By many measures, this past decade was a downer. We experienced the dot-com bust, terrorism attacks, the Enron scandal, Bernie Madoff's Ponzi scheme, at least two wars and the Jonas Brothers. Oh, and lest I forget, one of worst financial crises in history.
For anyone reading this, congratulations. You've survived, though it hasn't been pleasant. But we have many things to look forward to. Among them are my 10 favorite stock picks for 2010. Several trends are in the works over the next year that I believe make the companies I've selected good bets.
First among these trends, some financial companies were hit way too hard, along with their brethren, and will now recover in a world where they have fewer competitors. Next, the developing world is back on track. People are moving from rural to urban areas throughout the planet. And they are very, very hungry.
Back at home, health care reform, whether you like it or not, is happening. Also, the dollar is weakening. Meantime, personal computing is still getting faster, smaller, cheaper. And I'm afraid the threat of terrorism is here to stay -- and the fight against it will still cost billions of dollars.
In light of these themes, here are my 10 favorites for 2010, with some bullet points for each. While the bullet points don't present an entire investment thesis for each stock, view them as starting points and feel free to email me at firstname.lastname@example.org with questions.
1) Assured Guaranty (AGO): Assured insures municipal bonds. Its competitors MBIA (MBI) and Ambac (ABK) have been knocked out of the game due to over-speculation in mortgage-backed securities, leaving the entire sector wide open for Assured. The beauty of municipal bonds is that they have tiny default rates (0.14% this year). And most of the worries in municipal finance were solved by a little thing called the $787 billion stimulus plan, much of which went directly to local governments to plug financing holes. JP Morgan said it sees the stock reaching $42 -- it's not trading in the $20s -- based on $6 per share earning potential in 2010. The stock is currently trading for just three times next year's earnings and the company just raised more than $500 million in financing, satisfying any concerns from the credit rating agencies. I own the stock.
2) Wellcare Health Plans (WCG): The managed care provider resolved its problems with Medicare and is all set for a world where its role as a mediator between corporations and government-sponsored health care will be in great demand. The company, with a $1.4 billion market cap, has over $1.2 billion cash in the bank and no debt. This could easily be a double in 2010. I own the stock.
3) Potash (POT): People need to eat. Potash increases the yield of fertilizer. And in an overpopulated world with people moving into urban areas (less farmers feeding more mouths), demand will spike for whatever can increase that yield. Potash's stock is closely correlated to prices of the product Potash. It's worth noting that the stock represents billionaire financier George Soros's third largest position. Goldman Sachs just raised its rating on the the stock, saying "Investors are likely underestimating the 2010 US demand recovery that could see staggering yoy [year-over-year] percent increases in volume given the depth of the 2009 reduction and the atypically weak fall consumption levels."
4) Cash America (CSH): This chain of pawnshops is a backdoor way to play an increase in gold prices. Pawnshops have now replaced mainstream banks as the lender to the sub-prime community. Not only that, when people borrow from a pawnshop, they often hand over gold as collateral. As gold rises, so do the asset values sitting in the pawn shop. At nine times earnings, this one is cheap going into 2010. I own it.
5) Becton Dickison (BDX): A relatively new position for Warren Buffett, this company makes all sorts of medical supplies. Buffett has been making an across-the-board bet on medical companies. He owns Johnson & Johnson (JNJ), GlaxoSmithKline (GSK) Sanofi Aventis (SNY). And now the smallest company among the medical stocks he invests in is Becton Dickison. The company just recently increased its dividend, making it the 37th year in a row that it increased its payout. At 14 times earnings, this one has room to grow, particularly with an aging Baby Boomer population requiring more medical care.
6) Hillenbrand (HI): Hillenbrand is the largest supplier of products to the funeral service industry. Caskets and urns are at its primary products and it sells to 16,000 of the nation's 22,000 funeral homes. This is a demographic trend that is only getting larger with an aging population. The stock yields 4% and trades for only 10 times forward earnings. I like stocks that are monopolies in their industry, pay huge dividends (which they just increased) and trade for a cheap multiple on cash flows.
7) Telecom Corp. of New Zealand (NZT): Trading for just seven times earnings and yielding a 10% dividend, it's also nice to know that it's a monopoly in New Zealand. And, on top of that, with gold prices soaring, it's worth noting that the currency most closely correlated with gold is the New Zealand currency (affectionately known as the Kiwi dollar), making the company a nice backdoor play on gold.
8) STEC (STEC): The maker of solid-state drives has $130 million cash in the bank, no debt, a $650 million market cap, and trades for just six times forward earnings. The stock collapsed in November when it announced that EMC had an inventory glut of STEC's SSD product. In other words, EMC ordered too much. Since EMC is the company's largest customer, it threw into doubt its earnings expectations. JP Morgan's analyst came out and said he still sees the company earning $2 per share in 2010 and put a $42 price target on the stock. Not bad for a $12 stock.
9) Alvarion (ALVR): This is a backdoor play on the growth in the developing world. The company supplies the WiMax networks that allow people in the developing world to get Internet access. This will be a high growth area but also at $3.80 a share, Alvarion is dirt cheap. It has $2.50 a share in cash in the bank, no debt, and is expected to earn 14 cents a share next year. Trading at less than 10 times earnings (when you back out the cash) and with the safe cushion of the cash, this stock is very attractive.
10) GlaxoSmithKline (GSK): Warren Buffett holds this pharmaceutical stock. It trades for 12 times forward earnings and offers a 4.7% dividend. Demand for its health care products will only go up with an aging Baby Boomer population.
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