Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?Several stocks have performed well in the first five months of 2007. The significance of Memorial Day Weekend for professional portfolio managers is that this is the time when they begin to look hard at the earnings prospects and growth rates for individual companies for the following year. In other words, many portfolio managers will begin the hard look into 2008 earnings/revenue expectations for their individual holdings. Music to any portfolio managers ears are expressions like: visibility, upgrade cycle, new product flow, pricing power, and expanding margins. Listed below are six individual stocks that several portfolio managers I know and have dealt with for 16 years are going to take a hard look at for 2008 prospects.
Large market capitalization stocks:
1) Cisco Systems (NASDAQ: CSCO): Cisco put up a very good April quarter and is working on its fiscal year fourth quarter ending July 31. With broadband gaining strength globally, product sales and upgrades are coming in very well. Emerging markets, including India and China, are growing at about 35% at Cisco. The fiscal year earnings number is $1.55-1.60, a good 20% over 2007. With a Price/Earnings range of 20-22 times for Cisco, many see the stock going to a price target of $32-35.
2) Apple Inc. (NASDAQ: AAPL): Apple has a September 30 fiscal year end. Apple is in the midst of a huge new product cycle with the iPhone launch in late June, the ever-improving iPod and the new Mac. Throw in software sales, maintenance agreements and higher CPU sales and Apple's earnings for fiscal year 2008 of $4 is probably quite conservative. Some I speak with believe $5 is not out of the question. With operating margins in the 20s and a growth rate of 30%, many believe Apple shares could go to $140-150.
3) Microsoft Corp. (NASDAQ: MSFT): Microsoft has a June 30 fiscal year end. The expected earnings number for June 2008 is $1.70-1.75. Microsoft is undergoing a new growth cycle that could last two to three years. Although it paid heavily for aQuantive, Microsoft can now expand the marketing/advertising space it traffics in. The new Vista operating system has a three to four year selling cycle in front of it with powerful margins. Many portfolio managers believe that if Microsoft hits the June 20, 2007 quarter with a bang, the PE multiple could begin to expand again to an easy 25 times, thus putting the price target at $42-44 for the next 12 months.
Medium capitalization stocks:
1) Chipotle Mexican Grill (NYSE: CMG): Stock is at $84 as of this writing. The company has a calendar year end fiscal year. With expected earnings this year of $1.70 growing to $2.20 for next year, the company can support a hefty multiple. At a 40 PE for 2008's $2.20, the shares could be $85-90, right about where it is now. The thinking among many professionals is "we gotta be involved regardless of PE or price." This is the next big thing in the restaurant industry.
2) salesforce.com inc. ( NYSE: CRM): The PE is almost obscene at 164 times January 31, 2009 fiscal year. So why own the stock at $46. The story is a "seeding story." How many new subscribers can be brought in each quarter because the revenue visibility for this company is nearly 80% going into the new fiscal year. With Jan 31, 2008 revenues expected at $720 million, the Jan 31, 2009 revenues are expected at $1.1 billion. The earnings picture actually becomes more relevant beginning in 2010. Many managers have a $65 12-month price target for salesforce.
3) Crocs (NASDAQ: CROX): Portfolio managers salivate over this young company's operating margins, which are a stunning 26-28%. Its revenues are at $680 million this year ending December 31 and earnings of about $3 growing to revenues of $900-930 million and earnings per share approaching $4 for 2008. Many managers who were skeptical of Crocs business model at first, are now plowing into the shares for a major position. Price target for Crocs is $100-110.
Due to length and space constraints, I will write up more stocks for Part Three.
Georges Yared is the CIO of Yared Investment research where he explores more growth stock ideas.
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