My three decades of experience in finance have taught me that you can’t underestimate the value of having an inside edge. When someone who has been on the inside knows how the system works and wants to use that knowledge to help the individual investor, I’m all for it. It’s what I’ve dedicated my life’s work to, and we have another powerful ally doing the same.
That’s why I recently wrote the foreword to Hilary Kramer’s book, The Little Book of Big Profits from Small Stocks. She’s done tours of duty with Morgan Stanley (NYSE:MS) and Lehman Brothers during their heydays, and she knows how things work from the inside. And, while we approach stock-picking from different angles, we sometimes find ourselves on common ground.
So, after spending some time talking stocks at the Chicago Money Show, we decided to sound off on five stocks to see what we can agree on — and what we’ll have to agree to disagree on.
As a special feature for my loyal What’s Working on Wall Street Now readers, we’re teaming up to share our views on each of the following stocks:
- Novo Nordisk (NYSE:NVO)
- Allot Communications Ltd. (NASDAQ:ALLT)
- Darling International Inc. (NYSE:DAR)
- Panera Bread Co. (NASDAQ:PNRA)
- Bank of America Corp. (NYSE:BAC)
Let’s see where we agree and disagree on these five stocks.
“One of my longtime favorite big pharmas.”
Novo Nordisk (NYSE:NVO) has been one of my favorite big pharmas for a while.
In the most recent quarter, sales were up 6% and earnings rose 17%. A good portion of those sales came from more than doubling the expected sales of Victoza, one of its leading insulin treatments.
Also, Novo Nordisk continues to have a positive outlook, raising its full-year 2011 sales outlook to 10% to 11% growth. Not bad in these tough economic times, but as much as I like NVO, its slowing sales have triggered a downgrade in my view. I now consider NVO to be a hold.
If you own it, keep holding it. I still like the stock, and I like the 1.3% dividend investors receive, too!
“An innovative company addressing a wildly game-changing trend.”
The diabetes trend is staggering. By 2034, the number of diabetes patients is expected to double while the cost of treating those patients in the U.S. alone is expected to triple to $336 billion — and NVO is in the catbird seat.
Novo Nordisk is one of the first to take its vast product pipeline to the booming populations in China, which actually is facing its own diabetes epidemic. The company draws on 90 years of research and development, continues to produce ever-improving therapies and is considered an expert marketer with a loyal base of medical professionals and customers.
When you add that Novo Nordisk’s global leadership is in an area producing millions of new patients annually, you have the makings of a game-changer.
NVO has pulled back from its April high of $132 down to current prices around $113, giving you a nice entry point for a company whose growth drivers remain firmly in place.
Allot Communications Ltd.
“Another big beneficiary of iPhone and iPad users.”
People around the world are crazy for the latest and greatest smartphones and constantly are upgrading them. Service providers also must make improvements to their networks to keep up. Basically, the ballooning population of iPhone and iPad users is sucking up more data than ever, and service providers need help managing the flow. That’s where Allot Communications Ltd. (NASDAQ:ALLT) comes in.
The most recent quarter brought record sales (a 37% increase) and a 162% rise in profits. The company posted a 30% sales surprise and is set to profit from the smartphone revolution for years to come.
ALLT is a smaller stock, so I want to point out that I categorize it as a moderately aggressive stock. That means your ride, while a profitable one, could be a bit wild. ALLT is a great buy below $18.
“A great undiscovered growth stock poised to break out.”
I agree. Usage rates are increasing by the millions — especially in developing nations where rapid Internet adoption is causing network congestion.
Now, many of you probably have not heard of Allot before, and for good reason. It’s a small Israeli company that posted financial losses in 2008 and 2009. Now, finally, ALLT is solidly in the black and set to become increasingly profitable. Earnings are expected to more than double this year to 38 cents per share and grow another 30%-plus in 2012 to 51 cents per share.
Back in July, the stock was trading for $19. It’s now at $16 and back on the move. So buy it now — this stock is breaking out!
Darling International Inc.
“Its name doesn’t quite fit its business, but it best describes its stock.”
As long as you don’t think about what Darling International Inc. (NYSE:DAR) actually does, you should be very comfortable with the stock. Despite the company’s greasy business, its financials are squeaky clean. In the most recent quarter, DAR posted a 170% increase in sales, and earnings more than doubled.
Darling’s boost in sales and profits is primarily attributed to the acquisition of Griffin Industries in December 2010, as well as higher selling prices of finished products — a great way to make money.
Now, the company recently decreased forward guidance and it took a chunk out of the stock price, but for me, that’s what makes it a compelling buy under $18 for the long term.
“A classic low-priced stock.”
Darling and I go way back — so far back that I devoted the first chapter of my new book, The Little Book of Big Profits from Small Stocks, to the stock. It proved to be a doubler for me many years ago, and it’s once again on my radar screen.
The rendering and collection company’s most recent earnings report did miss estimates, but the reasons for the miss should be confined to the third quarter, so I’m not concerned.
Darling has a lot going for it, including an attractive valuation, continued growth from mergers and tight crop supplies bumping up prices for some of its key products.
DAR stock is now trading for a steal and is on its way back to its September $17 pricing.
Panera Bread Co.
“Consumers are opening their wallets to eat here.”
Panera Bread Co. (NASDAQ:PNRA) recently has popped up on my screens, and it could turn out to be the ultimate growth stock in 2012.
I’m not sure if it’s the fresh bakery items, the sandwiches or what, but people are flocking to Panera stores and pushed sales 22% higher in the past quarter. Thanks to this strong performance, the stock hit a new 52-week high and 17 analysts have lifted their earnings estimates in the past 30 days.
For the fourth quarter, the specialty eatery is expected to see a 16.4% rise in sales and a 16% increase in earnings.
When you see sales rising in this fashion and analysts scrambling to lift their outlooks, it usually means the company is in for a great quarter and it’ll beat those estimates. Big earnings surprises spell shareholder profits, and that’s why I rank PNRA stock as a strong buy right now.
“One of the restaurant industry’s best-performing companies.”
Panera has changed the idea of “fast food” with quality products and an elegant atmosphere. Restaurant sales are continuing to climb for these types of chains, and revenue growth looks to remain on the fast track.
In many ways, Panera reminds me of Starbucks (NASDAQ:SBUX) and how it changed the way we buy and drink coffee. Their strategy is obviously working, as it remains popular at peak times, during off hours, on down stock market days, even when consumer confidence is low.
I believe the market now recognizes that rapid growth at Panera Bread is intact for 2012, and investors are willing to pay higher multiples for solid growers with strong franchises.
As one of the restaurant industry’s best-performing companies, Panera should continue to enjoy a loyal customer base through its high-quality products and inviting atmosphere in its bakeries.
Bank of America Corp.
“I have a deep distrust for all financial stocks.”
I’m an ex-banking analyst, and I know too much about how these institutions are run to touch them with a 10-foot pole — and I wouldn’t touch Bank of America Corp. (NYSE:BAC) with a 20-foot pole.
There is no sales growth, no operating margin growth and no earnings growth — strike one. There’s poor cash flow and a meager return on equity — strike two. And finally, there is not nearly enough buying pressure to lift the stock even if all the fundamentals were in place — strike three.
With BAC, you’re going to see the stock rise and fall on good and bad news in the banking industry, but you’re not going to get the wealth-building power you undoubtedly need in this market. My advice is to stay far away from BAC for the foreseeable future.
“BAC is what I call in a fallen angel.”
BAC once was considered widely owned and admired, and it has fallen monstrously out of favor with Wall Street and investors.
So what went wrong with BAC? Bad mortgages, bad acquisitions (specifically Countrywide and Merrill Lynch) and bad balance sheet management.
Now, can BAC be fixed? Yes, and despite the recent PR debacle over debit-card fees, BAC already is making progress. It is streamlining costs, boosting capital on its balance sheet and rebuilding trust with consumers and investors.
I believe Bank of America is heading in the right direction. The stock has been extremely volatile because of both the company’s own situation as well as the debt crisis in Europe, but I see big upside potential in BAC stock.