Thirty-two years in publication
Transcription
Thirty-two years in publication
Thirty-two years in publication Issue 734 Contents Top Picks 2013 1-6 Undervalued Stocks 7 Energy Stocks Small-Cap Tech Stocks Small-Cap Pharmaceuticals International Funds Funds In This Issue 8 9 10 11-12 13 14 H = New Recommendation (not previously sent in a Daily Alert) www.dickdavis.com January 9, 2013 Welcome to the super-sized Investment Digest Top Picks for 2013 issue. Inside this issue, you’ll find over 50 of our contributors’ very favorite investments to own this year. Plus, this year we’re bringing you an even wider selection of Top Picks through a collaboration with TheStockAdvisors.com and the advisors participating in their Top Stocks 2013 feature. We’ll begin below with picks from the two analysts who recommended the best-performing Top Picks of last year. The Turnaround Letter Editor George Putnam’s pick, OfficeMax (OMX), soared an impressive 110% last year. The second-best performer was Lennar (LEN), picked by Cabot Market Letter Editor Michael Cintolo. Interestingly, both advisors’ Top Picks for 2013 are also turnaround stories. Read their recommendations below, and we’ll see if the formula works as well this year. There are no regular follow-ups in this issue, so we have published some updates, including sell alerts on EPV, XHB and RGR, on our website. Please visit www.dickdavis.com/category/id-daily-alerts for all the details. — Chloe Lutts TOP PICKS 2013 “Our Top Pick for 2013 is MGIC Investment Corp. (MTG 2.87 NYSE), the leading non-governmental provider of mortgage insurance. The company was battered by losses from the subprime mortgage debacle prior to 2008. Those losses are now receding; the company has raised additional capital; and the new business that it is writing is very profitable. MGIC recently settled a long-festering dispute with Freddie Mac, thereby allowing it to continue to insure Freddie Mac mortgages. The budding recovery in the housing market helps MGIC in two ways. First, the rise in home prices makes it less likely that homeowners with older policies from MGIC will default. Second, an increase in home purchases provides MGIC the opportunity to write more new business at very profitable rates. There is still some risk that MGIC’s pre-2008 business will cause regulatory problems, but we believe that risk is small compared to the substantial gain potential in the stock as the housing sector continues to recover.” Recommended in the January 3 Daily Alert. George Putnam, The Turnaround Letter, www.turnaroundletter.com, 800-468-3810 H “My pick for 2012 (Lennar, LEN), which was the second best performer, stemmed from my belief the housing sector was poised for a big turnaround. For 2013, I see another much-hated group ready to turn up— financials. That’s why I’m making Bank of America Corp. (BAC 11.98 NYSE) my pick of the year. As a group, the big banks have now had five full years to shape up. They’ve been helped along by an incredibly easy Federal Reserve (now buying $40 billion of mortgage debt every month) and, ironically, a housing rebound, which has improved many firms’ balance sheets. And, though most investors don’t know it, earnings for the group are buoyant. As for Bank of America itself, it’s likely to pass an upcoming stress test and finally be able to return $5 billion to $10 billion to shareholders through a dividend boost and share repurchases. Throw in the fact that earnings are projected to leap 129% next year to 96 cents per share, and the fact that the stock actually hit new yearly highs in December (even as the market was struggling), and it’s clear to me that the turnaround is underway.” Michael Cintolo, Cabot Market Letter, www.cabot.net, 978-745-5532 Dick Davis Investment Digest brings you the best investing ideas from the world’s most successful experts, hand-selected by our editors using our impartial time-tested system. TOP PICKS 2013 H “It often makes more sense to buy stocks that are headed in the right direction—even if they don’t seem as cheap—rather than buy shares that have been beaten down ‘in hopes they don’t go any lower.’ And consequently, our Top Pick for 2013 comes from the biotech sector! Over the past several years, Illumina, Inc. (ILMN 52.39 Nasdaq) has emerged as one of the premier players in the genetic screening industry, offering systems (and associated consumables) for use in both low- and high-throughput screening situations across a variety of clinical, research, and commercial settings. Though competition in the sector is fierce, management has been able to deliver stellar results year-in and year-out while many of its competitors have faltered. While we believe the stock ought to continue appreciating at a steady rate in the years to come based on the company’s proven ability to respond and adapt to changing market conditions, it should also be noted that the stock may be a very attractive takeover candidate at current prices—and 2013 may very well be the year in which an acceptable buyout is finally made by one of the large pharmaceutical companies. ILMN is currently a strong buy under $48 and a buy under $54.” Nate Pile, Nate’s Notes, www.NotWallStreet.com, 707-433-7903 H “Misonix, Inc. (MSON 7.08 Nasdaq) designs, manufactures, develops and markets minimally invasive ultrasonic surgical device products. These products include the BoneScalpel cutting system which is used for, among other things, surgical procedures of the spine and maxillofacial procedures; the SonaStar Surgical Aspirator, which is used to emulsify and remove soft and hard tumors; the SonicOne Wound Cleansing and Debridement System that offers tissue specific debridement and cleansing of wounds for effective removal of devitalized tissue and fibrin deposits while sparing viable cells; and the AutoSonix ultrasound cutting and coagulating system, which is distributed and marketed for Misonix through an agreement with Covidien Ltd. Misonix also markets its Lysonix ultrasound-assisted liposuction device through Mentor Corporation, a subsidiary of Johnson & Johnson. With revenues growing at approximately 15%+ and turning to profitability the last two quarters, MSON is poised for some nice steady growth in the short and long term.” Geoffrey J. Eiten, OTC Growth Stock Watch, www.otcgsw.com, 781-444-6100, 12/26/12 Dick Davis Investment Digest P.O. Box 2049 Salem, MA 01970 Chloe Lutts, Editor Page 2 H “GlyEco, Inc. (GLYE 1.90 Pink)—Imagine a company that could acquire a toxic, hazardous waste for about $0, process it and then sell it for $5.60 a gallon. And there are about a billion gallons of the waste to access. Management previously created the immensely successful $15.6-billion Waste Management (WM), so they have experience in growing and operating bigfootprint deals. In less than a year, GlyEco has inked seven accretive acquisitions and in the past few months, five were finalized. Think of the amount of polyester fibers, plastic bottles, airplane de-icer, antifreeze and air conditioning fluid that all are made of glycol and you get the picture, as the world uses 5.5 billion gallons/$30 billion worth a year. It’s a ubiquitous material and there’s an enormous amount of toxic waste created in its manufacturing and disposal. By using GlyEco’s breakthrough patent-pending technology, refinery-grade ‘virgin’ glycol can be produced from the waste and then sold to a hungry global market. Revenues and profits should expand strikingly as the acquired assets upgrade to the new technology and news flow drives share price.” Dr. John L. Faessel, On The Market, 7685 Caminito Coromandel, La Jolla, Ca. 92037, 858-587-8590 H “Intel Corp. (INTC 21.09 Nasdaq) is the largest microchip maker in the world. The stock sold off sharply (declining 33% from its April high to a low in late November) in reaction to the company lowering guidance for the second half of 2012 on slowing global economies. We believe the sell-off was overdone, the stock is very oversold, and will rebound nicely in 2013. Intel is the dominant force in the computer processor arena. Smaller rival AMD very occasionally emerges as a potential threat only to see Intel leapfrog ahead again. The company was faulted for being slow to recognize the demand for smaller chips used in smartphones and tablets, an area currently dominated by ARM. But Intel is moving more aggressively into that area also with its ‘Atom’ chips, and acquired Infineon’s wireless connectivity chip business in 2011 to support that undertaking. Intel has a strong balance sheet and cash flow, and maintains an immense budget for R&D and to sustain its industry-leading manufacturing technologies. Shares are selling at less than 10 times estimated 2013 earnings, and yield 4.2%. Our upside target is $27. We suggest a ‘mental’ protective stop at $17.20.” Sy Harding, Street Smart Report, www.streetsmartreport.com, 386-943-8014 Contact us: [email protected] or 978-745-5532 We appreciate your feedback: Email us at [email protected] or complete our brief survey at www.surveymonkey.com/dddsurvey. Subscriptions: [email protected] Dick Davis Investment Digest is published 24 times a year. Issue 735 will be published on January 23, 2013. Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013 “ARM Holdings plc (ARMH 39.25 Nasdaq) has annual sales of $872 million, thanks to licensing of its intellectual property. And thanks to a business model that’s low on physical investment, the company’s aftertax profit margins have averaged a plump 36% in the past year! ... ARM’s business, which is well known to many investors, is designing semiconductors. It has expertise in chips for computers and digital TVs, but the big market, and the fastest-growing market, is the one for mobile phones, where ARM is dominant. It’s also big in tablets, a category that is growing like wildfire. Odds are extremely good that the company will be able to continue billing itself as ‘the world’s leading semiconductor intellectual property (IP) supplier,’ in part because it’s difficult for a customer to shift once it’s committed to working with ARM. For its part, ARM boasts that its designs have the best combination of reliability, low power usage and compactness. [ARMH] climbed strongly from the market’s 2009 bottom through 2010 and into the summer of 2011, where it entered a long trading range between 22 and 30, as it performed slightly worse than the market, on average. It stayed in that range for 22 long months! And then came this year’s third quarter earnings report, where management revealed that business was booming. Investors quickly stampeded on board, spiking the stock up and out of that trading range and kicking off a new uptrend that I believe has far to go. The past three weeks have seen the stock pause between 36 and 37 and I think that’s a decent entry point.” Recommended in the December 31 Daily Alert; read more at www.dickdavis.com/2012/12/31/armh-2. Timothy Lutts, Cabot Stock of the Month, www.cabot.net, 978-745-5532 H “Traffic flow specialist Iteris, Inc. (ITI 1.64 Amex) appears to be improving by all metrics. Revenues are growing, the bottom line is black, cash is increasing and the nominal debt was eliminated. The stock currently trades below book value although, if goodwill is stripped out, it trades about 50% above. Insiders are aligned with shareholders as they own approximately 24% of the shares. The current ratio is a stellar 3.7. While the focus of the company’s operations is with governments in the United States, ITI also operates in the Middle East. Recently a contract was received from Abu Dhabi’s Department of Transportation. The goal of management is double-digit organic growth. The initial sell target for Iteris is $3.49, about double the current level. It traded well above this target prior to the recession and earlier in the last decade touched $15. While that mark seems otherworldly, ours seems eminently achievable.” Benj Gallander, Contra the Heard Investment Letter, www.contratheheard.com, 416-410-4431 Page 3 H “Priceline.com, Inc. (PCLN 657.42 Nasdaq) is a leader in global online hotel reservations with over 270,000 participating hotels worldwide. Priceline’s business is not capital intensive and thus generates strong free cash flows, which have steadily and rapidly grown from $140 million in 2007 to $1.3 billion in 2011. The company ended the September 30, 2012, quarter with more than $4.7 billion in cash on the balance sheet. Priceline generates high returns on shareholders’ equity, which topped 41% in 2011. This demonstrates the superior profitability of the company’s business model. Profit margins have more than doubled over the last five years from 10% to 24%, with further profit margin expansion expected in 2012. Due to expanding profit margins, Priceline’s net income has compounded at a jet-setting 66% annual rate over the last five years with sales growing at a 33% annual rate. Despite a weak global economy, Priceline has benefited from a strong leisure travel environment, expanding hotel availability, a continued shift to the Internet by people making travel reservations and geographic expansion. Long-term investors should book a reservation with Priceline, a HIquality company with strong brands, strong cash flows and strong growth.” Ingrid R. Hendershot, Hendershot Investments, www.hendershotinvestments.com, 703-361-6130 “Heading into 2013, the sluggish economy has businesses continuing to cut costs wherever they can. They’re also looking more and more to the ‘cloud’ for their technology operations. Both of those factors should mean strong demand for Oracle Corporation’s (ORCL 34.44 Nasdaq) array of cloud-focused, cost-saving products and services. Perhaps more importantly, the firm’s fundamentals are excellent. It’s upped earnings per share each year of the past decade, one reason it gets strong interest from my Warren Buffett-inspired ‘Guru Strategy.’ My Buffett-based model also likes that Oracle could, if need be, pay off its $18.5 billion in long-term debt in less than two years given its $10.3 billion in annual earnings. And it likes Oracle’s 24.9% ten-year average return on equity—a sign the firm has the ‘durable competitive advantage’ Buffett likes to see. My Peter Lynch-based approach is also high on Oracle. Lynch famously used the P/E-to-Growth ratio to find bargain-priced stocks, and Oracle’s 15.9 price/ earnings ratio, 19.1% long-term EPS growth rate (based on an average of the three-, four-, and five-year growth rates), and 0.7% dividend yield make for a very solid 0.8 yield-adjusted PEG, a sign that it’s a bargain. (I’m long ORCL.)” Recommended in the January 7 Daily Alert. John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013 H “Sometimes it’s easy to overlook the obvious. Popular big-name stocks can be considered crowded trades in which the big money has already been made. And the mighty can certainly fall, as we’ve seen with Apple, which tumbled 25% in just two months in 2012. But unlike Apple, Google, Inc. (GOOG 733.30 Nasdaq) has found its legs and recovered some ground after a 15% tumble last fall. Of course, Google is a huge name in the Internet advertising and search world with little competition. And Google is gaining a strong foothold in the smart phone world thanks to the success of its Android. Although Apple has a respectable market share lead in the U.S., Android leads comfortably in Europe, China and Brazil. And while Apple may be considered the undisputed leader in the tablet market, Google is closing the gap and now is expected to have around 43% of that market. And don’t forget its YouTube and Gmail franchises. While the financial numbers don’t dazzle, they suggest that solid growth should continue. The company is sitting on $45 billion in cash and carries little debt. Earnings are expected to grow 16% annually for the next five years. And the recovering economy should continue to feed advertising dollars to the bottom line.” H “International Business Machines Corp. (IBM 192.87 NYSE) is one of the world’s most dominant technology companies, with annual revenues of $105 billion and net income of $16 billion. Although the firm achieved prominence as a computer maker, over the past two decades it has transformed itself into a softwareand-consulting powerhouse. IBM operates in 170 countries and derives 65% of its sales from outside the U.S. The company spends more than $6 billion annually on R&D and has been granted more U.S. patents than any other company for 19 consecutive years. IBM’s financial metrics are excellent, including a net profit margin of 16% and a return on capital (ROC) of 35%. The company has consistently increased its margins over the past decade, both by increasing efficiency and by moving into higher-margin markets. IBM returns most of its substantial cash flow to shareholders. Since 2009, 71% of reported net income has been used to repurchase stock. The stock also has a dividend yield of 1.8%. At $192, IBM trades at a P/E of 13 and shares have a free cash flow yield of almost 8%. The firm has averaged earnings growth of 17% over the past five years and management has laid out a credible plan to increase EPS to $20 by 2015.” Ian Wyatt, $100k Portfolio, www.100kportfolio.com, 866-447-8625 Peter Hughes, CFA, Steven Check’s The Blue Chip Investor, www.checkcapital.com, 714-641-3579 H “Great Southern Bancorp, Inc. (GSBC 25.94 Nasdaq) is a small bank (107 branches mostly located in Southwest Missouri), with a market cap of around $350 million. GSBC is primed to grow nicely in the next five years as they (wisely) side-stepped the housing disaster by practicing prudent lending policies. While others cut back and lick their wounds, GSBC is growing by acquisition and a strong balance sheet as they were able to add 30+ branches by making deals with the FDIC to buy insolvent banks while others shrink. It’s a very cheap way to grow and it’s quick too. GSBC was able to get 10 years worth of branch-growth in about 18 months for a dirt-cheap price—very nice. The Turner family (father/son) are active managers and they, along with other family, control about 25% of the stock (and don’t overpay themselves either—look at the numbers). Two other local Springfield, Mo., folk own another 15% of GSBC. This is an old-time savings bank in the best sense, one of the few that has survived and thrived. ... That’s what you want for the next three to five years— the banks that did it right and now are rested and ready for what is next. GSBC went on a nice run from $20 to $30+ last year and now it is trading in the $25-27 area—a normal correction. I believe below $27 GSBC is a good value, with excellent upside potential aided by the (now noticeable) housing recovery underway.” Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486 Page 4 H “Online photo-printing website operator Shutterfly, Inc. (SFLY 32.40 Nasdaq) is our top aggressive pick for 2013. The company’s biggest advantage over competitors is that it has invested in its business and is the only major online photo company that prints inhouse, which gives it a significant margin advantage over competitors that outsource their printing needs. Meanwhile, more volume for its subsidiary Tiny Prints, which was acquired in April 2011, should shift to inhouse this holiday season compared to last year when only about a third of volume was printed in-house. This should lead to some nice margin expansion, which currently is not in the company’s guidance. ... We also continue to think that rival Snapfish’s tactics make little sense long term for the struggling Hewlett-Packard, and that the company will sell the non-core asset at some point. ... We think Shutterfly has the best offerings in the fast-growing online photo space, and that the company should continue to benefit from increased scale, possible international expansion, lower manufacturing costs, and new higher-margin products, like iPhone cases. Shutterfly currently trades at about 12x the 2014 consensus for free cash flow per share of $2.45, or 11x excluding its net cash of $2.49. That’s inexpensive for a fast-growing company riding a solid secular trend.” Geoffrey Seiler, Bullmarket.com, www.bullmarket.com, via TheStockAdvisors.com Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013 TOP PICKS: IN BRIEF H “[The voice recognition technology] sector is really split between ‘speech recognition and command’ and ‘voice dictation’ software. There is a nuance of difference. That’s the name of a key player: Nuance Communcations, Inc. (NUAN 23.35 Nasdaq). A competitive challenge emerging from Google is emphasized by their hiring Ray Kurzweil, a factor we explored for our members. Our analysis includes reasons why we anticipate results will vary from the normal consensus about such a competitive landscape (this becomes a fairly ubiquitous field, ranging from medical and corporate use to automotive or device facilitation, far more than the algorithms behind ‘Siri’ or Ford Sync, or GM’s ‘Cue’ or a slew of similar services, including LG ‘Magic Remote’ voice-directed televisions). ... Many times in technology the ‘first generation’ of anything is imperfect, giving rise to a technology being panned somewhat, only to become refined and perfected over the ensuing three to five years. We see this being the case with applications like Siri, and believe today’s more powerful Intel chips allow apps like Dragon Dictate to work more accurately, augmented by cloudbased server-level processing to better utilize natural language processing. In essence, the focus becomes the evolution of transforming human-device interaction.” H “My top is Almaden Minerals Ltd. Inpick Short... (AAU 3.11 Amex, or AMM on the TSX). This diversified exploration company has made a significant discovery in Mexico in what they term the ‘Ixtaca Zone.’ With a resource report and PEA [preliminary economic analysis] due out in January, along with a Metallurgy report, I think the stock can gain recognition for this discovery and move higher. There is also a diversified portfolio of projects with multiple joint-venture partners to boot. We think the company could be a takeover candidate for their Mexican discovery alone, and/or they will spin it out to shareholders as a separate tracker. Our upside is north of $5 per share, the stock is at $3.10 as of this writing [December 26].” Gene Inger, The Inger Letter, www.ingerletter.com “Bombardier, Inc. (BDRAF 4.00 Pink, BBD.A on the TSX) was called a ‘buy’ by UBS Canada because of its second collaboration accord with China’s Commercial Aircraft Corp (COMAC) over product development on cockpit machine interfaces, electrical systems and other technology. While no orders have been booked, the collaboration opens the way to Bombardier selling its C-series planes in China. [UBS’] 12-month target for Bombardier is $5.50 as it gets airborne in China. Bombardier may also get some rail contracts next year despite the current Chinese government’s decision to put the brakes on fast passenger train spending in 2012. Next year a new team arrives in Beijing. Meanwhile the company is signing huge monorail construction and equipment deals from Riyadh to Sao Paulo. This is potentially the best stock in our portfolio, grossly undervalued because it is French-Canadian, familycontrolled, and ignored because it is a two-fer, hard for single-industry analysts to quantify because it combines rail with air transport. Its Q3 report was mixed, with sales lower (big ticket items are lumpy), down to US$4.3 billion, while profits rose 9% to $192 million. This stock is ripe for take off. While you wait it pays a 3% dividend.” Read more: www.dickdavis.com/2013/01/02/bdraf. David Banister, Active Trading Partners, www.activetradingpartners.com H “Thermo Fisher Scientific, Inc. (TMO 65.47 NYSE) furnishes research labs with instruments, equipment, flasks, solvents and analytical software. The company’s free cash flow rose 34% over the past year to $1.63 billion, and management seeks to return half of free cash flow to investors through stock buybacks and dividends. Budget constraints could put pressure on Thermo Fisher’s academic and government research clients (25% of sales). However, the stock’s valuation—just 14 times trailing earnings, a 31% discount to its threeyear average—discounts those budget worries. In our Quadrix stock-rating system, all six of the stock’s category scores exceed 50, contributing to an Overall rank of 92. Thermo Fisher is a Focus List Buy and a Long-Term Buy.” Richard J. Moroney, CFA, Dow Theory Forecasts, www.dowtheory.com, 800-233-5922 “3D Systems Corp. (DDD 58.65 NYSE)—The maker/marketer of 3D printers and services reported Q3 earnings up 87%, with revenue up 57%. Recent secondary offering increased cash to $110 million. DDD rocketed through secondary resistance at 37-39. [It is now] challenging its previous high of 49.35. Buying Range: 42-45, Near-Term Objective: 54, Intermediate-Term Objective: 63, Stop Loss: 37.80.” Recommended in the December 20 Daily Alert. Joseph Parnes, Shortex Market Letter, www.shortex.com, 800-877-6555, 12/7/12 Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480 Page 5 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013 H “Our top aggressive pick for the coming year is MTR Corporation (MTRJY 40.10 Pink); this subway operator enjoys the benefits from being a legal monopoly in Hong Kong. MTR Corporation has 218 kilometers of subway and light rail track and 84 stations, plus it’s a leading land developer with over 29 million square feet of commercial and residential space. Of particular interest is that while it shares in the profits with its property development partners, it doesn’t share the losses. MTR’s new CEO is the former head of New York’s Metropolitan Transportation Authority, Jay Walder. The company is expanding outside HK, especially into mainland China. Over the last five years MTR has been aggressively expanding internationally, winning contracts to operate the Stockholm subway, a new rail line that served the London Olympics, and lines in Melbourne, Daxing, Shenzen and Beijing. About 60% of MTR’s revenue now comes from the Hong Kong rail system, including fare revenue with an overall operating margin at 39%. Property development and management has also become a pretty big part of their business, making up about 25% of their operating profit. MTR has a great balance sheet with cash roughly equal to total debt. It has a dividend yield of 2.5% and has raised dividends every year over the past ten years.” Carl Delfeld, Pacific Rim Confidential, www.pacificrimconfidential.com, via TheStockAdvisors.com H “When you drive up to an ATM at the bank, use the self-service checkout at the supermarket, or search the gift registry kiosk in a department store, there’s a good chance that workstation was made by NCR Corporation (NCR 26.40 NYSE), our top speculative idea for 2013. NCR has become the market leader in financial services hardware with the #1 position in ATMs worldwide. Looking ahead, this company appears to be on a compelling growth track. Earnings per share have been increasing at a double-digit rate over the last few years, and NCR has outlined some aggressive 2015 guidance. Revenue is projected to increase at a 7%-9% compound annual rate, while adjusted operating income is expected to grow at 15%-20% annually over the next three years. The profitability of this firm is also impressive. NCR expects to more than double its free cash flow from $188 million in 2011 to over $400 million in 2015, which equates to a healthy 12% free cash flow yield based on the current stock price. Return-on-equity, which is a measure of the company’s profitability, has increased in recent years to 41.6%, which is more than twice the 18.1% industry average. ... Also, the addressable market for NCR is expanding rapidly as global spending on banking technology is forecast to grow 24% annually out to 2015, while retail tech spending is expected to grow at a respectable 7% per year. NCR’s financial success Page 6 doesn’t rely entirely on hardware sales as approximately 50% of corporate revenue comes from the recurring service and support of these products. Bottom line, NCR’s position as an industry leader, combined with its international expansion potential and solid financial position, should make this an attractive investment for growth-oriented investors.” Jim Stack, InvesTech Market Analyst, www.investech.com, 800-955-8500 H “My top pick for 2013 is to short the Japanese Yen. Fundamentally, the stated policy of the LDP (newly elected Japanese government) is to burn the currency (in the misguided Keynesian belief this move will stimulate exports). Technically, the Yen chart has broken down from a major three-year top formation. A move from 120 on the Yen futures to my projection under 100 would return over $25,000 per contract on a $3,000 initial margin requirement.” * Jason Kelly’s pick on page 12 is a play on this theme. George Kleinman, Futures Market Forecaster, www.commodity.com, 775-833-2700 TOP PICKS: SHORTS & CASH H “The only financial asset that is likely to maintain its value in 2013 is cash. The stock market should continue its long-term bear market for another three to four years. Commodities started a bear market in 2008, and it has more to go. Even precious metals are likely to slip lower. Bond prices—especially municipal and junk bond prices—are likely to reverse course and head lower. A good fund for holding the safest short-term debt is American Century Capital Preservation Fund (CPFXX), which invests in Treasury bills. If interest rates rise, which is probable, then T-bills will continually pay higher interest, whereas long-term bonds will lose value. But outright cash is the safest.” Robert Prechter, The Elliott Wave Theorist, www.elliottwave.com, 770-536-0309 H “ProShares UltraShort S&P500 (SDS 51.76 NYSE Arca)—The market has staged a great rally since March of 2009. In other words, we have had an uptrend of almost four years, which means the bull market is getting long in the tooth. In addition, a wave of new environmental, financial and medical regulations are due to hit in 2013, which will retard profits and create a sense of uncertainty. I look for 2013 to be a down year.” Stephen Todd, Todd Market Forecast, www.toddmarketforecast.com, 909-338-8354 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013 : UNDERVALUED STOCKS H “Let’s keep this simple: General Dynamics Corp. (GD 70.41 NYSE) is a big aerospace and defense company. With the knife hanging over the defense budget, the fiscal cliff notwithstanding, on the surface this stock would appear to be a no-brainer to avoid. We beg to differ. We believe the fear of ‘sequestration’ is overdone and already baked into the share price. There will be cuts made to the Defense department’s budget but GD is so well managed and diversified any cuts will be offset by their technology and Gulfstream business. The historically repetitive area of Undervalue dividend yield for GD is 3.40%. Trading recently around $68, the $2.04 cash dividend provides a current dividend yield of 3.0%. With a TTM free cash flow per share of $7.65, the payout ratio is just 26.67%. The five-year return on equity is just over 20% and the long-term debt to equity is 20%. The five- and 10-year dividend growth for GD is 15.36% and 12.87% respectively. We would prefer to acquire shares at $66 or better but anything at $69 or less is attractive.” H “For more speculative investors, Vermont-based Green Mountain Coffee Roasters, Inc. (GMCR 40.19 Nasdaq) is our top risk-oriented pick for the coming year. The stock was recently removed from the Nasdaq-100 Index, but that’s no reason to panic over the stock’s future prospects. In fact, our research suggests stocks outperform significantly in the year following their removal from the benchmark, which bodes well for GMCR as we enter 2013. Plus, three out of the company’s last four earnings reports were positive surprises, pointing to a strong fundamental backdrop for the Keurig parent. Even though GMCR is now trading back above several key short-term, intermediate-term and long-term moving averages we follow, there’s plenty of skepticism still levied against the stock. Following a nosedive by GMCR in the first half of 2012, short interest surged, and is now lingering at an all-time high. This sets the stage for GMCR to benefit from short-covering support as the security extends its recent technical rebound.” Kelley R. Wright, Investment Quality Trends, www.iqtrends.com, 866-927-5250 Todd Salamone, Schaeffer’s Investment Research, www.schaeffersresearch.com, 800-448-2080 DOUBLE PICK: Apple, Inc. (AAPL) H “I suspect that Apple, Inc. (AAPL 525.53 Nasdaq) will be one of the outstanding comeback stories during the year ahead. ... My work suggests that the outpouring of new products will continue under CEO Tim Cook, the operations chief hand-picked and installed by the fabled Steve Jobs over a year before his death in October 2011. Among Cook’s attributes: he’s unruffled by the slide in AAPL’s share price the past three months. Short sellers have cleaned up since they began bum-rapping Apple in late 2012. From a peak of 702 in mid-September, the stock tumbled to the low 500s by mid-November. It briefly rallied to 595 ten days later, only to sag back into the low 500 in December—some 28% off its September high. Three observations are appropriate: 1) the short positions, while rising rapidly early in the fall, never amounted to more than a few percent of the outstanding shares at their peak; 2) the stock was probably overdue for correction, having zoomed nine-fold from 80 to 702 since March 2009; and 3) the consensus of 50-plus Wall Street analysts covering AAPL still calls for 20%-plus a year earnings growth going forward, with a target price of 762: that’s 49% above today’s price of 509. This bullishness seems more than hope springing eternal, or analysts clinging to a sacred cow. Apple, in case you hadn’t noticed, is selling iPads and iPhones at record levels while its stock has been under attack, in just about every corner of the world. ... One would be mistaken to assume that this enormously talented company has run out of its creative juices. To be sure, Page 7 Apple one day will grow at a slower percentage pace just because it has grown so large. But at $150 billion in revenues, we aren’t there yet.” Stephen Quickel, US Investment Report, www.usinvestmentreport.com, 215-862-1313 “Apple, Inc. (AAPL) is a good case for the role psychology plays in investments. ... Since Steve Jobs’ death in October of 2011, Tim Cook, who was handpicked by Jobs to become the CEO of Apple, has kept the company in good shape. This year Apple broke the $700 level and analysts were saying it was the greatest thing since sliced bread. Later this year, after a 25% correction, all of a sudden analysts are now saying it is a mature company past its prime and should be avoided. Honestly, has the company really changed in such a short time, or is this another speculative algorithm from the Quantitative Analysts? By all my measures of value, Apple is a good buy. For example, its price/earnings ratio is 11, which is less than the total market, and about one half of Apple’s normal price/ earnings ratio. Yes, there is constant change in the computer industry, but Apple, with its management skills and huge trove of cash, should be able to adapt to this in its usual seamless manner.” Recommended in the December 21 Daily Alert; read more at: www.dickdavis.com/2012/12/21/aapl-2. Russ Kaplan, Heartland Adviser, www.russkaplaninvestments.com, 402-614-1321 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: ENERGY STOCKS H “Established in 1986, Enerplus Corp. (ERF 13.44 NYSE), a former income trust based in Calgary, is a diversified oil and gas producer. There are two good reasons to like Enerplus as a speculative investment. The first is yield; at the current payment rate of C$0.09 per month, the shares yield 8.7%. The second is the company’s exposure to some of the most exciting oil plays on the continent. Enerplus owns Bakken crude oil assets in Fort Berthold, North Dakota, and increased production from this region during the third quarter by 10%. It also has holdings in the Sleeping Giant area of the Elm Coulee field in Montana, which it plans to increase in 2013. [ERF] has been very volatile and is currently trading at less than half its 2012 high of $26.94, reached in early January. The company cut its dividend by 50% in mid-year, which accelerated the sell-off in the shares. The shares fell as low as $11.53 in November but have since rebounded. Enerplus appears to be oversold at the current level and RBC Capital Markets has an $18 target on the shares. There is high risk here; but if an 8.7% yield and capital gains potential fit with the risky side of your barbell, I think it’s worth the gamble.” Gordon Pape, Internet Wealth Builder, www.buildingwealth.ca, via TheStockAdvisors.com H “Our speculative favorite for 2013 is Peabody Energy Corp. (BTU 26.78 NYSE), the world’s largest private-sector coal-mining firm with operations focused on two regions of the world: the Powder River Basin of the western U.S. and Australia. ... A number of new regulations from the EPA will impact coal plants during Obama’s second term, including a Mercury and Air Toxics Standards (MATS) rule and a Carbon Pollution Standard. The former will impact older coal-fired plants but many of those facilities are already slated for closure as they’re uneconomic to run. The carbon standard would apply only to new coal-fired plants and few utilities have plans to build new plants at this time. A more important driver of coal demand is the price of natural gas, as coal and gas are competitors when it comes to producing power. When gas prices sank under $2/MMBTU in the spring of 2012, utilities burned more gas and less coal. But with gas prices recovering to over $3/MMBTU, we’re already seeing clear signs of gas-tocoal switching. Meanwhile, globally, coal will actually overtake oil to become the world’s single-largest power source over the next five years thanks to strong growth in demand from emerging markets including China and India. ... Australia is a key exporter of both metallurgical and thermal coal to countries like India and China and Peabody is one of the largest and best-positioned miners in the country. BTU rates a buy under $33.” Elliott Gue, Energy & Income Adviser, www.energyandincomeadvisor.com, via TheStockAdvisors.com Page 8 H “First Solar, Inc. (FSLR 31.02 Nasdaq) has been on a tear during the last six months, more than doubling in value. First Solar has created an orderly pattern of higher highs and higher lows since its June 2012 bottom, and recently broke out of an ascending triangle pattern— suggesting the next leg higher is now underway. With a lofty 41% of its float sold short, the potential for a short-squeeze rally is high. At the stock’s average daily trading volume, it would take more than four full days for all of these bearish bets to be covered. Meanwhile, analysts have yet to recognize FSLR’s technical resurgence. The shares have garnered only three ‘buy’ ratings from brokerage firms, compared to 21 ‘hold’ or ‘sell’ suggestions. A round of well-deserved upgrades could further fuel FSLR’s positive momentum.” Bernie Schaeffer, Schaeffer’s Investment Research, www.schaeffersresearch.com, 800-448-2080 H “Our top idea for 2013 for aggressive investors is Oil Search Ltd. (OISHF 7.42 Pink), an aggressive growth story with a modest income component. The firm’s key asset is its 29% stake in the high-quality Papua New Guinea liquefied natural gas venture, which is operated by Exxon Mobil. LNG from the project is fully contracted to four key buyers. Oil Search stock slumped in mid-November 2012 after Exxon reported that costs for the project would be higher than previously forecast. A higher Australian dollar has also had an impact, as have torrential rains that have prompted Exxon to bring in special equipment. However, the LNG venture remains on track to deliver strong and stable long-term cash flow for Oil Search beginning in 2014. Oil Search is a strong buy for long-term growth up to $8.” David Dittman, Australian Edge, www.aussieedge.com, via TheStockAdvisors.com H “Vermilion Energy, Inc. (VEMTF 52.82 Pink, or VET on the TSX) is a former Canadian income trust producing oil and gas that did not cut dividends either in 2008 when oil prices crashed or when converting to a corporation in 2010. ... The company has been able to keep dividends rising in a volatile industry for two major reasons. First, they control their leverage. The company has no debt maturities to meet between now and 2015, and debt-to-annualized cash flow is among the very lowest in the industry. Second, the company is heavily focused on production of oil and natural gas liquids, rather than natural gas that’s been in a downtrend the past five years. Vermilion also draws more than twothirds of output outside North America; this gas sells for global prices that are several times what gas fetches in North America. ... Buy up to $52.” Roger Conrad, Utility Forecaster, www.utilityforecaster.com, 800-832-2330 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: SMALL-CAP TECH STOCKS H “In a slow-growth economy with fierce competition, companies need every edge possible to boost sales or return on their marketing spend. Pint-sized software company Datawatch Corp. (DWCH 13.70 Nasdaq) provides just that edge, providing report analytics that let customers access valuable information otherwise trapped in static reports, text files, PDF’s and other content rich data. CRM (customer relationship management) software does a fine job with the roughly 20% of data that is already neatly organized in reports; it’s the other 80% of unstructured data that’s the problem. A retailer may have product-buying history in one database, customer transaction history in another, and real-time data showing what is moving off shelves in yet another. Datawatch software lets this company use predictive models incorporating all this data to better predict who is buying what and when. Add in business rules and customer demographics and the retailer can deliver a more targeted offer to a particular customer or determine the best time to advertise to others. CEO Michael Morrison joined in 2011 and has been shaking things up, hiring a slate of new salespeople and most recently a chief marketing officer. It’s working: sales in the most recent fiscal year grew 45% while EPS soared to $0.45 from just $0.17 last year. We see strong growth ahead, and recommend shares at current prices for investors looking to add a bit of zing to their portfolios.” David I. Covas, CFA, CFP, The Oberweis Report, www.oberweisreport.com, 800-323-6166 H “At Byrne Investment Research (BIR), we look for small-cap companies that have monopolistic market positions, strong cash flows and a proven management team. Our top stock for 2013 is Procera Networks, Inc. (PKT 18.12 Nasdaq), which provides ‘intelligent policy enforcement’ (IPE) technology that enables mobile and broadband network operators to track and manage traffic over private networks. The company’s PacketLogic solutions provide report creation to answer important questions about network traffic and volume. PKT is the clear market leader with 600 customers; no competitor has half that number, and no competitor has PKT’s technology. Sales for the 3Q ended September 2012 increased 32% YoY to $16.1 million, and sales were up 10% sequentially, the second straight quarter with a sequential increase. On a non-GAAP basis, net income increased 44% YoY to $3.6 million, or $0.18 per share, which clobbered the mean estimate for $0.09 per share, and it was the seventh quarter in a row PKT has surpassed estimates. PKT finished the 3Q with cash and investments of $133 million, or $6.72 per share. Cash represents 30% of the current stock price, which greatly reduces the risk in the stock. For the first nine months of 2012, cash flow from operations tripled to Page 9 $7.6 million, up from $2.3 million a year ago. CEO James Brear said PKT now has over 30 international mobile operators as customers, which positions PKT as the leader in this segment. PKT did not lose one contract to a competitor in 2011 or 2012, a significant metric, and Mr. Brear told us he does not see any competitive threat on the horizon. In the last nine months, PKT has entered Japan, the Middle East, Central America and Russia, all new markets. Looking ahead, Mr. Brear said he expects geographic growth, bigger customers, bigger contract size and improving margins. This makes PKT our number one Top Recommendation.” Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663 H “We have decided to re-recommend Asia Pacific Wire & Cable (APWC 3.42 Nasdaq) as our Top Pick for 2013. We still believe that you will not find a fundamentally cheaper stock than APWC anywhere within the whole stock universe! The company is a leading manufacturer of wire and cable products for the telecommunications and electric-power industries in selected Asia-Pacific markets (Thailand, China, Singapore and Australia). During 2012, revenue contracted somewhat because of a sale of a division and the re-start-up of certain Thailand divisions that had been shut because of flooding during late 2011. Regardless, revenue for the first nine months of 2012 reached $332 million and net income/fully diluted shares (13.8 million) equaled $0.42. At present, the company holds $88 million in cash on their books or $6.38/share and almost twice the current share price of $3.36. The total book value of APWC equals $225 million or $16.30/share, almost five times greater than the current share price ($3.36 as of this writing). The total market-cap of APWC is presently $47 million. A 51%-owned division operating within Thailand (Charoong Thai Wire & Cable, CTW) is worth $80 million. The company recently announced a $2 million share buy back program, which commenced a few weeks ago. We believe that revenue and earnings will start to accelerate during 2013 and 2014 because of renewed growth within Asia. We anticipate revenue for 2012 will reach $450 million and net income/share should equal $0.55+. We believe that revenue during 2013 will easily surpass $500 million and net around $0.75-$1.00/share. Bottom line: APWC is trading at half cash, 20% of total book, a forward P/E (est. 2012) of around 6X and an extremely low PSR, and has an active share-repurchase program and the possibility of a takeover at much higher prices. We will not sell our position until we see at least $10-$15/share. We rate APWC with a Strong Buy Rating at current levels for short- and long-term appreciation potential.” William Velmer, S.A. Advisory, www.saadvisory.com, 801-272-4761 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: SMALL-CAP PHARMACEUTICALS “TONIX Pharmaceuticals Holdings, Inc. (TNXP 0.55 Pink) is a development-stage company developing innovative prescription medications for challenging disorders of the central nervous system (CNS). TONIX’s core technology improves the quality of sleep in patients with chronic pain syndromes, believed to translate into reductions in daytime pain and other symptoms. TONIX’s lead product candidate, TNX-102 SL, is a novel, underthe-tongue, low-dose bedtime tablet formulated with cyclobenzaprine (CBP), the active ingredient in two FDA-approved muscle relaxants, which is expected to enter the first of two Phase III trials for fibromyalgia in early Q1 2013; the data should be analyzed before the end of 2013. CBP has a long 36-year safety record and is the third-most widely prescribed off-label treatment for fibromyalgia (FM) patients, but is neither designed nor approved for a bedtime treatment in FM. ... TNXP recently completed a successful $3.4 million private placement to further the development of TNX-102 SL and for general working capital. [We’re setting] a first target of 2.00-2.50 [and] ultimate target 4-5.” Read more: www.dickdavis.com/2013/01/08/tnxp. Konrad Kuhn, The Konlin Letter, www.konlin.com, 631-744-8536 H “Coronado BioSciences, Inc. (CNDO 5.63 Nasdaq) is our top speculative pick for 2013. The company’s lead drug development candidate is CNDO-201, a pharmaceutical formulation of orally-delivered, beneficial porcine parasites (a.k.a., the whipworms) for the treatment of human autoimmune disease. This unconventional therapy aims to re-create the historical natural relationship that humans have had with intestinal parasites. Known as the ‘Hygiene Hypothesis,’ this is a relationship that was essential before the significant improvement in public health in the last century. CNDO-201 has already showed encouraging efficacy in Crohn’s disease and ulcerative colitis, and there has also been some exciting early data in multiple sclerosis. We believe that Wall Street is currently overlooking Coronado due to the unfamiliarity of using beneficial parasites in traditional medicine. As a result, there is very little research on CNDO and it is under-owned by institutional investors. Over the next 12 months, we believe CNDO shares will double in price, we set our 18 month target at $20 per share based on our expectation of Phase II clinical success for CNDO-201 in Crohn’s disease alone. Additional trial success in other autoimmune diseases would significantly increase this target price. An extremely safe, oral drug which targets markets that are in excess of $10 billion is one of the Holy Grails of medicine. We recommend CNDO as a buy under $8.” John McCamant, The Medical Technology Stock Letter, www.bioinvest.com, 510-843-1857 Page 10 H “There is no doubt that generic drug makers will thrive in the upcoming cost-driven environment. But there is one area of generics that will thrive more than any other. Biosimilars are the generic equivalent of brand-name biologics. Biologics are brand-name products created by biologic processes, rather than being chemically synthesized. According to research group Datamonitor, the global market for biosimilars should explode by more than 1,400% from 2011 to 2015. ... Spectrum Pharmaceuticals, Inc. (SPPI 11.74 Nasdaq) recently jumped into the untapped and growing market of biosimilars. In fact, the stock price tripled since the company announced plans to be among the first biotechs to develop a biosimilar version of Rituxan. Rituxan is the second-biggest selling product for brand-name pharma manufacturer Roche Holdings AG, with $6 billion in sales. This could indeed be a huge opportunity for investors over the next few years, and one that I expect will pay off handsomely in 2013.” Andy Crowder, Options Advantage, www.optionsadvantage.wyattresearch.com H “Our biggest winner in 2012 wasArena Pharmaceuticals (ARNA). Recommended at $1.38, the stock soared to $13.50, up 878%. We think Corcept Therapeutics, Inc. (CORT 1.77 Nasdaq) has much of the same characteristics as Arena. Corcept Therapeutics engages in the discovery, development and commercialization of drugs for the treatment of severe metabolic and psychiatric disorders. It focuses on disorders that are associated with a steroid hormone called cortisol. The company is focusing on commercializing its Korlym (mifepristone) 300 mg Tablet, a once-daily oral medication for treatment of hyperglycemia secondary to hypercortisolism in adult patients with endogenous Cushing’s syndrome, who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery. It is also conducting a Phase III clinical study for mifepristone, the active ingredient in Korlym, for the treatment of psychotic depression; and developing CORT 108297, a novel glucocorticoid receptor II antagonist in Phase 1b/2a clinical trial. Corcept Therapeutics has research and development agreements with Argenta Discovery, Sygnature Discovery, ICON Clinical Research and MedAvante, Inc. In July, Corcept raised $46 million at $4.50 a share through institutions. In addition, insiders recently purchased almost 600,000 shares at $1.38-1.97 a share. We like Corcept because they have several products in FDA trials, over $100 million in cash (three years burn rate), institutions and insiders are in the stock at much higher prices and it’s selling near its 52-week low.” Bill Mathews, The Cheap Investor, www.thecheapinvestor.com, 847-697-5666 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: INTERNATIONAL FUNDS H “Making bets for a calendar year is a tough business, because a lot can happen in a year. So it’s a good idea to look for the biggest story available, one with the potential to make a lasting impact on an investment. I think the story of the year is likely to be the recovery of Europe and the eurozone countries as the Greek fiscal crisis is resolved. A healthier Europe will have lots of pent-up demand for financial services, and the iShares MSCI Europe Financial Sector Index Fund (EUFN 20.18 Nasdaq) is a way to get broad exposure to that demand, including chunks of HSBC Holdings, Banco Santander, Allianz, UBS, Standard Chartered, BNP Paribas and others. A little over half of the Fund’s holdings are in banks, with insurance accounting for a little over a quarter and the rest spread out over diversified financials and real estate. This is a turnaround situation, and that can be risky, especially if other European countries start to bleed out. But I think it offers attractive risk/reward prospects right now, and it’s my pick for best stock of the year.” Paul Goodwin, Cabot China & Emerging Markets Report, www.cabot.net, 978-745-5532 H “I see huge upside in emerging markets. As such, my top aggressive pick for 2013 is ProShares Ultra MSCI Emerging Markets (EET 85.24 NYSE Arca), which takes you into the world of fast growth and volatile emerging markets, with a 2x leveraged bet on the entire sector. Emerging markets have always been characterized by boom and bust. Yet over the long term, they have outperformed developed markets by a country mile. ... But that’s not been the case over the past two years, during which emerging markets underperformed the U.S. stock market by well over 20%. I predict that 2013 will be the year that emerging markets will reclaim their traditional place as high-octane, high-performance markets. Between the threat of the U.S. going over the fiscal cliff, and lower long-term U.S. growth prospects as a result of higher taxes and soaring regulatory burdens on businesses, my sources in the London investment community tell me that global investors are starting to cut back their bets on the U.S. in favor of other global markets with bigger upside. I believe this has already started to happen. Emerging markets have already started to outperform the U.S. market over the last three months of 2012 with the MSCI Emerging Markets index breaking out to the upside in early December—a very positive technical sign. The MSCI Emerging Markets Index includes some of the largest and fastest-growing emerging market companies on the planet, like Samsung, Taiwan Semiconductor, China Mobile and Mexico’s America Movil. ... Place your stop at $68.00.” Nicholas Vardy, Alpha Investor Letter, www.nicholasvardy.com, via TheStockAdvisors.com Page 11 H “iShares MSCI Emerging Markets Index (EEM 44.25 NYSE Arca)—The emerging market indices have over the past year lagged the S&P500, as the economic slowdown in the more developed countries has lowered the demand for commodities of which the emerging economies are heavy suppliers. I look for this trend to begin to change as private sector balance sheets are stronger, making consumers feel more confident in their spending, thereby increasing the demand for commodities. My price target at this time is for EEM to move into the low $50 area.” Donald L. Sazdanoff, The Sovereign Advisor, 800-896-1524 DOUBLE PICK: Oakmark International (OAKIX) H “Foreign markets were out of favor for the past two years, but came roaring back in the third quarter of 2012. One of the top-performing diversified international funds to come up our ranks was Oakmark International (OAKIX). Among international markets, Europe was one of the strongest-performing regions and OAKIX is primarily invested in developed European companies (67%). The remainder of the portfolio is invested in stocks from Japan, Australia and Canada. The Fund has virtually no exposure to emerging markets—0.2% in Mexico. OAKIX invests primarily in large-cap international companies that the fund’s managers believe have strong growth prospects but are undervalued. Financial stocks, which lagged in 2011, make up 29% of the fund’s portfolio.” Janet Brown, NoLoad FundX, www.fundx.com, 800-763-8639 H “Our Top Fund Pick, Oakmark International (OAKIX), is an unusual one for us. We try to avoid a fund that is already in investor’s eyes because of outstanding performance. It is next year’s performer we are looking for, not last year’s. However, we think Oakmark International has the potential to repeat this year. The reason is that Oakmark is a very idiosyncratic fund. It goes its own way. Its success does not come from being the best among the crowd. Rather, success has come from following the Oakmark traditional value approach. The approach digs deep issue by issue to estimate the ‘intrinsic value’ of any investment. Individual stock picking is the pride of Oakmark. But there is something else that contributes to the success of this international fund: asset allocation. Fund manager David Herro extends his ‘intrinsic value’ approach to lead him to his allocation. This led him to an allocation of 25% Japan and 55% Developed Europe. No emerging markets. What a nutty allocation for 2012, what a successful one. It is such thinking that makes us pick Herro’s Oakmark International as our Top Pick for 2013.” Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670 Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: INTERNATIONAL FUNDS H “2013 may start out looking like a falling soufflé for any international play. But, unloved and overlooked are two key ingredients to my contrarian stance. For 2013, my favorite picks are Fidelity Total International Equity (FTIEX) and Fidelity Total Emerging Markets (FTEMX). Total International Equity is run by one of my newsletter’s top-ranked international fund manager teams: Ashish Swarup, Jed Weiss and Alex Zavratsky. Investing in international companies, including those in the emerging markets region, the MSCI All Country World ex U.S. Index is the fund’s bogey and benchmark. The top five country representations are the UK, Japan, U.S., Switzerland and Hong Kong. The top three sectors are financials (21.3%), consumer staples (14.1%), and industrials (12.3%). The top ten holdings are Nestle Sa, Roche Holdings, Royal Dutch Shell, Sanofi, GlaxoSmithKline, Vodafone, BHP Billiton, Anheuser Busch, HSBC Holdings, and Commonwealth Bank of Australia. Meanwhile, the theme of growing global consumers has me more bullish about the long-term prospects for emerging market stocks and bonds than most. Here, I like Fidelity Total Emerging Markets. The fund is in the hands of veteran active emerging market stock and bond manager John Carlson. This is a tactical emerging markets fund that blends the stocks and bonds not just of some of the more mature emerging markets, but also the under-researched frontier ones. As such, I’m willing to stamp my portfolio’s passport with this fund.” Jim Lowell, Fidelity Investor, www.fidelityinvestor.com, via TheStockAdvisors.com H “With the victory of Shinzo Abe in Japan, the leader of the Liberal Democratic Party who promised aggressive monetary easing and fiscal stimulus in his campaign, I think the yen will weaken in 2013. That should goose profits in the export economy, thereby boosting Japan’s stock market. The yen is already at two-year lows just since the election and Japanese stocks are up 5% in December, so pent-up was the desire to buy Japan’s recovery. This should continue in 2013. To benefit from it, I suggest buying WisdomTree Japan Hedged Equity Fund (DXJ 36.66 NYSE Arca) at less than $34, to allow settling back after this initial excitement when political struggle dampens enthusiasm. On top of substantial capital appreciation potential, it yields 1.8%.” Jason Kelly, The Kelly Letter, www.jasonkelly.com TRIPLE PICK: iShares MSCI Mexico Investable Market Index (EWW) Read more of all three EWW recommendations online at: www.dickdavis.com/2013/01/09/eww. H “Our favorite stock pick for the year ahead is iShares MSCI Mexico Investable Market Index (EWW 71.89 NYSE Arca). It was a good performer in 2012, gaining 34%, and this will likely continue in 2013. Despite the bad PR, Mexico has quietly been playing catch up. As Latin America’s second largest economy, its growth was greater than Brazil’s last year and it’s poised to outperform again this year. Higher wages in China have provided a boost to Mexico’s manufacturing sector and exports are expected to surge. Other sectors are also picking up, including oil and gas. Meanwhile, Mexico’s stock market has been one of the world’s top performers and many have wondered why. Stocks lead and the market is telling us that Mexico will likely be an upcoming emerging market winner, so it’s best to get on board.” Mary Anne & Pamela Aden, The Aden Forecast, www.adenforecast.com, 305-395-6141 H “I think manufacturers setting up in Mexico just might be the most under-reported mega-trend in global investing. While Mexican wages were 237% higher than Chinese wages in 2002, that cost advantage today has shrunk to 15%. Moreover, Mexico’s most obvious advantage is geographic location. ... Americans currently pay 30% more for Chinese products and Page 12 40% less for Mexican products, compared to 2007. Since joining NAFTA in 1994, Mexico’s trade with the United States is duty free. ... Even while much of the global economy struggles, Mexico has been doing just fine, thank you. In early 2012, Mexico’s Gross Domestic Product (GDP) grew at an annual rate of 4.6%. Mexican car exports to the United States have now exceeded those from Japan, Korea and Germany. ... So buy EWW and place your stop at $53.00.” Nicholas Vardy, Bull Market Alert, www.nicholasvardy.com, via TheStockAdvisors.com H “An emerging nation that is starting to make exceptional progress is Mexico, but few U.S. investors have yet to notice. The country is undergoing a manufacturing revolution and already exports more products to the world than the rest of Latin America combined. For most investors, EWW is the best way to benefit from the Mexican transformación. It is our top pick for 2013. Few countries in the world have made a greater commitment to promoting trade than Mexico. The government signed free trade agreements with 44 other nations, which is more than twice as many as China and four times more than Brazil. ... Mexico also has a young, well-educated and energetic workforce. Over half the population is under 29.” Jim Powell, Global Changes & Opportunities Report, www.powellreport.com, via TheStockAdvisors.com Dick Davis Investment Digest 734 January 9, 2013 TOP PICKS 2013: FUNDS H “Real Estate Investment Trusts (REITs) that pay dividends solve two problems. If there is future inflation, real estate will be a prime beneficiary as a store of value. Since their dividends are already taxable as ordinary income, they won’t be as affected by higher investmentrelated taxes. The RMR Real Estate Income Fund (RIF 18.74 Amex) is a closed-end fund that invests primarily in common and preferred securities issued by REITs and other real estate companies. The fund is currently trading at $18.12 with a net asset value of $20.77, giving the fund a discount of 12.76% and a yield of 6.84%. Most other CEFs that invest in REITs are trading at average discounts of only 3.53%. Since real estate funds are highly correlated, why not choose the fund with the steepest discount? Investors can profit if the discount just matches those of other funds. RIF is leveraged at 15% and its distributions are all income with no return of capital. Assets are invested in lodging at 19%, shopping centers at 13% and diversified at 11%.” Jack Colombo, Forbes/ISA Closed End Fund and ETF Report, www.incomesecurities.com, 800-472-2680 H “Our top aggressive pick for the coming year is Fidelity Select Industrials (FCYIX), a global infrastructure play. Much of the world is playing catchup when it comes to transportation, power generation, clean water and medical technology. And the shale boom is boosting domestic demand for industrial supplies and transportation services while at the same time reducing the cost of providing them. Low borrowing costs and better credit availability are helping too, especially where high-ticket capital goods are involved. Best of all, low-cost foreign competition is not a problem for these firms—emerging country copy-cats are neither willing nor able to compete because the markets are too specialized and the quality and reliability standards are too high.” Jack Bowers, Fidelity Monitor & Insight, www.fidelitymonitor.com, 800-397-3094 H “Overall, I think pessimism over Europe, China and the global markets may not yet have peaked, but that the established international market valleys and the ever tumultuous non-mainstream U.S. market nooks and crannies are attractive enough to pursue. For 2013, for more speculative investors, I’d recommend First Trust U.S. IPO Index Fund (FPX 31.65 NYSE Arca), a unique ETF that focuses on Initial Public Offerings (IPOs). The First Trust U.S. IPO follows the IPOX-100 U.S. Index, which is made up of the 100 largest, best-performing, most liquid U.S. initial public offerings (measuring the IPO’s performance during their first 1,000 trading days). IPOs get placed into the index on their sixth trading day and remain in the index for 1,000 days. In my view, this Page 13 is a hidden 2013 gem. It began trading in April 2006 and has a market value of merely $20 million—nobody knows about it. The top three sectors are information technology (30.5%), consumer discretionary (23.5%) and energy (20.9%). The top ten holdings are Visa, Facebook, GM, Kinder Morgan, Phillips 66, Marathon Petroleum, Dollar General, HCA Holdings, Mead Johnson Nutrition and Delphi Automotive. Look at that list of names: unlike a purely speculative IPO stock, this ETF is an overlooked mix of mainly proven companies using the public market to raise funds—a capital idea.” Jim Lowell, Forbes ETF Advisor, www.newsletters.forbes.com, via TheStockAdvisors.com H “In the aftermath of any recession, interest rates always rise. It is as simple as that. This will be especially true for yields on long-term Treasury bonds because their yields carry the highest premium for the uncertainties of inflation for the upcoming decades. The Direxion Daily 20-Plus Year Bear 3x Shares (TMV 56.78 NYSE Arca) is an ETF designed to behave as if it is shorting Treasury securities. ... The profit potential is enormous with this ETF. To exemplify, we look back at the period from December 31, 2008, when 30-year Treasuries were yielding 2.69%. By June 10, 2009, yields had climbed to 4.75%. These ETFs did not exist back then. (They were created in April 2009). To see how they would have behaved, we can use the daily history of percentage changes in 30-year Treasury bond yields. Starting with today’s price of TMV of $50 a share, we can apply three times the reverse of the daily changes (because TMV uses 3:1 leverage). Based on this history, TMV would climb from $50 to $219.55 per share—more than four times—in 110 days.” Read more and see an accompanying chart online: www.dickdavis.com/2013/01/09/tmv. Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com, 800-825-7007 “Buy the iShares MSCI EAFE Index ETF (EFA 56.91 NYSE Arca) and write covered calls expiring on January 18, 2014 at the strike price with the most time value. ... EFA began outperforming the S&P 500 SPDR (SPY) in mid-July. This five-month trend favoring foreign developed-country stocks is potentially significant, representing the biggest outperformance in foreign equities since mid-2010. Moreover, EFA still has a lot of upside potential to recover in absolute price and in its price relative to the S&P 500 before it revisits its level $62 where it traded in June 2011.” Read more: www.dickdavis.com/2013/01/04/efa. Marvin Appel, Systems and Forecasts, www.systemsandforecasts.com, 800-829-6229 Dick Davis Investment Digest 734 January 9, 2013 IN THIS ISSUE Company Name (Symbol) 3D Systems Corp (DDD) Almaden Minerals Ltd (AAU) Apple Inc (AAPL) ARM Holdings plc (ARMH) Asia Pacif Wre&Cable (APWC) Bank of America Corp (BAC) Bombardier Inc (BDRAF) Corcept Therap Inc (CORT) Coronado Biosci Inc (CNDO) Datawatch Corp (DWCH) Enerplus Corporation (ERF) First Solar Inc (FSLR) General Dynamics Corp (GD) GlyEco Inc (GLYE) Google Inc (GOOG) Great So. Bancorp (GSBC) Green Mtn Cof Rstrs (GMCR) Illumina Inc (ILMN) Intel Corp (INTC) Intl Business Machines (IBM) Iteris Inc (ITI) MGIC Invt Corp (MTG) Misonix Inc (MSON) MTR Corporation Ltd (MTRJY) NCR Corp (NCR) Nuance Comm. (NUAN) Oil Search Ltd (OISHF) Oracle Corp (ORCL) Peabody Energy Corp (BTU) Priceline.com Inc (PCLN) Procera Networks Inc (PKT) Shutterfly Inc (SFLY) Spectrum Pharmac. (SPPI) Thermo Fisher Scientific (TMO) TONIX Pharmaceut (TNXP) Vermilion Energy Inc (VEMTF) Page 5 5 7 3 9 1 5 10 10 9 8 8 7 2 4 4 7 2 2 4 3 1 2 6 6 5 8 3 8 3 9 4 10 5 10 8 Product/ Service Capital Equipment Basic Material Technology Technology Capital Equipment Financial Equipment Health Care Health Care Technology Energy Energy Capital Equipment Industrial Goods Technology Financial Retail Health Care Technology Technology Technology Financial Health Care Equipment Technology Technology Energy Technology Energy Consumer Cyclical Technology Retail Health Care Technology Basic Materials Energy ETF & CEF Name (Symbol) Direxion 20+ Trs Bear 3X (TMV) First Tr Ipox 100 Index (FPX) iShares MSCI EAFE Idx Fd (EFA) iShares MSCI Emrg Mkts (EEM) iShares MSCI Europe Fncl (EUFN) iShares MSCI Mexico (EWW) ProShrs Ultra MSCI Emrg (EET) ProShrs Ultsht S&P 500 (SDS) RMR Real Est Income Fd (RIF) WisdomTree Jpn Total Div (DXJ) Page 13 13 13 11 11 12 11 6 13 12 52-week Low-High 45.98 - 87.28 24.22 - 32.31 46.53 - 57.78 36.57 - 45.33 13.52 - 20.29 53.49 - 72.50 57.99 - 89.15 51.01 - 76.08 13.72 - 18.75 30.07 - 38.08 Mutual Fund Name (Symbol) Fidelity Select Industrials (FCYIX) Fidelity Total Em Mkts (FTEMX) Fidelity Total Intl Equity (FTIEX) Oakmark International I (OAKIX) Page 13 12 12 11 Fund Objective Large Blend Foreign Lge Blend Foreign Lge Blend Foreign Lge Blend 52-week Low-High 15.42 - 61.75 1.55 - 3.33 412.67 - 705.07 21.64 - 39.41 2.25 - 3.99 5.71 - 12.20 3.08 - 5.00 1.27 - 4.90 4.00 - 10.00 5.41 - 20.83 11.35 - 26.49 11.43 - 50.20 61.09 - 74.54 1.02 - 2.99 556.52 - 774.38 20.60 - 31.81 17.11 - 71.15 28.72 - 57.00 19.23 - 29.27 177.35 - 211.79 1.25 - 1.82 0.66 - 5.15 1.60 - 9.13 31.55 - 40.82 16.39 - 26.62 19.33 - 31.15 6.08 - 8.13 25.33 - 34.75 18.78 - 38.96 469.28 - 774.96 14.18 - 25.99 21.34 - 35.00 9.31 - 17.48 45.67 - 65.93 0.25 - 1.50 41.27 - 53.27 Recent Price 58.65 3.11 525.53 39.25 3.42 11.98 4.00 1.77 5.63 13.70 13.44 31.02 70.41 1.90 733.30 25.94 40.19 52.39 21.09 192.87 1.64 2.87 7.08 40.10 26.40 23.35 7.42 34.44 26.78 657.42 18.12 32.40 11.74 65.47 0.55 52.82 EPS (TTM) 1.00 0.09 44.16 0.68 (0.33) 0.43 0.51 (0.42) (1.29) 0.45 (1.64) 2.43 6.87 (0.07) 38.73 3.48 2.40 1.52 2.41 14.62 0.07 (4.41) 0.03 2.62 2.41 1.73 0.14 2.61 3.24 29.90 0.54 0.63 1.43 4.76 (0.27) 1.02 EPS Est.* Indicated (current Annual yr.) Dividend Yield** 1.23 n/a n/a n/a n/a n/a 43.63 10.60 2.00% 0.70 0.16 0.40% n/a n/a n/a 0.41 0.04 0.30% 0.45 0.12 3.00% (0.36) n/a n/a (1.18) n/a n/a 0.19 n/a n/a 0.42 1.09 8.10% 4.61 n/a n/a 6.99 2.04 2.90% n/a n/a n/a 39.84 n/a n/a 3.06 0.72 2.80% 2.45 n/a n/a 1.58 n/a n/a 2.11 0.90 4.30% 15.13 3.40 1.80% 0.06 n/a 11.60% (5.04) n/a n/a 0.19 n/a n/a 2.14 0.94 2.30% 2.46 n/a n/a 1.75 n/a n/a 0.12 0.04 0.50% 2.81 0.24 0.70% 1.95 0.34 1.30% 30.88 n/a n/a 0.53 n/a n/a 0.25 n/a n/a 1.62 n/a n/a 4.85 0.60 0.90% (0.18) n/a n/a 2.02 2.28 4.40% Indicated Annual Dividend n/a 0.46 1.76 0.74 0.58 0.74 n/a n/a 1.24 0.55 Recent Price 56.78 31.65 56.91 44.25 20.18 71.89 85.24 51.76 18.74 36.66 NAV 26.27 11.46 7.42 21.33 Fwd. P/E Ratio 39 n/a 11 44 n/a 12 9 n/a n/a 48 26 8 10 n/a 16 14 15 29 11 12 20 n/a 56 19 11 12 61 13 36 18 33 68 8 12 n/a 26 3 mos. 4.00 5.58 3.32 10.31 Return (%) 1-year (8.37) 12.08 14.50 19.84 Company Phone Numbers 866-476-7523 800-621-1675 800-474-2737 800-474-2737 800-474-2737 800-474-2737 240-497-6400 240-497-6400 617-332-9530 866-909-9473 Yield** n/a 1.50% 3.10% 1.70% 2.90% 1.00% n/a n/a 6.60% 1.50% 3-year 14.76 n/a 10.55 7.95 Company Phone Numbers 803-326-3900 604-689-7644 408-996-1010 44-1223-400400 866-2-2712-2558 704-386-5681 514-861-9481 650-327-3270 781-652-4500 978-441-2200 403-298-2200 602-414-9300 703-876-3000 866-960-1539 650-253-0000 417-887-4400 802-244-5621 858-202-4500 408-765-8080 914-499-1900 949-270-9400 414-347-6480 631-694-9555 852-2993-2111 937-445-5000 781-565-5000 675-322-5599 650-506-7000 314-342-3400 203-299-8000 510-230-2777 650-610-5200 702-835-6300 781-622-1000 212-980-9155 403-269-4884 Min. Invest. $2,500 $2,500 $2,500 $1,000 Company Phone Numbers 800-544-6666 800-544-6666 800-544-6666 800-625-6275 Prices are as of January 8, 2013. Estimates for Canadian stocks are in Canadian dollars. Mutual fund returns are load-adjusted. *Using forward estimates. When available, the average estimate across all Wall Street analysts. Failing that, we’ve quoted the excerpted editor’s own estimate, if it is available. **Yield will vary as a result of price changes. Dick Davis Investment Digest presents news, information, opinions and recommendations of individuals or organizations whose views are deemed of interest. It should not be assumed that such recommendations, past or future, will be profitable or will equal past performance. The Dick Davis Investment Digest does not itself give investment advice, act as investment advisor or advocate the purchase or sale of any security or investment. All contents are derived from data believed reliable, but accuracy cannot be guaranteed. Excerpted material represents only part of the total information or viewpoint found in the original source and should not necessarily be relied on as a sole source of information and opinion for making investment decisions. The Dick Davis Investment Digest is published by Cabot Heritage Corp. Officers, directors and employees of Cabot Heritage Corp. may own securities of the companies reported on in Dick Davis Investment Digest. All rights reserved. ©Cabot Heritage Corp. 2013. Reproduction of this publication in whole or in part is strictly forbidden. Page 14 Dick Davis Investment Digest 734 January 9, 2013