The folks at Street Authority are big fans of the “list of great stocks” teasers — they pitch the idea of a list of blue chippers that are either the top ten picks for this year, or the top ten “forever” buy and hold stocks, give one or two of them away to whet your appetite, then try to get you to subscribe to learn about the others.
And it works, they usually get me interested — not enough to subscribe, of course, that’s not how we do things here at Castle Gumshoe… but to tinker with their tantalizing hints and figure out what stocks they’re talking about. Now they’re touting the “top 10 stocks for 2015,” and the broad rationale is similar to past ads they’ve sent — they’re looking for stocks with some combination of great cash flow, shareholder returns, and “irreplaceable assets.”
Can’t argue with those criteria… so what are the stocks? We’ve got ten to look for today, so we’ll try to be quick with each one. Here’s the first snippet of clues:
“The “No-Brainer” Investment For 2015
“Top Stock #1 owns the 12th most powerful brand in the world, valued at $25 billion, according to Forbes. That’s ahead of companies like Disney, Facebook and Wal-Mart. One of the most shareholder-friendly companies on the planet, this firm paid a whopping $13.3 billion to its shareholders in 2014 . And with an enormous $52 billion cash stockpile – more than two times Apple’s $25 billion – those payouts don’t seem to be slowing.
“Now there’s a mega-growth catalyst propelling the company forward. Business Insider says this catalyst will create “The World’s Most Massive Device Market.” This trend is in its infant stages right now, and our research suggests that it could send shares of Top Stock #1 soaring in the next twelve months.”
That’s one of the “freebies” they give away later in the ad, Cisco Systems (CSCO), which reports earnings tomorrow — so there’s a lot of press out about the company now as everyone tries to predict what they’ll say, and what the outlook from CEO John Chambers will be. They do have a fantastic balance sheet, though they also carry $20 billion in debt (like many US companies with international operations, including Apple, they’ve been borrowing money cheap so they can buy back stock and raise dividends without “repatriating” their overseas cash and having to pay US taxes on that money)… so that net cash figure is “only” about $32 million.
If you back out that $32 million in net cash and use their “enterprise value” instead of the market cap, Cisco is trading at a trailing PE of a little less than 15, and they pay a strong and growing dividend that’s currently providing a yield of a bit under 3%. Cisco is the big daddy in the “Internet of Things” business, since they are the large cap that talks about it most often and issues white papers about the IOT all the time — and they should presumably be one of the winners of a “more connected things” world since, well, they are the leaders in the “connections” business with their switches, routers, and huge cash pile that they can throw at R&D (or acquisitions) to try to “own” new outshoots of those businesses.
Can’t argue much with Cisco, but the argument against them has been that the router/switch business is getting commoditized and that they’re losing business to the cheaper Chinese companies like Huawei… that’s been the complaint for several years, and it’s probably why Cisco is still relatively inexpensive (like many other “old tech” companies), but it hasn’t hurt them all that dramatically — over five years, their gross margins have gone from about 64% to 59%, and they’ve made up for about half of that drop with cuts to operating expenses, so they still have a net profit margin after taxes of about 17%. They’re not growing revenues very fast, and earnings are not consistently growing each quarter, but they are still the dominant company in their sector and they’re not at risk of being unprofitable anytime soon.
The second Freebie is Starwood Hotels & Resorts (HOT), which they pitch as being a George Soros favorite:
“George Soros is Loading Up on This New Apple Partner
“Our next Top 10 Stock has been on a tear lately – its share price has more than doubled in just the past five years.
“And we don’t expect it to slow down any time soon. This high-end hotel management company owns and operates some of the world’s most recognizable brands, including Westin, Sheraton, W and St. Regis.
“Its combined collection of hotels and resorts includes more than 1,200 properties spanning nearly 100 countries across the globe.
“From the U.S. to Fiji… Hong Kong to Djibouti – presidents, prime ministers and crown-princes alike have all relaxed and relished in the company’s unique luxury suites.
“This worldwide appeal has allowed the company to sell its high-end products at premium prices. And that’s resulted in a share-price that has crushed the S&P 500 during the last several years.
“As we showed you earlier in the report — thanks to the firm’s enormous shareholder yields — shares have soared 144%, against the market’s 86% return.
“Shares of Starwood Hotels & Resorts (NSYE: HOT) have beat the market by 53 percentage points since 2010 – clocking in at a 138% gain compared to the S&P’s 85% gain.
“We think this stock will be one of our best-performing Top 10 Stocks of 2015. And we’re not alone in thinking so…”
I don’t know much about HOT, but they are following in the path of Marriott in moving to an “asset light” business, where they manage properties and franchise hotel brands but don’t own many of the actual buildings. That creates cleaner balance sheets, and generally steadier cash flow and profit margins. They just reported earnings today, and analysts cheered because they both beat on earnings (though revenue was apparently “light”) and announced that they’re spinning off their vacations/time share business. All the big hotel companies are more or less doing the same thing, from what I can tell, and they’re all looking pretty expensive at this point (forward PEs are pretty much all in the mid-20s), so though they are cyclical businesses that perform well when leisure and business travel are booming, as they are now, I don’t have a real sense of whether they’re too pricey. HOT’s shares are per