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INVEST FOR SUCCESS
Five Stocks for the Year Ahead
by Ted Shaker
Once again, a New Year is here. As is the custom at this time of the year, the pundits present their stock picks for 2007. In the spirit of said custom, we’ll discuss five new names that may produce sizable gains during the next 12 months.
The first two on the list are recent IPO’s derived from the de-mutualization of well know businesses. The New York Stock Exchange (NYX $96), which has a ticker symbol that is already part of the lexicon within the investing community, is poised for accelerated profit growth. Margin expansion is coming from the implementation of efficient computer trading software. Throw in the merger with Euronext, one of the larger European trading platforms, and one has a recipe for stock appreciation. By some accounts, this company can earn $10 per share in 2009. By applying a multiple of 25 (i.e. p/e of 25) to these earnings, the stock could fetch $250 per share within the next couple of years.
Mastercard (MA $98) may prove to be the poster child representing the benefits of de-mutualization. I believe that everyone, including the company itself, is grossly under-estimating the earnings potential of this business under public oversight. The only two earnings releases since its initial offering significantly outperformed guidance. Not beating by five or even 10% but exceeding estimates by between 20 and 35%. I believe there to be more pleasant earnings surprises in the future.
I think everyone can agree that the consumer simply loves gadgets…from Blackberries and PDA’s to i-pods, now iphones; including GPS devices and all the other neat electronic devices designed to (purportedly) make our lives easier. One company poised to take advantage of such demand is Marvell Technology (MRVL $20). MRVL does not make the particular devices but rather sells the electronic components to those companies that do. I again think that the market is under-estimating the forward earnings growth potential of this supplier of technology. This one could trade up to $26 this year.
I believe that the demand for Energy is in a secular up-trend that may last for more than a decade. Valero (VLO $54) is one of the largest domestic oil refining company with billions in annual profits. Having recently sold-off from a high of $68, this stock should again rise on the strength of the global demand for petroleum- based fuels. My plan for 2007 is to accumulate under $54 and then hopefully sell some above $65. Not a home-run but still a nice lower-risk potential gain.
The final pick is a bit more speculative in nature. Level 3 Communications (LVLT $5.50) is a direct play on the consumers’ appetite for broadband internet access. A developing shortage of bandwidth should provide LVLT with accelerating EBITDA. Although this company is still losing money, the losses are narrowing at a rapid pace. Key acquisitions as well as divestitures are allowing management to focus on growing segments while eliminating the laggards. I expect the company to turn profitable within the next 12 months as their broadband business growth accelerates at an annual rate of 25-30%. Look for this stock to double over the next year or so.
Of course no one can predict the future, but educated guesses in the past have proven profitable.
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