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Our Top 10 Stock Picks for the Second Half of the Year

It's all about stocks that capitalize on consumer spending

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Our top stocks for the remainder of the year are nearly all tied to consumer spending in the U.S. Now, I know what you’re thinking: “Louis, aren’t you putting all your eggs in one basket!?”

But although many of these stocks are based on the American consumer, this is also the strongest sector of the economy. In addition, our stocks are diversified through various subsectors of consumer stocks, and many are conservative plays that do well even in a worst-case scenario for the economy.

Take a look back at the last time we took a major bet on the strength in the U.S. consumer, back in 2009 and 2010. We bought companies like online shopping site Amazon (NASDAQ:AMZN), telecom American Tower (NYSE:AMT), pharmaceutical AmerisourceBergen (NYSE:ABC), automaker Ford (NYSE:F) and satellite provider DirectTV (NASDAQ:DTV).

At the time, people were fearful that the U.S. consumer was dead, but we sold these five companies for better than 50% average gains in less than two years. This was also the time when we initiated big winners that we’re still holding—like our 200% gains in Apple (NASDAQ:AAPL) and (NASDAQ:PCLN).

And while some analysts were riled up over the latest retail sales report, a major drag was falling gasoline prices. Does the fact that prices at the pump are putting less of a squeeze on consumers’ pocketbooks really mean that the age of the American consumer is over? I don’t think so.

So without further ado, let’s take a deep dive into the best-of-the-best stocks for the rest of 2012 and the catalysts that will keep them firmly headed higher.

1) Ross Stores

Ross Stores (NASDAQ:ROST) has a downright enviable track record when it comes to accelerating monthly same-store sales — in May the bargain fashion chain reported an 8% jump in sales — leaving the 5.2% consensus estimate in the dust. And that is because Ross Stores is a lean, mean operating machine. Ross may have a smaller selection of products, but it is a smarter selection. While many of its competitors’ racks are overflowing with mismatched clothing, if you walk into one of the 1,000+ Ross locations, you’ll see a tight rein on inventory.

Another thing that I love about this company is that it is nowhere near reaching market saturation. America has been hit with bargain-hunting fever, so Ross could easily double its number of stores and accelerate its bottom line. This Conservative stock is a fantastic long-term buy.

2) Dollar Tree

Dollar Tree  (NASDAQ:DLTR) is another double-dip resistant company. Even die-hard penny pinchers can’t argue with its $1 housewares, school supplies, health products and seasonal decorations. The company is also clearly in growth mode, adding 110 brand-new stores in the first quarter, and I expect Dollar Tree to maintain its title as the most successful single-price-point retailer in the U.S. for some time.

And for all of you who held off on buying this stock due to its triple-digit share price, now is your chance. This month, the company will halve its share price in a two-for-one stock split, which often helps attract additional buying pressure. Buy this Conservative stock.

3) Alexion 

Alexion Pharmaceuticals (NASDAQ:ALXN) is 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 the first quarter, and analysts are calling for 41% sales growth and 28% earnings growth for the company in the coming quarter. Alexion is a one-of-a-kind pharmaceutical company with one-of-a-kind profit potential. Add shares of this Conservative stock under $99.

4) O’Reilly Automotive

O’Reilly Automotive (NASDAQ:ORLY) is one of the top auto parts retailers in the U.S., putting it at the crux of a major shift in consumer behavior: Americans are waiting longer than ever to replace their old cars. Did you know that the average car on the road is 10.8 years old? This means that American cars are in need of a tune-up, and from belts to A/C units to new tires, O’Reilly Automotive has it covered.

And O’Reilly Automotive stands out even compared with other auto parts chains: The company boasts the highest long-term growth rate and second-highest sales growth, earnings growth and return on equity in the industry. I recommend that you add shares of this Conservative stock.

5) Dollar General

Dollar General Corporation (NASDAQ:DG) is another major player in the discount store industry and there are just enough differences from Dollar Tree to make it a perfect complement to its competitor. Even though its not a true “dollar store”—it sells goods for as much as $10—this chain is still enjoying robust sales growth, especially in the American South and Midwest.

Dollar General is also definitely in expansion mode; the company opened 128 new stores and remodeled 224 stores in the last quarter. This brings the current store count over 10,000—making it significantly larger than Dollar Tree. With a $1 billion share repurchase program in the works, Dollar General is clearly committed to returning value to its shareholders in a big way. Buy this Conservative stock.

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