Best Stocks To Buy Right Now: Constellation Brands (NYSE: STZ)
Constellation Brands (NYSE: STZ), the largest wine company in the world by revenue and the largest premium wine company, offers a value-priced play on the potential growth of the US wine market.
Constellation also owns 50% of Crown Imports, the joint venture that distributes Corona Extra and Corona Light, the best selling imported beer in the US. As well, Constellation owns Svedka Vodka, one of the fastest growing premium vodkas.
The company’s well-known wine labels include Woodbridge and Robert Mondavi (acquired in 2004), Vendange (2001), Franciscan Oakville Estate, Estancia, Ravenswood, Arbor Mist (1998), and Clos du Bois (2007).
If you notice a number of acquisitions on this list, that is because Constellation spent the decade between 1998 and 2007 building up its position as the largest premium wine maker in the US, with sizeable positions in the UK, Canada, Australia and New Zealand as well.
Best Stocks To Buy Right Now: ETJ
High food prices aren’t helping either, for the same reasons. US consumers spend less of their total income on these two items than their counterparts in the developing world, where higher food prices will cause social disruption.
Covered-call funds typically give investors the advantage of producing income in flat markets, but don’t do well in quickly rising or falling markets. We like the idea that gently rising or falling markets can be profitable for such funds.
One such fund we’ve previously recommended is the
Eaton Vance Risk-Managed Diversified Equity Income (ETJ). Its advantage is in the risk-managed part of its title. The fund sells calls like most covered-call funds, but also buys puts to guard against a market decline.
Today the fund trades at a steep discount of 9.5%, and offers a yield of 10.1%. We think their new policy of buying protective put spreads is a prudent strategy, although it may have scared off some current holders, depressing the price.
The largest holdings are in information technology at 18.04%, financials at 15.58%, health care at 11.82% and consumer staples at 11.45%.
Best Stocks To Buy Right Now: Zalicus (ZLCS)
Zalicus (ZLCS)—my top pick for a biotechnology stock breakout in 2011—is proving its worth, based on fourth-quarter results.
The company burned $2.1 million in cash during the quarter, and ended the period with $46.5 million in cash and equivalents. As is usual with development-stage biotech companies, aside from cash levels and cash burn, the accounting numbers were less important than management’s program update.
Zalicus has one product on the market: Exalgo, for chronic pain, marketed by a subsidiary of
Covidien (COV).
When Covidien reported their results, they mentioned “good sales of our new Exalgo” product. I had forecast $400,000 in Exalgo royalties to Zalicus in the December quarter, so I was pleased to learn that they hit that right on the button.
With the initial distributor inventory back in balance, from here on Exalgo royalties should track prescription growth.
This year, I expect Covidien to target 12,000 frequent prescribers and sell about $50 million in Exalgo, yielding around $4 million to Zalicus at my 8% royalty estimate. Sales should increase to $100 million in 2012, $200 million in 2013 and level off at around $300 million in 2014.
The associated royalties of at least $8 million, $16 million and $24 million will help fund research and clinical trial expenses, with no stock dilution. Zalicus says the royalty rate is “tiered,” so my 8% estimate is conservative.
Best Stocks To Buy Right Now: Cloud Peak Energy (CLD)
One company is likely to take advantage of Asia’s long-term growth without bearing its share of risks. It’s
Cloud Peak Energy (CLD), the fourth-largest thermal coal miner in the US.
Unlike base metals, thermal coal (which is used to generate electricity) is highly leveraged to long-run GDP growth.
Despite all the imbalances in Asia, the continent still benefits from an increasingly educated workforce, millions of people moving to cities, and so on. I believe Asian economic output and electricity demand will be much higher in 2021 than in 2011.
Of course, generating all that electricity will require a lot more thermal coal, even if nuclear and renewable energy become much more prevalent. Moreover, China and India have both become significant coal importers in recent years amid soaring demand.
Cloud Peak has not fully taken advantage of these trends and is trading for an exceptionally low valuation. We believe both are poised to change.
Best Stocks To Buy Right Now: UPS (NYSE: UPS)
UPS delivers economies of scale, operational efficiency, and an attractive dividend approaching 3%, write Josh Peters and Keith Schoonmaker of Morningstar DividendInvestor.
UPS (NYSE: UPS) is the colossus among global transportation companies, and powerful barriers to entry guard its economic profit. Its $45 billion of revenue in 2009 exceeded the combined sales of the four largest North American railroads.
The stock looks about fairly valued here, but we’re encouraged that the company’s recent 10.6% boost to its dividend will be the first of several handsome increases as the global economy revives.
Despite its extensive unionization and asset intensity, UPS produces returns on invested capital about double its cost of capital and margins well above those of its competitors. We credit the firm’s leading package density and outstanding operational efficiency, enhanced by extensive investment in information systems.
UPS and its competitors have turned to Asia and developing nations for growth, and we think UPS has a lot of runway left to build speed. Even existing operations have revenue expansion potential because of the firm’s rare pricing power.
While rapid changes in shipping demand during 2009 demonstrate the potential for short-run uncertainty because of macroeconomic factors, we are only optimistic about UPS’ future—and expect solid, if not record, results for 2011.
No Letup in Sight
UPS is in fine shape, financially speaking, with a Morningstar credit rating of A-. The firm has increased its use of debt in recent years, both to satisfy pension obligations and repurchase shares, but debt burdens remain fairly modest. In 2010, the dividend represented 53% of earnings, and the indicated payout ratio for 2011 looks to be around 50%.
While UPS operations are cyclical thanks to the high fixed costs of supporting its worldwide network, profits covered the dividend with room to spare even in the trough year of 2009 (per-share earnings of $2.31), and free cash flow remained strong.
While the cyclical nature of its business has kept UPS from raising its dividend every year, it has either increased or maintained its dividend for more than four decades, and the dole has risen in ten of the 12 years since the stock’s 1999 debut on the public market. (This probably has a lot to do with the fact that an impressive 36% of outstanding shares are Class A stock owned by employees, retirees and descendants of founders.)
The compound growth rate for dividends over the past decade has been a handsome 10.6%, although this pace includes an upward drift in the payout ratio (which averaged 39% from 2002 to 2007).
We believe overall global parcel-shipping market expansion and consistent price increases will enable UPS to grow at a compound annual rate of 8% during the next five years, a pace we expect the dividend to match.
At the stock’s current yield of 2.8%, we think UPS can deliver average total returns approaching 11% a year.
Best Stocks To Buy Right Now: TAL International Group (TAL)
TAL International Group (TAL) is one of the world’s largest lessors of containers and chassis. The company buys intermodal containers that can be transported on ships, trucks, and railcars—enabling containers full of goods to travel great distances with a minimum of handling.
TAL’s operations include buying, leasing, and subsequently selling multiple types of intermodal containers. TAL is also involved in reselling containers to container traders and users, as well as financing port equipment, such as container cranes, reach stackers, and so on. The company owns 856,000 intermodal containers.
Full Speed Ahead for Trade
Demand for containers dwindled in 2009, but rebounded with a vengeance in 2010. TAL’s utilization rate reached a record 98.6% at the end of 2010, even though the company added 180,000 containers during the year.
Container purchases are primarily financed by the company’s bond offerings. TAL’s bonds are rated “A” by Standard & Poor’s, and carry an interest rate of 4.8%.
Strong demand is causing a global shortage for containers, which is driving leasing rates and resale prices significantly higher—all to the benefit of TAL. Part of the stronger demand can be attributed to reduced direct container purchases by TAL’s shipping customers, which are trying to avoid new capital expenditures.
TAL has ordered another 180,000 containers for delivery in 2011, many of which have already been committed to leases. As a result, the company expects profits to accelerate during the next several quarters.
Sales increased 7%, and earnings per share catapulted from $0.72 in 2009 to $2.32 in 2010.
Best Stocks To Buy Right Now: Pfizer (NYSE: PFE) & Abbott Laboratories (NYSE: ABT)
Those are
Pfizer (NYSE: PFE) and
Abbott Laboratories (NYSE: ABT). Maybe I’ll take those in order.
Pfizer is a stock where everyone’s worried about the Lipitor patent expiring later in 2011. But there’s much more to Pfizer than just Lipitor.
If you look to 2012—which will be the first full year after the Lipitor is gone from Pfizer—the company should earn somewhere north of $2 a share, by our estimates as well as the guidance of the company.
The stock is trading at $19 or thereabouts, so you’re looking at a company that’s trading at roughly nine times earnings once you’re past this one negative event. That just seems way too cheap a price for that stock.
Looking at Abbott, it’s in a very similar situation in that they have one blockbuster drug, Humira, and people are thinking that Abbott today is going to be like Pfizer was a couple years ago where they’re just dependent on this one blockbuster.
Abbott is also just trading at a very cheap price. They should earn somewhere just below $5 a share, and the stock is in the mid 40s. So again you’re looking at a stock trading at about nine times earnings.
Or, if you want to strip away Humira and just assume that that falls off the planet a year from now, you’re looking at a stock that’s trading ex-Humira at about twelve times [earnings], which is still—even if that drug was gone—a very low price for a company of Abbott’s quality.
Recommended by: Richard Band, Editor, Profitable Investing
Recommended by: Bryan Perry, Editor, Cash Machine
Recommended by: Richard Band, Editor, Profitable Investing
Recommended by: Bryan Perry, Editor, Cash Machine
Recommended by: Richard Band, Editor, Profitable Investing
Recommended by: Bryan Perry, Editor, Cash Machine