4 Big-Potential Stocks to Buy for the New Year
Pockets of opportunity are everywhere, from storage to tech's next big thing
Now that we’ve reached 2014, a number of stocks look to be coming into their own thanks to a combination of improvements on the business side, as well as increasing technical strength.
To get your new year started off on the right foot, we’re taking a look at four different stocks to buy — from a small-cap craft brewer to the biggest name in one of technology’s hottest trends — that have the potential for big upside in the months and years ahead.
Here’s a quick glance at each of these four stocks, including targets for when you should buy:
Craft Brewing Alliance (BREW)
Craft Brewing Alliance (BREW) makes and markets craft beers. Like a number of other brewers, business has been good. However, we think the potential for growth hasn’t been fully priced in because traders are a little nervous about a hit to BREW’s margins in 2013 due to reorganization and facility renovations.
The good news is that growth with Alliance’s distribution partners — including Buffalo Wild Wings (BWLD) — has a lot of upside. In fact, BWLD’s CEO, Sally Smith, made this comment in an earnings release in late 2013:
“Game Changer, a craft beer brewed by Redhook also launched in our restaurants on July 15 … The launch of Game Changer exceeded our estimates, and it was in the top 5 selling draft beers in the third quarter in our company-owned restaurants.”
While we can’t suggest that Buffalo Wild Wings’ growth will drive BREW all by itself, it seems likely that BREW’s recent lag behind BWLD’s 2013 breakout will reverse in the short term.
We recommend buying BREW stock at support of $13.50-$15 per share, though even current prices provide a good place to initiate a position.
The CEO of Public Storage (PSA) likes to say that the fundamentals of demand for the company’s product (storage units) are driven by the four D’s: divorce, death, downsizing and dislocation.
That might sound a little depressing on the surface, but in this market, investors have to deal with reality — and we might as well try to profit from economic disruptions while we’re at it.
Like most REITs and big dividend payers, PSA stock struggled in 2013 when yields rose. However, the company is uniquely positioned to defend against higher interest rates and to keep its dividend attractive. PSA uses preferred shares to finance growth instead of debt. PSA doesn’t have to redeem those shares and has some flexibility on the dividend payment as well. PSA’s financing strategy offers advantages that are not shared by companies that rely on debt financing to expand and fund dividends to their common shareholders.
We recommend PSA stock as it bounces off long-term support between $145-$150 per share. This equates to a durable long-term uptrend and equals a price where the dividend yield to common shareholders looks very attractive when compared to PSA’s peer group.
TD Ameritrade (AMTD)
Yields should rise in 2014, and that is good news for some industry groups. For example, discount brokers actually make much of their profits from the yield differential between what they pay their account holders on deposits and what they earn themselves on those balances. Higher yields means higher profits for these firms.
Over the last few years, yields have been too low to generate profits, but some brokers used this as an opportunity to aggressively acquire assets for when yields begin to rise again. TD Ameritrade (AMTD) has spent the last few years increasing client assets, which puts it in a very strong position.
We like TD Ameritrade the most within the industry for two reasons. First, it has done a better job than its peers at gathering assets from clients through service and educational offerings. Second, AMTD has spent an incredible amount of effort in establishing a dominant position as the public broker of choice for active investors. Over 38% of AMTD’s client trades are derivatives, which are more profitable for the brokerage.
We recommend AMTD stock now that it has bounced off support in the $25-$28 range.
3D Systems (DDD)
Additive or digital manufacturing, are the more technical terms for producing things by 3D printing. This is a new market for which we don’t have a good way to forecast future potential. However, despite high valuations, growth among the market leaders like 3D Systems (DDD) has been very strong.
The brightest future includes 3D printers used in every household to make products onsite when they are actually needed. The worst case is that 3D printing remains stuck in the domain of industrial applications where growth is slower. The probable future is likely somewhere between the two but it presents a very enticing risk/reward profile.
Although valuations are already very high, we think the growth potential makes DDD stock a top speculative position for 2014. We recommend buying new-high breakouts on the stock from technical consolidations. That is a strategy that worked well in 2013, and we expect it to continue.
John Jagerson and Wade Hansen may hold some of the aforementioned securities in their Slingshot Trader portfolio.