Grade My Top 5 Buys for 2012

Apple leads the way in our portfolio picks for 2012

Early this year, I shared with you my 2012 Profit Playbook video and discussed my top five stocks for the New Year. Let’s take a closer look at how we’ve been doing so far compared to the S&P 500, which is up about 16% year-to-date.

Apple: Grade = A+

My first top recommendation was Apple (NASDAQ:AAPL). This has been a perennial favorite of mine, and in 2012 the company has continued its run. The consumer tech stock continues to grab headlines — and consumer interest — with its latest iProducts.

After the company’s second-quarter earnings announcement, AAPL shares consolidated a bit after the company posted a rare earnings miss—however, this greatly under-recognized that the company would be releasing the iPhone 5 in just a few months and that iPhone sales had slowed because so many Apple lovers were holding off until the next iPhone 5 comes out.

In fact, the iPhone 5 was Apple’s fastest-selling phone yet—preorders for the phone surpassed those of all previous models on the device’s first day of availability. And tech analysts believe the iPhone 5 could become the best-selling gadget of all time, with projected sales of up to 58 million units.

And considering this enormous response by consumers, plus the company’s just-launched dividend and $10 billion stock buyback program, it’s no surprise that shares have climbed above the $700 mark for the first time ever. Apple shares remain a great buy, and so far this year the stock is up a whopping 75%. I count this one as a definite win!

Alexion Pharmaceuticals:Grade = A

Next up we have Alexion Pharmaceuticals (NASDAQ:ALXN), the biopharmaceutical company responsible for the most expensive drug in the world: Soliris, which costs patients a whopping $400,000 a year.

But it is clear that doctors and patients recognize the value of Soliris. First, the only alternative to Soliris if you have a life-threatening blood disorder is a painful and risky bone marrow transplant. Second, this sophisticated treatment is a result of $800 million spent over 15 years of development.

Sales of Soliris continue to climb, up nearly 50% in each of the last two quarters, and the company is also making advances in its current pipeline of five drugs, which could potentially treat at least eight rare and life-threatening disorders.

Alexion is a one-of-a-kind pharmaceutical company with one-of-a-kind profit potential, and ALXN shares are up a solid 60% so far this year. I’ll give myself an A on this pick.

AutoZone: Grade = C

My third pick was AutoZone (NYSE:AZO), the No. 1 auto parts chain in the U.S. The recession has led to more and more people realizing that they can do a whole lot of auto fixes themselves, and folks are going to AutoZone to keep their cars running longer.

The company just recently opened its 5,000th store in North America, but competition in the space is getting tougherfrom companies like O’Reilly Automotive (NASDAQ:ORLY) and Advance Auto Parts (NYSE:AAP). Overall, AutoZone is growing faster than its competitors, and the company has a great history of earnings surprises.

The stock got off to a great start earlier this year, hitting a new all-time high in late April, but has recently lost some momentum due to some weakness in the auto parts industry. So far, we’re up about 15% year-to-date, just about in line with the market. I’ll give this pick an average C grade and look for some additional improvement in its share price after its next quarterly earnings date.

CVR Energy: Grade = A+

Our next recommendation was CVR Energy (NYSE:CVI). This oil refiner was able to capitalize on the widening Brent-WTI crude oil spread due to its mid-continent location—one reason why the company attracted the attentions of activist investor Carl Icahn.

Back in April of this year, Icahn made a hostile bid for the energy company in the form of a $2.6 billion tender offer of $30 per share. This tender offer also includes a “contingent value right” that would entitle holders to an additional cash payment if the company is eventually sold for more than $30 per share.

Although I had hoped that we would see a better offer for the company, CVI management cleared the way for the takeover bid by removing the “poison pill” that prevented Icahn from raising his stake any further.

And since then, the stock has had a bouncy ride as Icahn first couldn’t find a buyer for the company to quickly flip his 82% of shares, leading to a sharp sell-off to the tune of 20%, and then more recently he said that he no longer plans on selling. As a result, the stock has climbed nearly 30% so far in September. However, if you own shares of CVI, I recommend locking in your profits and moving on to a position with more upside, especially since shares are up a strong 103% since the beginning of the year. I consider this an A+ pick.

CVD Equipment: Grade = D

Finally, we have CVD Equipment  (NYSE:CVV). This was the most exciting recommendation out of the bunch because of its involvement with graphene, the thinnest and toughest material ever produced. Graphene is a one-atom-thick layer of carbon, and recently academics have discovered how to manipulate how the material conducts electricity, a breakthrough that opens the door to its use in computers since graphene conducts electricity 30 times faster than silicon—approaching the speed of light!

Graphene is an extraordinary material — in 2010 Andre Geim and Konstantin Novoselov won the Nobel Prize in Physics for their groundbreaking experiments with graphene — and there are a whole lot of companies, universities and industries researching it. It’s too soon to see which of these players will be the big winner, so I wanted to go straight to the source and invest in the equipment that all these players need for their research.

However, although we got off to a great start with CVV shares rocketing 30% higher in the first month of the year, it’s been mostly a bumpy ride downhill since. The stock has bounced around with regard to its fundamentals, and the bottom has dropped out of its buying pressure.

My Emerging Growth subscribers got out of this stock with modest gains of about 5% as momentum declined earlier this year, and if you hold shares of CVV, I recommend that you sell the company despite its exciting possibilities. This stock is down about 18% year-to-date, and I’ll rank this pick as a D.

My Final Grade

All told, if you had purchased an equal amount of each of these companies, you’d be sitting on a whopping 47% return so far this year. That’s right at about three-to-one outperformance versus the market—and that’s exactly what we aim to do in my Blue Chip Growth service.

We’ve been beating the market by three-to-one since I launched the service 15 years ago—in good markets, in bad markets and in every single market in between. So why settle for the mediocre returns of an index fund when you can beat the market by investing in low-risk, high-return select blue chip stocks?

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Article printed from InvestorPlace Media, http://investorplace.com/2012/09/grade-my-top-5-buys-for-2012-aaol-azo-orly-aap-cvi/.

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