liberty Global's
business is doing well. Liberty Global is on pace to add 1 million new
subscribers this year. Its current customers are buying more services --
40% of subscribers now pay for a "triple-play" package, up from 30% a
year ago. This has driven a 29% increase in revenue per customer.
9 Top Stocks to Buy in 2014: Despite nearly doubling the gains of the S&P 500 this year, there are several upcoming catalysts for Momenta Pharmaceuticals (NASDAQ: MNTA )
that could lead to even bigger gains for investors in 2014. The
company's competitive advantage rests in its ability to analyze,
characterize, and design complex molecules -- which speeds development
time and reduces costs. The MIT rollout proved its novel approach to
drug development in 2010 with the approval of its first product, a
generic version of Enoxaparin Sodium Injection, which pushed operating
margins to 63% on revenue of $283 million in 2011! Unfortunately,
competing generics have since eroded the edge for the company's only
product.
Momenta will swing back into profits next year if it can market its second product, a generic version of Teva's Copaxone. Investors were originally waiting for the last Copaxone patent to expire in September 2015, but a summer decision by the Court of Appeals
may have expedited the Food and Drug Administration's review date to
May 2014. While Teva intends to go to the Supreme Court with an appeal
and Momenta isn't the only company with a generic drug ready, simply
becoming profitable or even breakeven would smooth out the ride on the
road to disruption for investors. I think it's likely generic versions
will get the green light next year, which makes Momenta -- with $250
million in cash and an impressive and relatively undervalued pipeline --
a long-term buy-and-hold company at today's prices.
9 Top Stocks to Buy in 2014: My one stock for 2014 is Universal Display (NASDAQ: OLED )
. The company makes organic light-emitting diodes (OLEDs), used to
light the displays of consumer electronic devices. Much of the company's
history has been devoted to R&D, providing the behind-the-scenes
technology for Samsung's Galaxy smartphones in exchange for semi-annual royalty payments.
But UDC is finally seeing the light at the end of the tunnel.
Commercial material sales have begun to meaningfully contribute to the
top line – increasing 176% year-over-year and 11% sequentially during
the 3rd quarter. The company reported a solid profit, even
without the royalty (which gets paid in 2Q and 4Q). Universal Display is
breaking into the market in multiple ways – partnering with the
lighting division of Philips, providing materials for a new Samsung OLED television, and is even rumored to be in an upcoming "iWatch" from Apple! OLED is definitely one to keep an eye on in 2014.
9 Top Stocks to Buy in 2014: I'm offering up the latest addition to the real-money portfolio I manage for The Motley Fool, Lindsay (NYSE: LNN )
. It sells mechanized irrigation systems to farmers. You've probably
seen these while driving through or past croplands -- big, wheeled
piping systems spraying water onto crops.
Irrigating this way is more efficient than gravity irrigation
(flowing water across fields), resulting in higher crop yields while
using less water (1/3 – 1/2 less). Over the past decade, mechanized
irrigation in the U.S. has grown from 35% to 46% penetration, while
gravity irrigation has fallen from 50% to 39%.
The opportunity comes from continued penetration gains domestically
and international growth. Worldwide, 90% of cropland under irrigation
uses gravity irrigation. Thanks to a growing population, farmers will
need to produce more food; and thanks to limited water supplies, they'll
need to do it while using less water. Replacing gravity irrigation with
mechanized irrigation is a big step in that direction.
In addition, Lindsay is developing and selling "smart" systems that
use feedback from sensors to distribute irrigation to where it's needed.
This makes irrigation even more efficient.
An investment in Lindsay plays into three big, global trends: the two
mentioned above (growing population and limited water) and more
droughts. With four severe droughts in the last eight years here in the
U.S., farmers "don't want Mother Nature to control our destiny anymore."
9 Top Stocks to Buy in 2014: 2013 proved a record year for Tesla Motors (NASDAQ: TSLA )
, with the stock soaring more than 300% year-to-date. However, 2014
holds even more promise for the electric-car maker. Tesla continues to
see strong demand for its Model S cars and is ramping up production to
meet that demand. In fact, Tesla CEO Elon Musk says the company is on
track to hit an annualized rate of deliveries that exceeds 40,000 cars
per year by late 2014. Global demand for Tesla's cars is also
accelerating at a rapid clip.
While European sales are already strong, Tesla is just getting
started in China and other parts of Asia. The EV maker began taking
Model S reservations in China last quarter, and plans to begin
deliveries there during the first quarter of 2014. As the world's
largest market by sales of premium sedans, China is an exciting piece of
the puzzle for Tesla going forward.
Another important catalyst for Tesla is the ongoing expansion of its supercharger network.
There are now 34 supercharger stations in the United States, and six so
far in Europe. Tesla is now on track to have stations covering 80% of
the U.S. population and parts of Canada as soon as next year. Moreover,
Tesla plans to cover 100% of the population of Germany, the Netherlands,
Switzerland, Belgium, Austria, Denmark, and Luxembourg with
superchargers by the end of 2014. This is a significant part of the
company's value proposition and it should help drive Model S sales in
the year ahead. With these catalysts and more on the horizon, Tesla is a
stock I want to own in 2014 and many years to follow.
Of the 165 stocks in the Supernova universe, Motley Fool co-founder David Gardner is on a mission to find just ONE: Between
now and Jan. 30, 2014, you're invited to "hit the road" with the
Supernova team to find the ONE STOCK most deserving of a large,
real-money investment to kick off 2014!