Value Added


Profit From This Best-Picks List

Steven Goldberg

Raymond James stock analysts have a great record of picking stocks that beat the market.



Most brokerage firms’ list of top stock recommendations are hardly worth the paper they’re printed on. But Raymond James & Associate’s annual list is a different story. For the ten-year period that ended December 3, 2009, it beat Standard & Poor’s 500-stock index by an average of 17.6 percentage points per year. It beat the index by 21 points last year.

The Raymond James list has been a marvel of consistency, too. In only one year since the list was started in 1996 has it failed to top the S&P 500. That was in 2006, when it lagged the index by nine percentage points.

There’s one big problem with the list: It’s given to Raymond James customers starting in early December each year and only later released to the media. For a time, prices of many of the new picks ran up significantly, partly due to the growing popularity of the list. But thanks to the correction that began January 20, some of those share prices have retreated.

At any rate, I’ve weeded the 13 picks down to seven stocks that I think look most attractive. The other six on the Raymond James list have already spiked in price: Aflac (symbol AFL), Alpha Natural Resources (ANR), Concho Resources (CXO), FLIR Systems (FLIR), National Oilwell Varco (NOV) and Sybase (SY). Of these, Alpha Natural Resources has been the best performer since the release of the James report, up nearly 18%. National Oilwell Varco was the worst performer (and only loser), down less than 1%.

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Altera Corp. (ALTR) is a maker of programmable logic device chips that’s been gaining ground in recent years on its main competitor, Xilinx. Its chips are used by electronic-device makers in a broad range of industrial electronics and communications. Raymond James analyst Hans Mosesmann predicts that the company will grow twice as fast as the semiconductor industry in the next several years. He estimates that Altera will earn $1.10 per share this year, versus an estimated 78 cents in 2009. The stock trades at $21.22, giving it a price-earnings ratio of 19. (All P/Es in this article are based on Raymond James’s earnings estimates and on share prices as of the close on January 22.)

Bank of America (BAC) came back from the dead last year thanks, in part, to generous help from the federal government. It remains a troubled company in a troubled industry. But analyst Anthony Polini says it is now part of an oligopoly of the nation’s three largest banks. As the economy strengthens, he says, risks are receding. He forecasts that BofA will earn $1.06 per share this year, compared with a loss of 29 cents a share in 2009. At $14.90, the P/E is 14. The stock trades at 65% of book value.

If investing in a money-center bank doesn’t scare you, how about a huge electronics retailer amid continuing consumer weakness? Best Buy (BBY) is the biggest player in that field, with 3,800 stores worldwide. Analyst Dan Wewer says revenues, same-store sales (sales at stores open for at least one year) and profit margins will all rise. Best Buy’s managers, he says, are the best in their industry. He estimates earnings per share of $3.05 for the year that ends in February 2010, compared with $2.88 for the year that ended last February. With the stock at $37.15, the P/E is 13.

Oil giant Chevron (CVX) has a better record than its competitors of replacing oil-and-gas reserves with new discoveries, says analyst Pavel Molchanov. It finds more oil and gas -- and more of what it finds is higher-profit oil instead of lower-profit gas. Chevron’s refining operation is relatively small -- a plus for the firm’s overall profitability. At $74.59, the stock trades at nine times Molchanov’s 2010 earnings estimate of $7.92 per share, up from an estimated $5.08 in 2009.

The worst is behind CVS Caremark Corp. (CVS) in its pharmacy-benefit-management arm, says analyst John Ransom. That business, which fills mail-order prescriptions, is beginning to show signs of improvement. That, he says, will boost share prices. Increasing retail sales and growing use of generics will likewise help CVS. At $33.24, the stock trades at 12 times estimated 2010 earnings of $2.70 per share.

Nuance Communications (NUAN) is the leader in voice-recognition technology and services. In call centers, Nuance provides the automated voices that drive consumers nuts but save companies money. Almost half its business involves health care, primarily automatic dictation of medical information. Analyst Shyam Patil sees this field expanding rapidly in coming years. He estimates that Nuance will earn $1.13 a share in the year that ends this September, up from $1.06 the previous year. Nuance shares, at $16.12, trade at 15 times that estimate.

TDAmeritrade Holding (AMTD) is one of the largest online brokerages. Analyst Patrick O’Shaughnessy thinks its trading volumes will increase this year relative to competitors. He also likes its balance sheet and thinks the company will generate more interest income once the Federal Reserve starts to raise short-term rates. At a price of $18.02, the stock trades at 15 times his anticipated earnings of $1.17 per share for the year that ends this September. That compares with $1.10 per share in the previous year.

Steve Goldberg is an investment adviser in the Washington, D.C., area.



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