Top Picks In Five Categories

7/31/2017


Many stories in this investment newsletter require explaining a concept or exploring a trend to introduce a basket of stocks that stands out from the rest. This story isn't like that.

Below we present five top stocks for purchase right now, our favorites in five areas, all selected from our Focus List:

• Income.
• Value.
• Growth.
• Share-price action.
• Profitability.

Without further ado, here are some of our top picks to buy today:

Income

Just because we list Carnival ($67; CCL) as an income pick, don't dismiss it as stodgy. Like many stocks on our Focus List, Carnival looks good from multiple angles. It could have made the cut for this story as our pick for growth or share-price action, and not just for its 2.4% dividend yield, highest on the Focus List.

Over the last 12 months, the cruise-ship operator grew per-share profits 29%. Consensus estimates project another 29% gain in the year ahead. That growth has helped drive the shares higher, returning 30% year-to-date. Carnival earns a Quadrix Overall score of 94, supported by five of six category scores above 70. Carnival is also a Long-Term Buy.

Value

Auto-parts maker Lear ($151; LEA) earns a Quadrix Value score of 95 and trades at just 10 times trailing earnings, by far the lowest price/earnings ratio among Focus List stocks. That P/E is 29% below the industry median and 8% below Lear's five-year norm.

In the June quarter, Lear grew sales 8%, or 10% at constant currency, with revenue up in all regional markets. Per-share profits increased 20% to $4.39 excluding special items. Both sales and profits topped analyst expectations, and the company guided to full-year sales above the current consensus. Lear, which yields 1.3%, is also a Long-Term Buy.

Growth

Centene's ($83; CNC) Momentum score of 98 puts it at the top of the managed-care industry — as does its Overall score of 100 and Value score of 91. An acquisition juiced Centene's growth numbers, but per-share profits jumped 31% over the last year despite a 40% increase in outstanding shares.

The company posted June-quarter earnings per share of $1.59, up 23% on 10% sales growth. Profits topped analyst expectations by 20%, marking the third consecutive quarterly profit surprise. Centene credited strength in health-insurance marketplaces for much of its outperformance, and the company plans to expand its presence in that market just as many of its rivals pull back. The company boosted its sales and profit targets for the year, projecting per-share-earnings growth of 6% to 14%, versus the 9% consensus. Centene is also a Long-Term Buy.

Share-price action

Shares of semiconductor-equipment maker Lam Research ($168; LRCX) have returned 16% over the last three months and 60% so far this year, both tops on our Focus List. Despite those gains, Lam remains reasonably valued at 19 times trailing earnings, 8% below the industry median.

Lam earned $3.11 per share excluding special items in the June quarter, up 73% and $0.08 above the consensus, on 51% sales growth. The company projects growth of 50% in sales and 80% in profits for the September quarter, both well above the consensus. Lam is also a Long-Term Buy.

Profitability

Owens Corning ($68; OC), a maker of shingles, insulation, and composite materials, posted an operating profit margin of 19.6% over the last 12 months, up from 17.1% a year earlier and 13.6% a year before that. Both gross margins (reflecting profit after production costs) and operating margins (profit after both production and operating costs) have trended higher, reflecting cost controls and improved manufacturing efficiency.

In the June quarter, sales rose 3% and per-share profits dipped 7% to $1.20 per share, 11% above the consensus. Owens Corning enjoys strong pricing power and expects profit growth to accelerate in the second half, helped by a price increase. Owens is also a Long-Term Buy.

FOCUS ON OUR FAVORITES
The table below presents the stocks on our Focus List, our top 12 to 18 selections for year-ahead returns.
12-Month
---- Growth ----
Est. Profit
Growth,
Next
12 Months
(%)
-- Total Return --
Operating
--- Profit Margin ---
Company (Price; Ticker)
Div.
($)
Yield
(%)
Quadrix
Value
Score
Price/
Earnings
Ratio
Sales
(%)
Per-
Share
Profits
(%)
Quadrix
Perfor-
mance
Score
3
Months
(%)
YTD
(%)
Last 12
Months
(%)
1 Year
Earlier
(%)
Alphabet ($965; GOOGL)
0.00
0.0
33
26
21
22
(6)
76
9
23
32.5
32.9
Carnival ($67; CCL)
1.60
2.4
73
19
5
29
14
87
12
30
28.6
29.0
CBS ($67; CBS)
0.72
1.1
72
16
(8)
9
10
92
1
5
12.8
12.0
CDW ($64; CDW)
0.64
1.0
57
18
6
25
11
82
8
23
7.7
7.5
Celgene ($138; CELG)
0.00
0.0
49
22
21
80
21
87
10
19
45.5
32.4
Centene ($83; CNC)
0.00
0.0
91
18
54
19
4
75
14
48
3.9
4.0
Citizens Financial
($35; CFG)
0.56
2.0
86
15
13
37
13
95
(3)
(1)
46.7
43.9
Comcast ($39; CMCSa)
0.63
1.6
67
21
9
13
9
76
3
15
33.1
33.4
Lam Research
($168; LRCX)
1.80
1.1
56
19
24
55
27
82
16
60
27.0
23.6
Lear ($151; LEA)
2.00
1.3
95
10
3
25
9
65
7
15
10.3
9.5
Mohawk Ind.
($240; MHK)
0.00
0.0
60
19
8
17
4
39
1
20
19.0
17.9
ON Semiconductor
($16; ON)
0.00
0.0
80
16
31
14
41
82
8
23
18.6
18.1
Owens Corning ($68; OC)
0.80
1.2
85
17
10
29
4
31
10
33
19.6
17.1
Southwest Airlines
($60; LUV)
0.50
0.8
77
17
2
(6)
20
26
4
20
23.3
27.5
VMware ($92; VMW)
0.00
0.0
63
19
8
11 *
1 *
39
(1)
17
26.3
26.4
Focus List average
0.8
70
18
14
25
12
69
6
23
23.7
22.4
* Growth comparison isn't clean because this year VMware changed to a January fiscal year from a December year.     
Note: Quadrix scores are percentile ranks, with 100 the best.

 


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com