Thirty-two years in publication

Thirty-two years in publication
Issue 734
Contents
Top Picks 2013
1-6
Undervalued Stocks
7
Energy Stocks
Small-Cap Tech Stocks
Small-Cap
Pharmaceuticals
International Funds
Funds
In This Issue
8
9
10
11-12
13
14
H = New Recommendation
(not previously sent in a Daily Alert)
www.dickdavis.com
January 9, 2013
Welcome to the super-sized Investment Digest Top Picks for 2013 issue. Inside
this issue, you’ll find over 50 of our contributors’ very favorite investments
to own this year. Plus, this year we’re bringing you an even wider selection
of Top Picks through a collaboration with TheStockAdvisors.com and the
advisors participating in their Top Stocks 2013 feature.
We’ll begin below with picks from the two analysts who recommended the
best-performing Top Picks of last year. The Turnaround Letter Editor George
Putnam’s pick, OfficeMax (OMX), soared an impressive 110% last year. The
second-best performer was Lennar (LEN), picked by Cabot Market Letter
Editor Michael Cintolo. Interestingly, both advisors’ Top Picks for 2013 are
also turnaround stories. Read their recommendations below, and we’ll see if
the formula works as well this year.
There are no regular follow-ups in this issue, so we have published some updates, including sell alerts on EPV, XHB and RGR, on our website. Please visit
www.dickdavis.com/category/id-daily-alerts for all the details.
— Chloe Lutts
TOP PICKS 2013
“Our Top Pick for 2013 is MGIC Investment Corp.
(MTG 2.87 NYSE), the leading non-governmental
provider of mortgage insurance. The company was
battered by losses from the subprime mortgage
debacle prior to 2008. Those losses are now receding;
the company has raised additional capital; and the new
business that it is writing is very profitable. MGIC
recently settled a long-festering dispute with Freddie
Mac, thereby allowing it to continue to insure Freddie
Mac mortgages. The budding recovery in the housing
market helps MGIC in two ways. First, the rise in home
prices makes it less likely that homeowners with older
policies from MGIC will default. Second, an increase
in home purchases provides MGIC the opportunity to
write more new business at very profitable rates. There
is still some risk that MGIC’s pre-2008 business will
cause regulatory problems, but we believe that risk is
small compared to the substantial gain potential in the
stock as the housing sector continues to recover.”
Recommended in the January 3 Daily Alert.
George Putnam, The Turnaround Letter,
www.turnaroundletter.com, 800-468-3810
H “My pick for 2012 (Lennar, LEN), which was the
second best performer, stemmed from my belief the
housing sector was poised for a big turnaround. For
2013, I see another much-hated group ready to turn up—
financials. That’s why I’m making Bank of America
Corp. (BAC 11.98 NYSE) my pick of the year. As a
group, the big banks have now had five full years to shape
up. They’ve been helped along by an incredibly easy
Federal Reserve (now buying $40 billion of mortgage
debt every month) and, ironically, a housing rebound,
which has improved many firms’ balance sheets. And,
though most investors don’t know it, earnings for the
group are buoyant. As for Bank of America itself, it’s
likely to pass an upcoming stress test and finally be able
to return $5 billion to $10 billion to shareholders through
a dividend boost and share repurchases. Throw in the
fact that earnings are projected to leap 129% next year
to 96 cents per share, and the fact that the stock actually
hit new yearly highs in December (even as the market
was struggling), and it’s clear to me that the turnaround
is underway.”
Michael Cintolo, Cabot Market Letter, www.cabot.net, 978-745-5532
Dick Davis Investment Digest brings you the best investing ideas from the world’s most successful experts, hand-selected by
our editors using our impartial time-tested system.
TOP PICKS 2013
H “It often makes more sense to buy stocks that are
headed in the right direction—even if they don’t
seem as cheap—rather than buy shares that have been
beaten down ‘in hopes they don’t go any lower.’ And
consequently, our Top Pick for 2013 comes from the
biotech sector! Over the past several years, Illumina,
Inc. (ILMN 52.39 Nasdaq) has emerged as one of
the premier players in the genetic screening industry,
offering systems (and associated consumables) for use
in both low- and high-throughput screening situations
across a variety of clinical, research, and commercial
settings. Though competition in the sector is fierce,
management has been able to deliver stellar results
year-in and year-out while many of its competitors have
faltered. While we believe the stock ought to continue
appreciating at a steady rate in the years to come based
on the company’s proven ability to respond and adapt to
changing market conditions, it should also be noted that
the stock may be a very attractive takeover candidate at
current prices—and 2013 may very well be the year in
which an acceptable buyout is finally made by one of
the large pharmaceutical companies. ILMN is currently
a strong buy under $48 and a buy under $54.”
Nate Pile, Nate’s Notes, www.NotWallStreet.com, 707-433-7903
H “Misonix, Inc. (MSON 7.08 Nasdaq) designs,
manufactures, develops and markets minimally invasive
ultrasonic surgical device products. These products
include the BoneScalpel cutting system which is used
for, among other things, surgical procedures of the spine
and maxillofacial procedures; the SonaStar Surgical
Aspirator, which is used to emulsify and remove soft
and hard tumors; the SonicOne Wound Cleansing
and Debridement System that offers tissue specific
debridement and cleansing of wounds for effective
removal of devitalized tissue and fibrin deposits while
sparing viable cells; and the AutoSonix ultrasound
cutting and coagulating system, which is distributed
and marketed for Misonix through an agreement
with Covidien Ltd. Misonix also markets its Lysonix
ultrasound-assisted liposuction device through Mentor
Corporation, a subsidiary of Johnson & Johnson. With
revenues growing at approximately 15%+ and turning
to profitability the last two quarters, MSON is poised
for some nice steady growth in the short and long term.”
Geoffrey J. Eiten, OTC Growth Stock Watch, www.otcgsw.com,
781-444-6100, 12/26/12
Dick Davis Investment
Digest
P.O. Box 2049
Salem, MA 01970
Chloe Lutts, Editor
Page 2
H “GlyEco, Inc. (GLYE 1.90 Pink)—Imagine a
company that could acquire a toxic, hazardous waste for
about $0, process it and then sell it for $5.60 a gallon.
And there are about a billion gallons of the waste to
access. Management previously created the immensely
successful $15.6-billion Waste Management (WM), so
they have experience in growing and operating bigfootprint deals. In less than a year, GlyEco has inked
seven accretive acquisitions and in the past few months,
five were finalized. Think of the amount of polyester
fibers, plastic bottles, airplane de-icer, antifreeze and air
conditioning fluid that all are made of glycol and you
get the picture, as the world uses 5.5 billion gallons/$30
billion worth a year. It’s a ubiquitous material and
there’s an enormous amount of toxic waste created
in its manufacturing and disposal. By using GlyEco’s
breakthrough patent-pending technology, refinery-grade
‘virgin’ glycol can be produced from the waste and then
sold to a hungry global market. Revenues and profits
should expand strikingly as the acquired assets upgrade
to the new technology and news flow drives share price.”
Dr. John L. Faessel, On The Market, 7685 Caminito Coromandel, La
Jolla, Ca. 92037, 858-587-8590
H “Intel Corp. (INTC 21.09 Nasdaq) is the largest
microchip maker in the world. The stock sold off
sharply (declining 33% from its April high to a low in
late November) in reaction to the company lowering
guidance for the second half of 2012 on slowing global
economies. We believe the sell-off was overdone, the
stock is very oversold, and will rebound nicely in 2013.
Intel is the dominant force in the computer processor
arena. Smaller rival AMD very occasionally emerges as
a potential threat only to see Intel leapfrog ahead again.
The company was faulted for being slow to recognize
the demand for smaller chips used in smartphones
and tablets, an area currently dominated by ARM. But
Intel is moving more aggressively into that area also
with its ‘Atom’ chips, and acquired Infineon’s wireless
connectivity chip business in 2011 to support that
undertaking. Intel has a strong balance sheet and cash
flow, and maintains an immense budget for R&D and to
sustain its industry-leading manufacturing technologies.
Shares are selling at less than 10 times estimated 2013
earnings, and yield 4.2%. Our upside target is $27. We
suggest a ‘mental’ protective stop at $17.20.”
Sy Harding, Street Smart Report, www.streetsmartreport.com,
386-943-8014
Contact us:
chloe@dickdavis.com or
978-745-5532
We appreciate your feedback: Email us at
comments@dickdavis.com or complete our brief
survey at www.surveymonkey.com/dddsurvey.
Subscriptions:
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Dick Davis Investment Digest is published 24 times a
year. Issue 735 will be published on January 23, 2013.
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013
“ARM Holdings plc (ARMH 39.25 Nasdaq) has
annual sales of $872 million, thanks to licensing of its
intellectual property. And thanks to a business model
that’s low on physical investment, the company’s aftertax profit margins have averaged a plump 36% in the
past year! ... ARM’s business, which is well known to
many investors, is designing semiconductors. It has
expertise in chips for computers and digital TVs, but the
big market, and the fastest-growing market, is the one
for mobile phones, where ARM is dominant. It’s also
big in tablets, a category that is growing like wildfire.
Odds are extremely good that the company will be
able to continue billing itself as ‘the world’s leading
semiconductor intellectual property (IP) supplier,’ in
part because it’s difficult for a customer to shift once
it’s committed to working with ARM. For its part, ARM
boasts that its designs have the best combination of
reliability, low power usage and compactness. [ARMH]
climbed strongly from the market’s 2009 bottom through
2010 and into the summer of 2011, where it entered a
long trading range between 22 and 30, as it performed
slightly worse than the market, on average. It stayed
in that range for 22 long months! And then came this
year’s third quarter earnings report, where management
revealed that business was booming. Investors quickly
stampeded on board, spiking the stock up and out of
that trading range and kicking off a new uptrend that
I believe has far to go. The past three weeks have seen
the stock pause between 36 and 37 and I think that’s a
decent entry point.”
Recommended in the December 31 Daily Alert; read
more at www.dickdavis.com/2012/12/31/armh-2.
Timothy Lutts, Cabot Stock of the Month, www.cabot.net,
978-745-5532
H “Traffic flow specialist Iteris, Inc. (ITI 1.64 Amex)
appears to be improving by all metrics. Revenues are
growing, the bottom line is black, cash is increasing and
the nominal debt was eliminated. The stock currently
trades below book value although, if goodwill is stripped
out, it trades about 50% above. Insiders are aligned with
shareholders as they own approximately 24% of the
shares. The current ratio is a stellar 3.7. While the focus
of the company’s operations is with governments in
the United States, ITI also operates in the Middle East.
Recently a contract was received from Abu Dhabi’s
Department of Transportation. The goal of management
is double-digit organic growth. The initial sell target for
Iteris is $3.49, about double the current level. It traded
well above this target prior to the recession and earlier
in the last decade touched $15. While that mark seems
otherworldly, ours seems eminently achievable.”
Benj Gallander, Contra the Heard Investment Letter,
www.contratheheard.com, 416-410-4431
Page 3
H “Priceline.com, Inc. (PCLN 657.42 Nasdaq) is a
leader in global online hotel reservations with over
270,000 participating hotels worldwide. Priceline’s
business is not capital intensive and thus generates
strong free cash flows, which have steadily and rapidly
grown from $140 million in 2007 to $1.3 billion in 2011.
The company ended the September 30, 2012, quarter
with more than $4.7 billion in cash on the balance
sheet. Priceline generates high returns on shareholders’
equity, which topped 41% in 2011. This demonstrates
the superior profitability of the company’s business
model. Profit margins have more than doubled over
the last five years from 10% to 24%, with further profit
margin expansion expected in 2012. Due to expanding
profit margins, Priceline’s net income has compounded
at a jet-setting 66% annual rate over the last five years
with sales growing at a 33% annual rate. Despite a weak
global economy, Priceline has benefited from a strong
leisure travel environment, expanding hotel availability,
a continued shift to the Internet by people making travel
reservations and geographic expansion. Long-term
investors should book a reservation with Priceline, a HIquality company with strong brands, strong cash flows
and strong growth.”
Ingrid R. Hendershot, Hendershot Investments,
www.hendershotinvestments.com, 703-361-6130
“Heading into 2013, the sluggish economy has
businesses continuing to cut costs wherever they can.
They’re also looking more and more to the ‘cloud’ for
their technology operations. Both of those factors should
mean strong demand for Oracle Corporation’s (ORCL
34.44 Nasdaq) array of cloud-focused, cost-saving
products and services. Perhaps more importantly, the
firm’s fundamentals are excellent. It’s upped earnings
per share each year of the past decade, one reason it
gets strong interest from my Warren Buffett-inspired
‘Guru Strategy.’ My Buffett-based model also likes
that Oracle could, if need be, pay off its $18.5 billion
in long-term debt in less than two years given its $10.3
billion in annual earnings. And it likes Oracle’s 24.9%
ten-year average return on equity—a sign the firm has
the ‘durable competitive advantage’ Buffett likes to
see. My Peter Lynch-based approach is also high on
Oracle. Lynch famously used the P/E-to-Growth ratio
to find bargain-priced stocks, and Oracle’s 15.9 price/
earnings ratio, 19.1% long-term EPS growth rate (based
on an average of the three-, four-, and five-year growth
rates), and 0.7% dividend yield make for a very solid
0.8 yield-adjusted PEG, a sign that it’s a bargain. (I’m
long ORCL.)”
Recommended in the January 7 Daily Alert.
John Reese, Validea Hot List Newsletter, www.validea.com,
877-439-0506
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013
H “Sometimes it’s easy to overlook the obvious.
Popular big-name stocks can be considered crowded
trades in which the big money has already been made.
And the mighty can certainly fall, as we’ve seen with
Apple, which tumbled 25% in just two months in 2012.
But unlike Apple, Google, Inc. (GOOG 733.30 Nasdaq)
has found its legs and recovered some ground after a
15% tumble last fall. Of course, Google is a huge name
in the Internet advertising and search world with little
competition. And Google is gaining a strong foothold
in the smart phone world thanks to the success of its
Android. Although Apple has a respectable market share
lead in the U.S., Android leads comfortably in Europe,
China and Brazil. And while Apple may be considered
the undisputed leader in the tablet market, Google is
closing the gap and now is expected to have around
43% of that market. And don’t forget its YouTube and
Gmail franchises. While the financial numbers don’t
dazzle, they suggest that solid growth should continue.
The company is sitting on $45 billion in cash and carries
little debt. Earnings are expected to grow 16% annually
for the next five years. And the recovering economy
should continue to feed advertising dollars to the bottom
line.”
H “International Business Machines Corp. (IBM
192.87 NYSE) is one of the world’s most dominant
technology companies, with annual revenues of $105
billion and net income of $16 billion. Although the firm
achieved prominence as a computer maker, over the past
two decades it has transformed itself into a softwareand-consulting powerhouse. IBM operates in 170
countries and derives 65% of its sales from outside the
U.S. The company spends more than $6 billion annually
on R&D and has been granted more U.S. patents than
any other company for 19 consecutive years. IBM’s
financial metrics are excellent, including a net profit
margin of 16% and a return on capital (ROC) of 35%.
The company has consistently increased its margins over
the past decade, both by increasing efficiency and by
moving into higher-margin markets. IBM returns most
of its substantial cash flow to shareholders. Since 2009,
71% of reported net income has been used to repurchase
stock. The stock also has a dividend yield of 1.8%. At
$192, IBM trades at a P/E of 13 and shares have a free
cash flow yield of almost 8%. The firm has averaged
earnings growth of 17% over the past five years and
management has laid out a credible plan to increase EPS
to $20 by 2015.”
Ian Wyatt, $100k Portfolio, www.100kportfolio.com, 866-447-8625
Peter Hughes, CFA, Steven Check’s The Blue Chip Investor,
www.checkcapital.com, 714-641-3579
H “Great Southern Bancorp, Inc. (GSBC 25.94
Nasdaq) is a small bank (107 branches mostly located in
Southwest Missouri), with a market cap of around $350
million. GSBC is primed to grow nicely in the next five
years as they (wisely) side-stepped the housing disaster
by practicing prudent lending policies. While others
cut back and lick their wounds, GSBC is growing by
acquisition and a strong balance sheet as they were able
to add 30+ branches by making deals with the FDIC
to buy insolvent banks while others shrink. It’s a very
cheap way to grow and it’s quick too. GSBC was able
to get 10 years worth of branch-growth in about 18
months for a dirt-cheap price—very nice. The Turner
family (father/son) are active managers and they, along
with other family, control about 25% of the stock (and
don’t overpay themselves either—look at the numbers).
Two other local Springfield, Mo., folk own another 15%
of GSBC. This is an old-time savings bank in the best
sense, one of the few that has survived and thrived. ...
That’s what you want for the next three to five years—
the banks that did it right and now are rested and ready
for what is next. GSBC went on a nice run from $20
to $30+ last year and now it is trading in the $25-27
area—a normal correction. I believe below $27 GSBC
is a good value, with excellent upside potential aided by
the (now noticeable) housing recovery underway.”
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765,
417-887-4486
Page 4
H “Online photo-printing website operator Shutterfly,
Inc. (SFLY 32.40 Nasdaq) is our top aggressive pick
for 2013. The company’s biggest advantage over
competitors is that it has invested in its business and
is the only major online photo company that prints inhouse, which gives it a significant margin advantage
over competitors that outsource their printing needs.
Meanwhile, more volume for its subsidiary Tiny Prints,
which was acquired in April 2011, should shift to inhouse this holiday season compared to last year when
only about a third of volume was printed in-house.
This should lead to some nice margin expansion, which
currently is not in the company’s guidance. ... We also
continue to think that rival Snapfish’s tactics make little
sense long term for the struggling Hewlett-Packard, and
that the company will sell the non-core asset at some
point. ... We think Shutterfly has the best offerings in the
fast-growing online photo space, and that the company
should continue to benefit from increased scale,
possible international expansion, lower manufacturing
costs, and new higher-margin products, like iPhone
cases. Shutterfly currently trades at about 12x the 2014
consensus for free cash flow per share of $2.45, or 11x
excluding its net cash of $2.49. That’s inexpensive for a
fast-growing company riding a solid secular trend.”
Geoffrey Seiler, Bullmarket.com, www.bullmarket.com,
via TheStockAdvisors.com
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013
TOP PICKS: IN BRIEF
H “[The voice recognition technology] sector is really
split between ‘speech recognition and command’
and ‘voice dictation’ software. There is a nuance of
difference. That’s the name of a key player: Nuance
Communcations, Inc. (NUAN 23.35 Nasdaq). A
competitive challenge emerging from Google is
emphasized by their hiring Ray Kurzweil, a factor we
explored for our members. Our analysis includes reasons
why we anticipate results will vary from the normal
consensus about such a competitive landscape (this
becomes a fairly ubiquitous field, ranging from medical
and corporate use to automotive or device facilitation,
far more than the algorithms behind ‘Siri’ or Ford Sync,
or GM’s ‘Cue’ or a slew of similar services, including
LG ‘Magic Remote’ voice-directed televisions). ...
Many times in technology the ‘first generation’ of
anything is imperfect, giving rise to a technology being
panned somewhat, only to become refined and perfected
over the ensuing three to five years. We see this being
the case with applications like Siri, and believe today’s
more powerful Intel chips allow apps like Dragon
Dictate to work more accurately, augmented by cloudbased server-level processing to better utilize natural
language processing. In essence, the focus becomes the
evolution of transforming human-device interaction.”
H “My top
is Almaden Minerals Ltd.
Inpick
Short...
(AAU 3.11 Amex, or AMM on the TSX). This
diversified exploration company has made a
significant discovery in Mexico in what they
term the ‘Ixtaca Zone.’ With a resource report and
PEA [preliminary economic analysis] due out in
January, along with a Metallurgy report, I think
the stock can gain recognition for this discovery
and move higher. There is also a diversified
portfolio of projects with multiple joint-venture
partners to boot. We think the company could be
a takeover candidate for their Mexican discovery
alone, and/or they will spin it out to shareholders
as a separate tracker. Our upside is north of $5
per share, the stock is at $3.10 as of this writing
[December 26].”
Gene Inger, The Inger Letter, www.ingerletter.com
“Bombardier, Inc. (BDRAF 4.00 Pink, BBD.A on the
TSX) was called a ‘buy’ by UBS Canada because of its
second collaboration accord with China’s Commercial
Aircraft Corp (COMAC) over product development
on cockpit machine interfaces, electrical systems and
other technology. While no orders have been booked,
the collaboration opens the way to Bombardier selling
its C-series planes in China. [UBS’] 12-month target
for Bombardier is $5.50 as it gets airborne in China.
Bombardier may also get some rail contracts next year
despite the current Chinese government’s decision to
put the brakes on fast passenger train spending in 2012.
Next year a new team arrives in Beijing. Meanwhile
the company is signing huge monorail construction
and equipment deals from Riyadh to Sao Paulo. This
is potentially the best stock in our portfolio, grossly
undervalued because it is French-Canadian, familycontrolled, and ignored because it is a two-fer, hard for
single-industry analysts to quantify because it combines
rail with air transport. Its Q3 report was mixed, with
sales lower (big ticket items are lumpy), down to
US$4.3 billion, while profits rose 9% to $192 million.
This stock is ripe for take off. While you wait it pays a
3% dividend.”
Read more: www.dickdavis.com/2013/01/02/bdraf.
David Banister, Active Trading Partners,
www.activetradingpartners.com
H “Thermo Fisher Scientific, Inc. (TMO
65.47 NYSE) furnishes research labs with
instruments, equipment, flasks, solvents and
analytical software. The company’s free cash
flow rose 34% over the past year to $1.63
billion, and management seeks to return half
of free cash flow to investors through stock
buybacks and dividends. Budget constraints
could put pressure on Thermo Fisher’s academic
and government research clients (25% of sales).
However, the stock’s valuation—just 14 times
trailing earnings, a 31% discount to its threeyear average—discounts those budget worries.
In our Quadrix stock-rating system, all six of the
stock’s category scores exceed 50, contributing
to an Overall rank of 92. Thermo Fisher is a
Focus List Buy and a Long-Term Buy.”
Richard J. Moroney, CFA, Dow Theory Forecasts,
www.dowtheory.com, 800-233-5922
“3D Systems Corp. (DDD 58.65 NYSE)—The
maker/marketer of 3D printers and services
reported Q3 earnings up 87%, with revenue up
57%. Recent secondary offering increased cash to
$110 million. DDD rocketed through secondary
resistance at 37-39. [It is now] challenging its
previous high of 49.35. Buying Range: 42-45,
Near-Term Objective: 54, Intermediate-Term
Objective: 63, Stop Loss: 37.80.”
Recommended in the December 20 Daily Alert.
Joseph Parnes, Shortex Market Letter, www.shortex.com,
800-877-6555, 12/7/12
Vivian Lewis, Global Investing, www.global-investing.com,
212-758-9480
Page 5
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013
H “Our top aggressive pick for the coming year
is MTR Corporation (MTRJY 40.10 Pink); this
subway operator enjoys the benefits from being a
legal monopoly in Hong Kong. MTR Corporation has
218 kilometers of subway and light rail track and 84
stations, plus it’s a leading land developer with over
29 million square feet of commercial and residential
space. Of particular interest is that while it shares in the
profits with its property development partners, it doesn’t
share the losses. MTR’s new CEO is the former head
of New York’s Metropolitan Transportation Authority,
Jay Walder. The company is expanding outside HK,
especially into mainland China. Over the last five years
MTR has been aggressively expanding internationally,
winning contracts to operate the Stockholm subway,
a new rail line that served the London Olympics, and
lines in Melbourne, Daxing, Shenzen and Beijing.
About 60% of MTR’s revenue now comes from the
Hong Kong rail system, including fare revenue with an
overall operating margin at 39%. Property development
and management has also become a pretty big part of
their business, making up about 25% of their operating
profit. MTR has a great balance sheet with cash roughly
equal to total debt. It has a dividend yield of 2.5% and
has raised dividends every year over the past ten years.”
Carl Delfeld, Pacific Rim Confidential,
www.pacificrimconfidential.com, via TheStockAdvisors.com
H “When you drive up to an ATM at the bank, use the
self-service checkout at the supermarket, or search the
gift registry kiosk in a department store, there’s a good
chance that workstation was made by NCR Corporation
(NCR 26.40 NYSE), our top speculative idea for 2013.
NCR has become the market leader in financial services
hardware with the #1 position in ATMs worldwide.
Looking ahead, this company appears to be on a
compelling growth track. Earnings per share have been
increasing at a double-digit rate over the last few years,
and NCR has outlined some aggressive 2015 guidance.
Revenue is projected to increase at a 7%-9% compound
annual rate, while adjusted operating income is expected
to grow at 15%-20% annually over the next three years.
The profitability of this firm is also impressive. NCR
expects to more than double its free cash flow from $188
million in 2011 to over $400 million in 2015, which
equates to a healthy 12% free cash flow yield based
on the current stock price. Return-on-equity, which is
a measure of the company’s profitability, has increased
in recent years to 41.6%, which is more than twice the
18.1% industry average. ... Also, the addressable market
for NCR is expanding rapidly as global spending on
banking technology is forecast to grow 24% annually out
to 2015, while retail tech spending is expected to grow
at a respectable 7% per year. NCR’s financial success
Page 6
doesn’t rely entirely on hardware sales as approximately
50% of corporate revenue comes from the recurring
service and support of these products. Bottom line,
NCR’s position as an industry leader, combined with
its international expansion potential and solid financial
position, should make this an attractive investment for
growth-oriented investors.”
Jim Stack, InvesTech Market Analyst, www.investech.com,
800-955-8500
H “My top pick for 2013 is to short the Japanese Yen.
Fundamentally, the stated policy of the LDP (newly
elected Japanese government) is to burn the currency
(in the misguided Keynesian belief this move will
stimulate exports). Technically, the Yen chart has broken
down from a major three-year top formation. A move
from 120 on the Yen futures to my projection under
100 would return over $25,000 per contract on a $3,000
initial margin requirement.”
* Jason Kelly’s pick on page 12 is a play on this theme.
George Kleinman, Futures Market Forecaster,
www.commodity.com, 775-833-2700
TOP PICKS: SHORTS & CASH
H “The only financial asset that is likely to maintain
its value in 2013 is cash. The stock market should
continue its long-term bear market for another three
to four years. Commodities started a bear market in
2008, and it has more to go. Even precious metals
are likely to slip lower. Bond prices—especially
municipal and junk bond prices—are likely to
reverse course and head lower. A good fund for
holding the safest short-term debt is American
Century Capital Preservation Fund (CPFXX), which
invests in Treasury bills. If interest rates rise, which
is probable, then T-bills will continually pay higher
interest, whereas long-term bonds will lose value.
But outright cash is the safest.”
Robert Prechter, The Elliott Wave Theorist, www.elliottwave.com,
770-536-0309
H “ProShares UltraShort S&P500 (SDS 51.76
NYSE Arca)—The market has staged a great rally
since March of 2009. In other words, we have had
an uptrend of almost four years, which means the
bull market is getting long in the tooth. In addition,
a wave of new environmental, financial and medical
regulations are due to hit in 2013, which will retard
profits and create a sense of uncertainty. I look for
2013 to be a down year.”
Stephen Todd, Todd Market Forecast,
www.toddmarketforecast.com, 909-338-8354
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013 : UNDERVALUED STOCKS
H “Let’s keep this simple: General Dynamics Corp.
(GD 70.41 NYSE) is a big aerospace and defense
company. With the knife hanging over the defense
budget, the fiscal cliff notwithstanding, on the surface
this stock would appear to be a no-brainer to avoid. We
beg to differ. We believe the fear of ‘sequestration’ is
overdone and already baked into the share price. There
will be cuts made to the Defense department’s budget
but GD is so well managed and diversified any cuts will
be offset by their technology and Gulfstream business.
The historically repetitive area of Undervalue dividend
yield for GD is 3.40%. Trading recently around $68, the
$2.04 cash dividend provides a current dividend yield
of 3.0%. With a TTM free cash flow per share of $7.65,
the payout ratio is just 26.67%. The five-year return on
equity is just over 20% and the long-term debt to equity
is 20%. The five- and 10-year dividend growth for GD
is 15.36% and 12.87% respectively. We would prefer to
acquire shares at $66 or better but anything at $69 or
less is attractive.”
H “For more speculative investors, Vermont-based
Green Mountain Coffee Roasters, Inc. (GMCR
40.19 Nasdaq) is our top risk-oriented pick for the
coming year. The stock was recently removed from the
Nasdaq-100 Index, but that’s no reason to panic over the
stock’s future prospects. In fact, our research suggests
stocks outperform significantly in the year following
their removal from the benchmark, which bodes well
for GMCR as we enter 2013. Plus, three out of the
company’s last four earnings reports were positive
surprises, pointing to a strong fundamental backdrop for
the Keurig parent. Even though GMCR is now trading
back above several key short-term, intermediate-term
and long-term moving averages we follow, there’s
plenty of skepticism still levied against the stock.
Following a nosedive by GMCR in the first half of
2012, short interest surged, and is now lingering at an
all-time high. This sets the stage for GMCR to benefit
from short-covering support as the security extends its
recent technical rebound.”
Kelley R. Wright, Investment Quality Trends, www.iqtrends.com,
866-927-5250
Todd Salamone, Schaeffer’s Investment Research,
www.schaeffersresearch.com, 800-448-2080
DOUBLE PICK: Apple, Inc. (AAPL)
H “I suspect that Apple, Inc. (AAPL 525.53 Nasdaq)
will be one of the outstanding comeback stories
during the year ahead. ... My work suggests that the
outpouring of new products will continue under CEO
Tim Cook, the operations chief hand-picked and
installed by the fabled Steve Jobs over a year before
his death in October 2011. Among Cook’s attributes:
he’s unruffled by the slide in AAPL’s share price the
past three months. Short sellers have cleaned up since
they began bum-rapping Apple in late 2012. From a
peak of 702 in mid-September, the stock tumbled to
the low 500s by mid-November. It briefly rallied to
595 ten days later, only to sag back into the low 500 in
December—some 28% off its September high. Three
observations are appropriate: 1) the short positions,
while rising rapidly early in the fall, never amounted
to more than a few percent of the outstanding shares
at their peak; 2) the stock was probably overdue for
correction, having zoomed nine-fold from 80 to 702
since March 2009; and 3) the consensus of 50-plus
Wall Street analysts covering AAPL still calls for
20%-plus a year earnings growth going forward, with
a target price of 762: that’s 49% above today’s price of
509. This bullishness seems more than hope springing
eternal, or analysts clinging to a sacred cow. Apple, in
case you hadn’t noticed, is selling iPads and iPhones
at record levels while its stock has been under attack,
in just about every corner of the world. ... One would
be mistaken to assume that this enormously talented
company has run out of its creative juices. To be sure,
Page 7
Apple one day will grow at a slower percentage pace
just because it has grown so large. But at $150 billion
in revenues, we aren’t there yet.”
Stephen Quickel, US Investment Report,
www.usinvestmentreport.com, 215-862-1313
“Apple, Inc. (AAPL) is a good case for the role
psychology plays in investments. ... Since Steve
Jobs’ death in October of 2011, Tim Cook, who was
handpicked by Jobs to become the CEO of Apple,
has kept the company in good shape. This year Apple
broke the $700 level and analysts were saying it was
the greatest thing since sliced bread. Later this year,
after a 25% correction, all of a sudden analysts are now
saying it is a mature company past its prime and should
be avoided. Honestly, has the company really changed
in such a short time, or is this another speculative
algorithm from the Quantitative Analysts? By all my
measures of value, Apple is a good buy. For example,
its price/earnings ratio is 11, which is less than the total
market, and about one half of Apple’s normal price/
earnings ratio. Yes, there is constant change in the
computer industry, but Apple, with its management
skills and huge trove of cash, should be able to adapt
to this in its usual seamless manner.”
Recommended in the December 21 Daily Alert; read
more at: www.dickdavis.com/2012/12/21/aapl-2.
Russ Kaplan, Heartland Adviser, www.russkaplaninvestments.com,
402-614-1321
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: ENERGY STOCKS
H “Established in 1986, Enerplus Corp. (ERF 13.44
NYSE), a former income trust based in Calgary, is a
diversified oil and gas producer. There are two good
reasons to like Enerplus as a speculative investment.
The first is yield; at the current payment rate of C$0.09
per month, the shares yield 8.7%. The second is the
company’s exposure to some of the most exciting oil
plays on the continent. Enerplus owns Bakken crude
oil assets in Fort Berthold, North Dakota, and increased
production from this region during the third quarter by
10%. It also has holdings in the Sleeping Giant area of the
Elm Coulee field in Montana, which it plans to increase
in 2013. [ERF] has been very volatile and is currently
trading at less than half its 2012 high of $26.94, reached
in early January. The company cut its dividend by 50%
in mid-year, which accelerated the sell-off in the shares.
The shares fell as low as $11.53 in November but have
since rebounded. Enerplus appears to be oversold at the
current level and RBC Capital Markets has an $18 target
on the shares. There is high risk here; but if an 8.7%
yield and capital gains potential fit with the risky side of
your barbell, I think it’s worth the gamble.”
Gordon Pape, Internet Wealth Builder, www.buildingwealth.ca, via
TheStockAdvisors.com
H “Our speculative favorite for 2013 is Peabody
Energy Corp. (BTU 26.78 NYSE), the world’s largest
private-sector coal-mining firm with operations focused
on two regions of the world: the Powder River Basin
of the western U.S. and Australia. ... A number of new
regulations from the EPA will impact coal plants during
Obama’s second term, including a Mercury and Air
Toxics Standards (MATS) rule and a Carbon Pollution
Standard. The former will impact older coal-fired
plants but many of those facilities are already slated
for closure as they’re uneconomic to run. The carbon
standard would apply only to new coal-fired plants and
few utilities have plans to build new plants at this time.
A more important driver of coal demand is the price
of natural gas, as coal and gas are competitors when it
comes to producing power. When gas prices sank under
$2/MMBTU in the spring of 2012, utilities burned more
gas and less coal. But with gas prices recovering to over
$3/MMBTU, we’re already seeing clear signs of gas-tocoal switching. Meanwhile, globally, coal will actually
overtake oil to become the world’s single-largest power
source over the next five years thanks to strong growth
in demand from emerging markets including China and
India. ... Australia is a key exporter of both metallurgical
and thermal coal to countries like India and China and
Peabody is one of the largest and best-positioned miners
in the country. BTU rates a buy under $33.”
Elliott Gue, Energy & Income Adviser,
www.energyandincomeadvisor.com, via TheStockAdvisors.com
Page 8
H “First Solar, Inc. (FSLR 31.02 Nasdaq) has been on
a tear during the last six months, more than doubling in
value. First Solar has created an orderly pattern of higher
highs and higher lows since its June 2012 bottom, and
recently broke out of an ascending triangle pattern—
suggesting the next leg higher is now underway. With
a lofty 41% of its float sold short, the potential for a
short-squeeze rally is high. At the stock’s average daily
trading volume, it would take more than four full days
for all of these bearish bets to be covered. Meanwhile,
analysts have yet to recognize FSLR’s technical
resurgence. The shares have garnered only three ‘buy’
ratings from brokerage firms, compared to 21 ‘hold’ or
‘sell’ suggestions. A round of well-deserved upgrades
could further fuel FSLR’s positive momentum.”
Bernie Schaeffer, Schaeffer’s Investment Research,
www.schaeffersresearch.com, 800-448-2080
H “Our top idea for 2013 for aggressive investors is Oil
Search Ltd. (OISHF 7.42 Pink), an aggressive growth
story with a modest income component. The firm’s
key asset is its 29% stake in the high-quality Papua
New Guinea liquefied natural gas venture, which is
operated by Exxon Mobil. LNG from the project is fully
contracted to four key buyers. Oil Search stock slumped
in mid-November 2012 after Exxon reported that costs
for the project would be higher than previously forecast.
A higher Australian dollar has also had an impact, as
have torrential rains that have prompted Exxon to
bring in special equipment. However, the LNG venture
remains on track to deliver strong and stable long-term
cash flow for Oil Search beginning in 2014. Oil Search
is a strong buy for long-term growth up to $8.”
David Dittman, Australian Edge, www.aussieedge.com,
via TheStockAdvisors.com
H “Vermilion Energy, Inc. (VEMTF 52.82 Pink, or
VET on the TSX) is a former Canadian income trust
producing oil and gas that did not cut dividends either
in 2008 when oil prices crashed or when converting to
a corporation in 2010. ... The company has been able
to keep dividends rising in a volatile industry for two
major reasons. First, they control their leverage. The
company has no debt maturities to meet between now
and 2015, and debt-to-annualized cash flow is among
the very lowest in the industry. Second, the company
is heavily focused on production of oil and natural gas
liquids, rather than natural gas that’s been in a downtrend
the past five years. Vermilion also draws more than twothirds of output outside North America; this gas sells for
global prices that are several times what gas fetches in
North America. ... Buy up to $52.”
Roger Conrad, Utility Forecaster, www.utilityforecaster.com,
800-832-2330
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: SMALL-CAP TECH STOCKS
H “In a slow-growth economy with fierce competition,
companies need every edge possible to boost sales or
return on their marketing spend. Pint-sized software
company Datawatch Corp. (DWCH 13.70 Nasdaq)
provides just that edge, providing report analytics that
let customers access valuable information otherwise
trapped in static reports, text files, PDF’s and other
content rich data. CRM (customer relationship
management) software does a fine job with the roughly
20% of data that is already neatly organized in reports;
it’s the other 80% of unstructured data that’s the
problem. A retailer may have product-buying history in
one database, customer transaction history in another,
and real-time data showing what is moving off shelves
in yet another. Datawatch software lets this company use
predictive models incorporating all this data to better
predict who is buying what and when. Add in business
rules and customer demographics and the retailer can
deliver a more targeted offer to a particular customer
or determine the best time to advertise to others. CEO
Michael Morrison joined in 2011 and has been shaking
things up, hiring a slate of new salespeople and most
recently a chief marketing officer. It’s working: sales in
the most recent fiscal year grew 45% while EPS soared
to $0.45 from just $0.17 last year. We see strong growth
ahead, and recommend shares at current prices for
investors looking to add a bit of zing to their portfolios.”
David I. Covas, CFA, CFP, The Oberweis Report,
www.oberweisreport.com, 800-323-6166
H “At Byrne Investment Research (BIR), we look for
small-cap companies that have monopolistic market
positions, strong cash flows and a proven management
team. Our top stock for 2013 is Procera Networks,
Inc. (PKT 18.12 Nasdaq), which provides ‘intelligent
policy enforcement’ (IPE) technology that enables
mobile and broadband network operators to track and
manage traffic over private networks. The company’s
PacketLogic solutions provide report creation to answer
important questions about network traffic and volume.
PKT is the clear market leader with 600 customers; no
competitor has half that number, and no competitor has
PKT’s technology. Sales for the 3Q ended September
2012 increased 32% YoY to $16.1 million, and sales
were up 10% sequentially, the second straight quarter
with a sequential increase. On a non-GAAP basis, net
income increased 44% YoY to $3.6 million, or $0.18
per share, which clobbered the mean estimate for $0.09
per share, and it was the seventh quarter in a row PKT
has surpassed estimates. PKT finished the 3Q with cash
and investments of $133 million, or $6.72 per share.
Cash represents 30% of the current stock price, which
greatly reduces the risk in the stock. For the first nine
months of 2012, cash flow from operations tripled to
Page 9
$7.6 million, up from $2.3 million a year ago. CEO
James Brear said PKT now has over 30 international
mobile operators as customers, which positions PKT as
the leader in this segment. PKT did not lose one contract
to a competitor in 2011 or 2012, a significant metric,
and Mr. Brear told us he does not see any competitive
threat on the horizon. In the last nine months, PKT has
entered Japan, the Middle East, Central America and
Russia, all new markets. Looking ahead, Mr. Brear said
he expects geographic growth, bigger customers, bigger
contract size and improving margins. This makes PKT
our number one Top Recommendation.”
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663
H “We have decided to re-recommend Asia Pacific Wire
& Cable (APWC 3.42 Nasdaq) as our Top Pick for 2013.
We still believe that you will not find a fundamentally
cheaper stock than APWC anywhere within the whole
stock universe! The company is a leading manufacturer
of wire and cable products for the telecommunications
and electric-power industries in selected Asia-Pacific
markets (Thailand, China, Singapore and Australia).
During 2012, revenue contracted somewhat because of a
sale of a division and the re-start-up of certain Thailand
divisions that had been shut because of flooding during
late 2011. Regardless, revenue for the first nine months
of 2012 reached $332 million and net income/fully
diluted shares (13.8 million) equaled $0.42. At present,
the company holds $88 million in cash on their books
or $6.38/share and almost twice the current share price
of $3.36. The total book value of APWC equals $225
million or $16.30/share, almost five times greater than
the current share price ($3.36 as of this writing). The
total market-cap of APWC is presently $47 million.
A 51%-owned division operating within Thailand
(Charoong Thai Wire & Cable, CTW) is worth $80
million. The company recently announced a $2 million
share buy back program, which commenced a few weeks
ago. We believe that revenue and earnings will start to
accelerate during 2013 and 2014 because of renewed
growth within Asia. We anticipate revenue for 2012 will
reach $450 million and net income/share should equal
$0.55+. We believe that revenue during 2013 will easily
surpass $500 million and net around $0.75-$1.00/share.
Bottom line: APWC is trading at half cash, 20% of total
book, a forward P/E (est. 2012) of around 6X and an
extremely low PSR, and has an active share-repurchase
program and the possibility of a takeover at much higher
prices. We will not sell our position until we see at least
$10-$15/share. We rate APWC with a Strong Buy Rating
at current levels for short- and long-term appreciation
potential.”
William Velmer, S.A. Advisory, www.saadvisory.com, 801-272-4761
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: SMALL-CAP PHARMACEUTICALS
“TONIX Pharmaceuticals Holdings, Inc. (TNXP
0.55 Pink) is a development-stage company developing
innovative prescription medications for challenging
disorders of the central nervous system (CNS). TONIX’s
core technology improves the quality of sleep in patients
with chronic pain syndromes, believed to translate into
reductions in daytime pain and other symptoms. TONIX’s
lead product candidate, TNX-102 SL, is a novel, underthe-tongue, low-dose bedtime tablet formulated with
cyclobenzaprine (CBP), the active ingredient in two
FDA-approved muscle relaxants, which is expected to
enter the first of two Phase III trials for fibromyalgia in
early Q1 2013; the data should be analyzed before the
end of 2013. CBP has a long 36-year safety record and
is the third-most widely prescribed off-label treatment
for fibromyalgia (FM) patients, but is neither designed
nor approved for a bedtime treatment in FM. ... TNXP
recently completed a successful $3.4 million private
placement to further the development of TNX-102 SL
and for general working capital. [We’re setting] a first
target of 2.00-2.50 [and] ultimate target 4-5.”
Read more: www.dickdavis.com/2013/01/08/tnxp.
Konrad Kuhn, The Konlin Letter, www.konlin.com, 631-744-8536
H “Coronado BioSciences, Inc. (CNDO 5.63 Nasdaq)
is our top speculative pick for 2013. The company’s
lead drug development candidate is CNDO-201,
a pharmaceutical formulation of orally-delivered,
beneficial porcine parasites (a.k.a., the whipworms)
for the treatment of human autoimmune disease. This
unconventional therapy aims to re-create the historical
natural relationship that humans have had with intestinal
parasites. Known as the ‘Hygiene Hypothesis,’ this is
a relationship that was essential before the significant
improvement in public health in the last century.
CNDO-201 has already showed encouraging efficacy
in Crohn’s disease and ulcerative colitis, and there has
also been some exciting early data in multiple sclerosis.
We believe that Wall Street is currently overlooking
Coronado due to the unfamiliarity of using beneficial
parasites in traditional medicine. As a result, there is
very little research on CNDO and it is under-owned
by institutional investors. Over the next 12 months,
we believe CNDO shares will double in price, we
set our 18 month target at $20 per share based on our
expectation of Phase II clinical success for CNDO-201
in Crohn’s disease alone. Additional trial success in
other autoimmune diseases would significantly increase
this target price. An extremely safe, oral drug which
targets markets that are in excess of $10 billion is one of
the Holy Grails of medicine. We recommend CNDO as
a buy under $8.”
John McCamant, The Medical Technology Stock Letter,
www.bioinvest.com, 510-843-1857
Page 10
H “There is no doubt that generic drug makers will
thrive in the upcoming cost-driven environment. But
there is one area of generics that will thrive more
than any other. Biosimilars are the generic equivalent
of brand-name biologics. Biologics are brand-name
products created by biologic processes, rather than being
chemically synthesized. According to research group
Datamonitor, the global market for biosimilars should
explode by more than 1,400% from 2011 to 2015. ...
Spectrum Pharmaceuticals, Inc. (SPPI 11.74 Nasdaq)
recently jumped into the untapped and growing market
of biosimilars. In fact, the stock price tripled since the
company announced plans to be among the first biotechs
to develop a biosimilar version of Rituxan. Rituxan is the
second-biggest selling product for brand-name pharma
manufacturer Roche Holdings AG, with $6 billion
in sales. This could indeed be a huge opportunity for
investors over the next few years, and one that I expect
will pay off handsomely in 2013.”
Andy Crowder, Options Advantage,
www.optionsadvantage.wyattresearch.com
H “Our biggest winner in 2012 wasArena Pharmaceuticals
(ARNA). Recommended at $1.38, the stock soared to
$13.50, up 878%. We think Corcept Therapeutics,
Inc. (CORT 1.77 Nasdaq) has much of the same
characteristics as Arena. Corcept Therapeutics engages
in the discovery, development and commercialization
of drugs for the treatment of severe metabolic and
psychiatric disorders. It focuses on disorders that are
associated with a steroid hormone called cortisol. The
company is focusing on commercializing its Korlym
(mifepristone) 300 mg Tablet, a once-daily oral
medication for treatment of hyperglycemia secondary
to hypercortisolism in adult patients with endogenous
Cushing’s syndrome, who have type 2 diabetes mellitus
or glucose intolerance and have failed surgery or are
not candidates for surgery. It is also conducting a Phase
III clinical study for mifepristone, the active ingredient
in Korlym, for the treatment of psychotic depression;
and developing CORT 108297, a novel glucocorticoid
receptor II antagonist in Phase 1b/2a clinical trial. Corcept
Therapeutics has research and development agreements
with Argenta Discovery, Sygnature Discovery, ICON
Clinical Research and MedAvante, Inc. In July, Corcept
raised $46 million at $4.50 a share through institutions.
In addition, insiders recently purchased almost 600,000
shares at $1.38-1.97 a share. We like Corcept because
they have several products in FDA trials, over $100
million in cash (three years burn rate), institutions and
insiders are in the stock at much higher prices and it’s
selling near its 52-week low.”
Bill Mathews, The Cheap Investor, www.thecheapinvestor.com,
847-697-5666
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: INTERNATIONAL FUNDS
H “Making bets for a calendar year is a tough business,
because a lot can happen in a year. So it’s a good idea to
look for the biggest story available, one with the potential
to make a lasting impact on an investment. I think the
story of the year is likely to be the recovery of Europe
and the eurozone countries as the Greek fiscal crisis is
resolved. A healthier Europe will have lots of pent-up
demand for financial services, and the iShares MSCI
Europe Financial Sector Index Fund (EUFN 20.18
Nasdaq) is a way to get broad exposure to that demand,
including chunks of HSBC Holdings, Banco Santander,
Allianz, UBS, Standard Chartered, BNP Paribas and
others. A little over half of the Fund’s holdings are in
banks, with insurance accounting for a little over a
quarter and the rest spread out over diversified financials
and real estate. This is a turnaround situation, and that
can be risky, especially if other European countries start
to bleed out. But I think it offers attractive risk/reward
prospects right now, and it’s my pick for best stock of
the year.”
Paul Goodwin, Cabot China & Emerging Markets Report,
www.cabot.net, 978-745-5532
H “I see huge upside in emerging markets. As such,
my top aggressive pick for 2013 is ProShares Ultra
MSCI Emerging Markets (EET 85.24 NYSE Arca),
which takes you into the world of fast growth and
volatile emerging markets, with a 2x leveraged bet on
the entire sector. Emerging markets have always been
characterized by boom and bust. Yet over the long term,
they have outperformed developed markets by a country
mile. ... But that’s not been the case over the past two
years, during which emerging markets underperformed
the U.S. stock market by well over 20%. I predict that
2013 will be the year that emerging markets will reclaim
their traditional place as high-octane, high-performance
markets. Between the threat of the U.S. going over the
fiscal cliff, and lower long-term U.S. growth prospects
as a result of higher taxes and soaring regulatory burdens
on businesses, my sources in the London investment
community tell me that global investors are starting to
cut back their bets on the U.S. in favor of other global
markets with bigger upside. I believe this has already
started to happen. Emerging markets have already
started to outperform the U.S. market over the last three
months of 2012 with the MSCI Emerging Markets index
breaking out to the upside in early December—a very
positive technical sign. The MSCI Emerging Markets
Index includes some of the largest and fastest-growing
emerging market companies on the planet, like Samsung,
Taiwan Semiconductor, China Mobile and Mexico’s
America Movil. ... Place your stop at $68.00.”
Nicholas Vardy, Alpha Investor Letter, www.nicholasvardy.com, via
TheStockAdvisors.com
Page 11
H “iShares MSCI Emerging Markets Index (EEM
44.25 NYSE Arca)—The emerging market indices
have over the past year lagged the S&P500, as the
economic slowdown in the more developed countries
has lowered the demand for commodities of which the
emerging economies are heavy suppliers. I look for this
trend to begin to change as private sector balance sheets
are stronger, making consumers feel more confident
in their spending, thereby increasing the demand for
commodities. My price target at this time is for EEM to
move into the low $50 area.”
Donald L. Sazdanoff, The Sovereign Advisor, 800-896-1524
DOUBLE PICK: Oakmark International (OAKIX)
H “Foreign markets were out of favor for the past
two years, but came roaring back in the third quarter
of 2012. One of the top-performing diversified
international funds to come up our ranks was Oakmark
International (OAKIX). Among international markets,
Europe was one of the strongest-performing regions and
OAKIX is primarily invested in developed European
companies (67%). The remainder of the portfolio is
invested in stocks from Japan, Australia and Canada.
The Fund has virtually no exposure to emerging
markets—0.2% in Mexico. OAKIX invests primarily
in large-cap international companies that the fund’s
managers believe have strong growth prospects but are
undervalued. Financial stocks, which lagged in 2011,
make up 29% of the fund’s portfolio.”
Janet Brown, NoLoad FundX, www.fundx.com, 800-763-8639
H “Our Top Fund Pick, Oakmark International
(OAKIX), is an unusual one for us. We try to avoid a fund
that is already in investor’s eyes because of outstanding
performance. It is next year’s performer we are looking
for, not last year’s. However, we think Oakmark
International has the potential to repeat this year. The
reason is that Oakmark is a very idiosyncratic fund. It
goes its own way. Its success does not come from being
the best among the crowd. Rather, success has come
from following the Oakmark traditional value approach.
The approach digs deep issue by issue to estimate the
‘intrinsic value’ of any investment. Individual stock
picking is the pride of Oakmark. But there is something
else that contributes to the success of this international
fund: asset allocation. Fund manager David Herro
extends his ‘intrinsic value’ approach to lead him to his
allocation. This led him to an allocation of 25% Japan
and 55% Developed Europe. No emerging markets.
What a nutty allocation for 2012, what a successful one.
It is such thinking that makes us pick Herro’s Oakmark
International as our Top Pick for 2013.”
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: INTERNATIONAL FUNDS
H “2013 may start out looking like a falling soufflé for
any international play. But, unloved and overlooked are
two key ingredients to my contrarian stance. For 2013,
my favorite picks are Fidelity Total International
Equity (FTIEX) and Fidelity Total Emerging Markets
(FTEMX). Total International Equity is run by one of
my newsletter’s top-ranked international fund manager
teams: Ashish Swarup, Jed Weiss and Alex Zavratsky.
Investing in international companies, including those
in the emerging markets region, the MSCI All Country
World ex U.S. Index is the fund’s bogey and benchmark.
The top five country representations are the UK, Japan,
U.S., Switzerland and Hong Kong. The top three sectors
are financials (21.3%), consumer staples (14.1%), and
industrials (12.3%). The top ten holdings are Nestle
Sa, Roche Holdings, Royal Dutch Shell, Sanofi,
GlaxoSmithKline, Vodafone, BHP Billiton, Anheuser
Busch, HSBC Holdings, and Commonwealth Bank of
Australia. Meanwhile, the theme of growing global
consumers has me more bullish about the long-term
prospects for emerging market stocks and bonds than
most. Here, I like Fidelity Total Emerging Markets. The
fund is in the hands of veteran active emerging market
stock and bond manager John Carlson. This is a tactical
emerging markets fund that blends the stocks and bonds
not just of some of the more mature emerging markets,
but also the under-researched frontier ones. As such, I’m
willing to stamp my portfolio’s passport with this fund.”
Jim Lowell, Fidelity Investor, www.fidelityinvestor.com, via
TheStockAdvisors.com
H “With the victory of Shinzo Abe in Japan, the leader of
the Liberal Democratic Party who promised aggressive
monetary easing and fiscal stimulus in his campaign, I
think the yen will weaken in 2013. That should goose
profits in the export economy, thereby boosting Japan’s
stock market. The yen is already at two-year lows just
since the election and Japanese stocks are up 5% in
December, so pent-up was the desire to buy Japan’s
recovery. This should continue in 2013. To benefit from
it, I suggest buying WisdomTree Japan Hedged Equity
Fund (DXJ 36.66 NYSE Arca) at less than $34, to allow
settling back after this initial excitement when political
struggle dampens enthusiasm. On top of substantial
capital appreciation potential, it yields 1.8%.”
Jason Kelly, The Kelly Letter, www.jasonkelly.com
TRIPLE PICK: iShares MSCI Mexico Investable Market Index (EWW)
Read more of all three EWW recommendations online
at: www.dickdavis.com/2013/01/09/eww.
H “Our favorite stock pick for the year ahead is
iShares MSCI Mexico Investable Market Index
(EWW 71.89 NYSE Arca). It was a good performer
in 2012, gaining 34%, and this will likely continue in
2013. Despite the bad PR, Mexico has quietly been
playing catch up. As Latin America’s second largest
economy, its growth was greater than Brazil’s last year
and it’s poised to outperform again this year. Higher
wages in China have provided a boost to Mexico’s
manufacturing sector and exports are expected to
surge. Other sectors are also picking up, including
oil and gas. Meanwhile, Mexico’s stock market has
been one of the world’s top performers and many have
wondered why. Stocks lead and the market is telling
us that Mexico will likely be an upcoming emerging
market winner, so it’s best to get on board.”
Mary Anne & Pamela Aden, The Aden Forecast,
www.adenforecast.com, 305-395-6141
H “I think manufacturers setting up in Mexico just
might be the most under-reported mega-trend in global
investing. While Mexican wages were 237% higher
than Chinese wages in 2002, that cost advantage today
has shrunk to 15%. Moreover, Mexico’s most obvious
advantage is geographic location. ... Americans
currently pay 30% more for Chinese products and
Page 12
40% less for Mexican products, compared to 2007.
Since joining NAFTA in 1994, Mexico’s trade with
the United States is duty free. ... Even while much of
the global economy struggles, Mexico has been doing
just fine, thank you. In early 2012, Mexico’s Gross
Domestic Product (GDP) grew at an annual rate of
4.6%. Mexican car exports to the United States have
now exceeded those from Japan, Korea and Germany.
... So buy EWW and place your stop at $53.00.”
Nicholas Vardy, Bull Market Alert, www.nicholasvardy.com, via
TheStockAdvisors.com
H “An emerging nation that is starting to make
exceptional progress is Mexico, but few U.S. investors
have yet to notice. The country is undergoing a
manufacturing revolution and already exports more
products to the world than the rest of Latin America
combined. For most investors, EWW is the best way to
benefit from the Mexican transformación. It is our top
pick for 2013. Few countries in the world have made a
greater commitment to promoting trade than Mexico.
The government signed free trade agreements with 44
other nations, which is more than twice as many as
China and four times more than Brazil. ... Mexico also
has a young, well-educated and energetic workforce.
Over half the population is under 29.”
Jim Powell, Global Changes & Opportunities Report,
www.powellreport.com, via TheStockAdvisors.com
Dick Davis Investment Digest 734
January 9, 2013
TOP PICKS 2013: FUNDS
H “Real Estate Investment Trusts (REITs) that pay
dividends solve two problems. If there is future inflation,
real estate will be a prime beneficiary as a store of value.
Since their dividends are already taxable as ordinary
income, they won’t be as affected by higher investmentrelated taxes. The RMR Real Estate Income Fund (RIF
18.74 Amex) is a closed-end fund that invests primarily
in common and preferred securities issued by REITs
and other real estate companies. The fund is currently
trading at $18.12 with a net asset value of $20.77, giving
the fund a discount of 12.76% and a yield of 6.84%.
Most other CEFs that invest in REITs are trading at
average discounts of only 3.53%. Since real estate funds
are highly correlated, why not choose the fund with the
steepest discount? Investors can profit if the discount
just matches those of other funds. RIF is leveraged at
15% and its distributions are all income with no return of
capital. Assets are invested in lodging at 19%, shopping
centers at 13% and diversified at 11%.”
Jack Colombo, Forbes/ISA Closed End Fund and ETF Report,
www.incomesecurities.com, 800-472-2680
H “Our top aggressive pick for the coming year
is Fidelity Select Industrials (FCYIX), a global
infrastructure play. Much of the world is playing catchup when it comes to transportation, power generation,
clean water and medical technology. And the shale boom
is boosting domestic demand for industrial supplies and
transportation services while at the same time reducing
the cost of providing them. Low borrowing costs and
better credit availability are helping too, especially
where high-ticket capital goods are involved. Best of
all, low-cost foreign competition is not a problem for
these firms—emerging country copy-cats are neither
willing nor able to compete because the markets are too
specialized and the quality and reliability standards are
too high.”
Jack Bowers, Fidelity Monitor & Insight, www.fidelitymonitor.com,
800-397-3094
H “Overall, I think pessimism over Europe, China and
the global markets may not yet have peaked, but that
the established international market valleys and the ever
tumultuous non-mainstream U.S. market nooks and
crannies are attractive enough to pursue. For 2013, for
more speculative investors, I’d recommend First Trust
U.S. IPO Index Fund (FPX 31.65 NYSE Arca), a unique
ETF that focuses on Initial Public Offerings (IPOs). The
First Trust U.S. IPO follows the IPOX-100 U.S. Index,
which is made up of the 100 largest, best-performing,
most liquid U.S. initial public offerings (measuring the
IPO’s performance during their first 1,000 trading days).
IPOs get placed into the index on their sixth trading day
and remain in the index for 1,000 days. In my view, this
Page 13
is a hidden 2013 gem. It began trading in April 2006
and has a market value of merely $20 million—nobody
knows about it. The top three sectors are information
technology (30.5%), consumer discretionary (23.5%)
and energy (20.9%). The top ten holdings are Visa,
Facebook, GM, Kinder Morgan, Phillips 66, Marathon
Petroleum, Dollar General, HCA Holdings, Mead
Johnson Nutrition and Delphi Automotive. Look at that
list of names: unlike a purely speculative IPO stock, this
ETF is an overlooked mix of mainly proven companies
using the public market to raise funds—a capital idea.”
Jim Lowell, Forbes ETF Advisor, www.newsletters.forbes.com, via
TheStockAdvisors.com
H “In the aftermath of any recession, interest rates
always rise. It is as simple as that. This will be especially
true for yields on long-term Treasury bonds because their
yields carry the highest premium for the uncertainties of
inflation for the upcoming decades. The Direxion Daily
20-Plus Year Bear 3x Shares (TMV 56.78 NYSE
Arca) is an ETF designed to behave as if it is shorting
Treasury securities. ... The profit potential is enormous
with this ETF. To exemplify, we look back at the period
from December 31, 2008, when 30-year Treasuries were
yielding 2.69%. By June 10, 2009, yields had climbed to
4.75%. These ETFs did not exist back then. (They were
created in April 2009). To see how they would have
behaved, we can use the daily history of percentage
changes in 30-year Treasury bond yields. Starting with
today’s price of TMV of $50 a share, we can apply three
times the reverse of the daily changes (because TMV
uses 3:1 leverage). Based on this history, TMV would
climb from $50 to $219.55 per share—more than four
times—in 110 days.”
Read more and see an accompanying chart online:
www.dickdavis.com/2013/01/09/tmv.
Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com,
800-825-7007
“Buy the iShares MSCI EAFE Index ETF (EFA 56.91
NYSE Arca) and write covered calls expiring on January
18, 2014 at the strike price with the most time value. ...
EFA began outperforming the S&P 500 SPDR (SPY)
in mid-July. This five-month trend favoring foreign
developed-country stocks is potentially significant,
representing the biggest outperformance in foreign
equities since mid-2010. Moreover, EFA still has a lot
of upside potential to recover in absolute price and in its
price relative to the S&P 500 before it revisits its level
$62 where it traded in June 2011.”
Read more: www.dickdavis.com/2013/01/04/efa.
Marvin Appel, Systems and Forecasts,
www.systemsandforecasts.com, 800-829-6229
Dick Davis Investment Digest 734
January 9, 2013
IN THIS ISSUE
Company
Name (Symbol)
3D Systems Corp (DDD)
Almaden Minerals Ltd (AAU)
Apple Inc (AAPL)
ARM Holdings plc (ARMH)
Asia Pacif Wre&Cable (APWC)
Bank of America Corp (BAC)
Bombardier Inc (BDRAF)
Corcept Therap Inc (CORT)
Coronado Biosci Inc (CNDO)
Datawatch Corp (DWCH)
Enerplus Corporation (ERF)
First Solar Inc (FSLR)
General Dynamics Corp (GD)
GlyEco Inc (GLYE)
Google Inc (GOOG)
Great So. Bancorp (GSBC)
Green Mtn Cof Rstrs (GMCR)
Illumina Inc (ILMN)
Intel Corp (INTC)
Intl Business Machines (IBM)
Iteris Inc (ITI)
MGIC Invt Corp (MTG)
Misonix Inc (MSON)
MTR Corporation Ltd (MTRJY)
NCR Corp (NCR)
Nuance Comm. (NUAN)
Oil Search Ltd (OISHF)
Oracle Corp (ORCL)
Peabody Energy Corp (BTU)
Priceline.com Inc (PCLN)
Procera Networks Inc (PKT)
Shutterfly Inc (SFLY)
Spectrum Pharmac. (SPPI)
Thermo Fisher Scientific (TMO)
TONIX Pharmaceut (TNXP)
Vermilion Energy Inc (VEMTF)
Page
5
5
7
3
9
1
5
10
10
9
8
8
7
2
4
4
7
2
2
4
3
1
2
6
6
5
8
3
8
3
9
4
10
5
10
8
Product/
Service
Capital Equipment
Basic Material
Technology
Technology
Capital Equipment
Financial
Equipment
Health Care
Health Care
Technology
Energy
Energy
Capital Equipment
Industrial Goods
Technology
Financial
Retail
Health Care
Technology
Technology
Technology
Financial
Health Care
Equipment
Technology
Technology
Energy
Technology
Energy
Consumer Cyclical
Technology
Retail
Health Care
Technology
Basic Materials
Energy
ETF & CEF
Name (Symbol)
Direxion 20+ Trs Bear 3X (TMV)
First Tr Ipox 100 Index (FPX)
iShares MSCI EAFE Idx Fd (EFA)
iShares MSCI Emrg Mkts (EEM)
iShares MSCI Europe Fncl (EUFN)
iShares MSCI Mexico (EWW)
ProShrs Ultra MSCI Emrg (EET)
ProShrs Ultsht S&P 500 (SDS)
RMR Real Est Income Fd (RIF)
WisdomTree Jpn Total Div (DXJ)
Page
13
13
13
11
11
12
11
6
13
12
52-week
Low-High
45.98 - 87.28
24.22 - 32.31
46.53 - 57.78
36.57 - 45.33
13.52 - 20.29
53.49 - 72.50
57.99 - 89.15
51.01 - 76.08
13.72 - 18.75
30.07 - 38.08
Mutual
Fund Name (Symbol)
Fidelity Select Industrials (FCYIX)
Fidelity Total Em Mkts (FTEMX)
Fidelity Total Intl Equity (FTIEX)
Oakmark International I (OAKIX)
Page
13
12
12
11
Fund
Objective
Large Blend
Foreign Lge Blend
Foreign Lge Blend
Foreign Lge Blend
52-week
Low-High
15.42 - 61.75
1.55 - 3.33
412.67 - 705.07
21.64 - 39.41
2.25 - 3.99
5.71 - 12.20
3.08 - 5.00
1.27 - 4.90
4.00 - 10.00
5.41 - 20.83
11.35 - 26.49
11.43 - 50.20
61.09 - 74.54
1.02 - 2.99
556.52 - 774.38
20.60 - 31.81
17.11 - 71.15
28.72 - 57.00
19.23 - 29.27
177.35 - 211.79
1.25 - 1.82
0.66 - 5.15
1.60 - 9.13
31.55 - 40.82
16.39 - 26.62
19.33 - 31.15
6.08 - 8.13
25.33 - 34.75
18.78 - 38.96
469.28 - 774.96
14.18 - 25.99
21.34 - 35.00
9.31 - 17.48
45.67 - 65.93
0.25 - 1.50
41.27 - 53.27
Recent
Price
58.65
3.11
525.53
39.25
3.42
11.98
4.00
1.77
5.63
13.70
13.44
31.02
70.41
1.90
733.30
25.94
40.19
52.39
21.09
192.87
1.64
2.87
7.08
40.10
26.40
23.35
7.42
34.44
26.78
657.42
18.12
32.40
11.74
65.47
0.55
52.82
EPS
(TTM)
1.00
0.09
44.16
0.68
(0.33)
0.43
0.51
(0.42)
(1.29)
0.45
(1.64)
2.43
6.87
(0.07)
38.73
3.48
2.40
1.52
2.41
14.62
0.07
(4.41)
0.03
2.62
2.41
1.73
0.14
2.61
3.24
29.90
0.54
0.63
1.43
4.76
(0.27)
1.02
EPS Est.* Indicated
(current Annual
yr.)
Dividend Yield**
1.23
n/a
n/a
n/a
n/a
n/a
43.63
10.60
2.00%
0.70
0.16
0.40%
n/a
n/a
n/a
0.41
0.04
0.30%
0.45
0.12
3.00%
(0.36)
n/a
n/a
(1.18)
n/a
n/a
0.19
n/a
n/a
0.42
1.09
8.10%
4.61
n/a
n/a
6.99
2.04
2.90%
n/a
n/a
n/a
39.84
n/a
n/a
3.06
0.72
2.80%
2.45
n/a
n/a
1.58
n/a
n/a
2.11
0.90
4.30%
15.13
3.40
1.80%
0.06
n/a
11.60%
(5.04)
n/a
n/a
0.19
n/a
n/a
2.14
0.94
2.30%
2.46
n/a
n/a
1.75
n/a
n/a
0.12
0.04
0.50%
2.81
0.24
0.70%
1.95
0.34
1.30%
30.88
n/a
n/a
0.53
n/a
n/a
0.25
n/a
n/a
1.62
n/a
n/a
4.85
0.60
0.90%
(0.18)
n/a
n/a
2.02
2.28
4.40%
Indicated
Annual Dividend
n/a
0.46
1.76
0.74
0.58
0.74
n/a
n/a
1.24
0.55
Recent Price
56.78
31.65
56.91
44.25
20.18
71.89
85.24
51.76
18.74
36.66
NAV
26.27
11.46
7.42
21.33
Fwd.
P/E
Ratio
39
n/a
11
44
n/a
12
9
n/a
n/a
48
26
8
10
n/a
16
14
15
29
11
12
20
n/a
56
19
11
12
61
13
36
18
33
68
8
12
n/a
26
3 mos.
4.00
5.58
3.32
10.31
Return (%)
1-year
(8.37)
12.08
14.50
19.84
Company
Phone Numbers
866-476-7523
800-621-1675
800-474-2737
800-474-2737
800-474-2737
800-474-2737
240-497-6400
240-497-6400
617-332-9530
866-909-9473
Yield**
n/a
1.50%
3.10%
1.70%
2.90%
1.00%
n/a
n/a
6.60%
1.50%
3-year
14.76
n/a
10.55
7.95
Company
Phone
Numbers
803-326-3900
604-689-7644
408-996-1010
44-1223-400400
866-2-2712-2558
704-386-5681
514-861-9481
650-327-3270
781-652-4500
978-441-2200
403-298-2200
602-414-9300
703-876-3000
866-960-1539
650-253-0000
417-887-4400
802-244-5621
858-202-4500
408-765-8080
914-499-1900
949-270-9400
414-347-6480
631-694-9555
852-2993-2111
937-445-5000
781-565-5000
675-322-5599
650-506-7000
314-342-3400
203-299-8000
510-230-2777
650-610-5200
702-835-6300
781-622-1000
212-980-9155
403-269-4884
Min.
Invest.
$2,500
$2,500
$2,500
$1,000
Company
Phone Numbers
800-544-6666
800-544-6666
800-544-6666
800-625-6275
Prices are as of January 8, 2013. Estimates for Canadian stocks are in Canadian dollars. Mutual fund returns are load-adjusted.
*Using forward estimates. When available, the average estimate across all Wall Street analysts. Failing that, we’ve quoted the excerpted editor’s own
estimate, if it is available.
**Yield will vary as a result of price changes.
Dick Davis Investment Digest presents news, information, opinions and recommendations of individuals or organizations whose views are deemed of interest. It should not be assumed that such recommendations, past or future, will be profitable or will equal
past performance. The Dick Davis Investment Digest does not itself give investment advice, act as investment advisor or advocate the purchase or sale of any security or investment. All contents are derived from data believed reliable, but accuracy cannot be
guaranteed. Excerpted material represents only part of the total information or viewpoint found in the original source and should not necessarily be relied on as a sole source of information and opinion for making investment decisions. The Dick Davis Investment Digest is published by Cabot Heritage Corp. Officers, directors and employees of Cabot Heritage Corp. may own securities of the companies reported on in Dick Davis Investment Digest. All rights reserved. ©Cabot Heritage Corp. 2013. Reproduction of
this publication in whole or in part is strictly forbidden.
Page 14
Dick Davis Investment Digest 734
January 9, 2013