3 Gold Medal Stocks to Buy Now

by Dan Burrows | February 7, 2014 10:08 am

The Sochi Olympics might just be the thing to take investors’ minds off a worrisome year for stocks so far. The S&P 500 is off roughly 4% so far this year, and it’s getting more difficult to target quality stocks to buy.

True, after such a hot run in 2013, no one was expecting the same kind of crazy gains this year. Indeed, the consensus forecast has the broader market putting up a gain of 7% to 10%, with most of the year ahead of us.

Unfortunately, even if we do have another up year in the market, what’s happened so far is probably a trading pattern we’ll see more and more in 2014 — weeks of sideways to sliding markets, followed by a slow grinding higher to gains.

No, it won’t be fun, but you can rest easier if you own some high-quality stocks that are not only beating the market for the year-to-date, but have actually put up some solid gains.

Any stock that’s up on the year, has a return on equity of greater than 20% and is actually cheaper than the S&P 500 on a forward earnings basis definitely deserves a gold medal in this crummy market. But screening the S&P 500 for stocks that possess such attributes yields a very short list.

With that, here are three of the most promising gold medal stocks to buy now:

Gold Medal Stocks to Buy Now #1: Micron Technology (MU)

Micron Technology (MU[1]) is up 10% for the year-to-date and has tripled over during the past 52 weeks. However, with a forward price-to-earnings multiple of 9, MU stock still is 40% cheaper than the broader market.

At the same time, MU stock looks to be a high-quality name, with a return on equity (ROE) of 20%. A big acquisition helped this maker of solid-state memory post a 42% sequential improvement in revenue for the most recent quarter, while earnings per share beat the Street by a wide margin.

Higher prices in Micron’s market led Moody’s to raise its rating[2] on its debt, and will help the company swing back to profitability this year.

Gold Medal Stocks to Buy Now #2: Pitney Bowes (PBI)

Don’t laugh at Pitney Bowes (PBI[3]). PBI’s combination of snail-mail services and digital-age software and hardware solutions is driving earnings and revenue growth. Fourth-quarter earnings per share easily beat Wall Street estimates on a decent 1.5% gain in sales.

After rallying sharply in January, PBI stock is up 6% for the year-to-date, and it’s up a whopping 83% in the past year. Yet, PBI stock trades at 12 times forward earnings when the S&P 500 fetches 15. Furthermore, PBI stock has an ROE of 72%, which screams quality.

Company guidance has PBI stock generating earnings of $1.75 to $1.90 a share this year, vs. Wall Street estimates of $1.87, so that’s promising.

PBI stock also offers a nice 3.1% dividend yield, though it should be pointed out that Pitney Bowes halved its payout just a year ago[4].

Gold Medal Stocks to Buy Now #3: Raytheon (RTN)

Defense contractor Raytheon (RTN[5]) is off to a good start in 2014. RTN stock is up 5% for the year-to-date, putting it well ahead of the broader markets. Take a step back, and the outperformance becomes more impressive — during the past 52 weeks, RTN stock is up 76%, vs. an 18% gain for the S&P 500.

True, fourth-quarter results showed that revenues fell 9% to miss analysts’ estimates, but earnings per share exceeded the Street estimate by 9 cents, helped by strong international sales.

Best of all, RTN stock goes for 12 times forward earnings — a 20% discount to the broader market, while ROE stands at an enviable 20%. Furthermore, RTN stock throws off a respectable dividend yield of 2.3%, so you get a little backside protection, too.

More From the 2014 Olympics

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/02/stocks-to-buy-rtn-pbi-mu-stock/

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