Last month, I debuted a FREE buy list of stock picks based on my commentary — with the promise that I would keep the recommendations coming, and update you on previous investments.
March’s first batch of picks did very well, returning an average of 3% in the last 30 days vs. 1.8% for the market.
I remain convinced that the rally has some gas left in the tank as we enter the second quarter. Consider that the three months from Jan. 1 to March 31 marked the best first-quarter performance for stocks in more than a decade — and reports like this one in the The Wall Street Journal indicate investors are willing to shoulder more risk despite the rally, rather than take profits and run for the hills.
There are undoubtedly threats to the market and the nascent economic recovery — high gas prices, persistent troubles in housing and unemployment and the ever-looming risk of smoldering sovereign debt trouble in Europe reigniting. But if you wait for everything to be hunky dory, you’ll likely miss the lion’s share of the rally.
Consider that from March 2009 to December 2009, the market added over 40% in nine months. From January 2010 to December 2010 the market added only 10% in 12 months — meaning investors who waited too long for the “all clear” would have missed out on the biggest profits.
That’s why I’m recommending cautiously getting back in the driver’s seat before this next leg of the bull market runs out of gas.
You can find a recap of previous stock recommendations at the end of this article, but I’m sure you’re more interested in the current hot picks than old advice. So let’s jump right in with my “editor’s picks” for April: Goodyear (NYSE:GT), JPMorgan Chase (NYSE:JPM) and small-cap tech stock Fusion-IO (NYSE:FIO).
Goodyear has admittedly been restructuring for what seems like forever. In fact, it just recorded another $23 million in restructuring charges for its fiscal fourth quarter — the latest chapter in an effort to “right size” the business.
But after bleeding cash during the recession due to the slowdown in auto sales and supplier contracts, Goodyear returned to profitability last year. What’s more, it’s forecasting significant growth in 2012 — with earnings per share of $1.85, which would be a nearly 50% surge over fiscal 2011! Revenue is back above 2008 levels to boot after a 20% expansion last year.
The strong growth in the auto sector is starting to show up big-time in the data, so there’s reasons for optimism going forward. Consider that in 2012 auto exports and auto imports soared at the beginning of the year, proving that China’s booming vehicle market and recovering demand in North America are providing great opportunities for investors.
Yes, Goodyear is down 15% year-to-date and has sat out the rally. But despite significant improvement in its fundamentals, GT stock has a price-earnings ratio of less than 7 based on fiscal 2012 forecasts.
Sounds like a bargain to me. Goodyear has been flat for a year, but it could be quite a turnaround story 12 or 24 months from now. I like its long-term growth prospects as Goodyear turns its self around — especially considering that if all GT does is revisit its 52-week high, you’ll be sitting on a 65% gain.
Jaime Dimon, CEO of JPMorgan Chase, may not win a lot of popularity contests. But he sure knows how to run a bank.
JPMorgan has, in many respects, come out of the financial crisis as an even better financial institution than when it went in. JPM stock has reclaimed the $45 mark — challenging levels not seen since 2007, while rival Citigroup (NYSE:C) has a five-year return of -90%. JPMorgan surpassed Bank of America (NYSE:BAC) last year as the largest U.S. bank by assets, thanks in part to Dimon’s fire-sale purchases of Bear Stearns and WaMu during the financial meltdown.
And with the recent approval from the Federal Reserve, JPMorgan has become a decent income play once again — with a 30-cent dividend paid quarterly for a 2.6% yield at current valuations. That’s the best dividend yield among the biggest banks, and light years ahead of Citi and BofA, which pay a mere penny a quarter.
JPMorgan certainly has risks, as do all financial stocks going forward. Regulations such as the Volcker rule and higher capital requirements will affect earnings. Banks generally make profits on the difference between the rates they pay on deposits and the interest they charge on loans, and low rates mean that spread is squeezed very small right now. And let’s not forget the very real threat of a shock to the balance sheet if unemployment or housing take a turn for the worse.
But JPM has strong operations and clearly has a big enough rainy-day fund according to the Federal Reserve’s recent “stress tests.” When the economy inevitably recovers, this financial stock will be there to capitalize. Revenue is already above fiscal 2008 levels, with earnings forecasts of $4.46 this fiscal year, after EPS of just 84 cents in fiscal 2008.
Be cautious, because the run-up in financials this year gives me a little pause. But an entry around $40 a share seems like a bargain for long-term investors. Shares dipped below that mark briefly for a few periods in 2011 and in early 2012, but never stayed there long. So, don’t wait too long, since this stock seems to have good long-term prospects that will serve you well even if it suffers some short-term volatility.
In early June, data storage company Fusion-IO pulled off a highly successful IPO. The company priced its deal at $19, and in its first few weeks of trading shares soared almost 50%.
Why the enthusiasm? Well, because Fusion-io is one of those cloud computing and storage stocks you hear so much about. It’s also a plus that it counts Facebook among its customers. But a big reason for the appeal of FIO is its chief scientist: Steve Wozniak, the co-founder of Apple.
FIO stock kept riding the enthusiasm to a high of over $40 a share before retreating, and is currently trading under $30. I think this is a good opportunity to get in.
This is a growth investment of the first order because Fusion-IO is at the forefront of data management, cloud computing and other high-tech trends. As the world gets more wired, the need for better networking and more efficient Internet operations will become only more pressing.
And Fusion-IO has some of the most innovative technologies in the sector.
Consider that the company reportedly gets about 24% of its revenue from Apple (NASDAQ:AAPL), running the iconic tech company’s network. Its flash memory technology is a big part of speeding up online response times. It also gets another 25% of its revenue from a little social media company called Facebook.
Fusion-IO is risky, since it’s a relatively new stock without a track record to mine for long-term fundamental trends. However, like Goodyear, if all Fusion-IO ever does is revisit its 52-week high of $41.47, then you’ll be sitting pretty. That’s over 45% upside from here.
Recap of Last Month’s Picks
In March, I offered up four “editor’s picks” for the month: Caterpillar (NYSE:CAT), Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT) and Apple. Here’s their performance in the last 30 days since my initial recommendation.
- CAT — Down 5.3% in March. This is disappointing because Caterpillar affirmed its full-year outlook and posted a record backlog of orders in early March. But while techs and financials have been getting all the attention, I’m confident CAT will be back in favor very soon, if its earnings report on April 25 follows the strong quarterly results released in January.
- INTC — Up 4.5% in March. Intel remains one of the strongest tech stocks, since it’s the No. 1 chipmaker in the world. As tech has rallied strongly, so has INTC — up almost 16% so far in 2012. Look to earnings on April 17.
- MSFT — Up 0.6% in March. This sleepy tech stock has stayed under the radar after a strong start to the year. April 19 is when Microsoft reports earnings, so maybe that will be a catalyst for another leg up.
- AAPL — Up 10% in March. The reasons are clear: A new iPad is making waves, and Apple reinstated its first dividend since 1995. No firm earnings date is on the books as yet for Apple.
- My Average – Up 3% in March.
- Dow Jones – Up 1.8% in March.
Recap of Older Picks
I only recently lauched my “editor’s picks” buy list, so March is essentially the first group of recommendations. However, on Dec. 31, I recommended Alcoa (NYSE:AA) as the best stock to buy and hold for all 2012, so I made that part of the list, too.
Alcoa is off 2.7% on the month, lagging the market in the last 30 days. However, it’s still up 16% since the initial recommendation to start the year.
Explore the Entire FREE Buy List
You can check in on the performance of my “editor’s picks” buy list portfolio anytime. I will regularly update InvestorPlace.com readers on performance, but you’re always welcome to drop me a line at firstname.lastname@example.org for direct feedback on any of these investment ideas.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.