What Last Year’s Top Stock Pickers Are Buying In 2018

&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-774525496&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/774525496/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g;&l;span&g;MoneyShow&a;rsquo;s 2018 Top Stock Picks Report features over 100 investment ideas for all types of investors, from high growth opportunities for risk takers to conservative, income-oriented favorites suitable for retirement portfolios. (Photo by&a;nbsp;&l;/span&g;Shutterstock)

&l;em&g;At the start of each year for over three decades, the editorial team at &l;/em&g;&l;a href=&q;https://www.moneyshow.com/top-stock-picks/&q; target=&q;_blank&q;&g;&l;em&g;MoneyShow.com&l;/em&g;&l;/a&g;&l;em&g; surveys the nation&a;rsquo;s leading newsletter advisors for their favorite stocks for the year ahead. We asked last year&a;rsquo;s six top performers for an update on their 2017 picks and for their new favorite buys for 2018.&l;/em&g;


&l;strong&g;George Putnam, &l;/strong&g;&l;a href=&q;https://esp.forbes.com/subscribe?PC=T4&q; target=&q;_blank&q;&g;&l;strong&g;The Turnaround Letter&l;/strong&g;&l;/a&g;

Investors regained confidence in &l;strong&g;Crocs&l;/strong&g;, maker of the iconic casual footwear, as the multi-year turnaround gained traction in 2017. The stock, our top pick last year, rose 90%.

Crocs&a;rsquo; new management showed they can reinvigorate the brand enough to stabilize sales after closing many weak stores and removing unprofitable distributors in China. The company also demonstrated its ability to restructure its complex production and distribution network and improve its operating efficiency.

Estimated EBITDA (earnings before interest, taxes, depreciation and amortization) in 2018 is on-track to more than double its 2016 level. These improvements, combined with very low investor expectations going into 2017 (the stock was at a seven-year low), produced the sharp 83% gains year-to-date.

We see additional upside for the stock in 2018 as management&a;rsquo;s efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017.

Our top conservative, income-oriented idea for 2018 is &l;strong&g;General Electric&l;/strong&g;. While former chairman and CEO Jeffrey Immelt&a;rsquo;s early years at the helm were full of promise, his 16-year tenure will be remembered for GE&a;rsquo;s near-collapse in the 2008 financial crisis.

This past summer, General Electric was thrown into disarray with an abrupt changeover in leadership and the recognition that its cash flows were much weaker than previously believed. As a result, investors fled from GE shares, which have declined 45% this year and now trade at their 1997 price level.

The company clearly has problems, but new CEO John Flannery is aggressively reshaping GE&a;rsquo;s underlying philosophy to focus on cash flows, capital allocation and accountability. His strategy should improve the company&a;rsquo;s core profitability and highlight the value of its various businesses.

Three divisions will be retained (Power, Aviation and Healthcare), which have strong market positions and large installed customer bases. As much as $20 billion in non-core operations will be divested.

Flannery&a;rsquo;s resolve is highlighted by his gutsy decisions to halve the dividend and remove half of the board members. While the turnaround will likely take a while, the rebound potential in the stock is significant, and investors are being paid a 2.8% yield during the wait.


&l;strong&g;Mike Cintolo, &l;/strong&g;&l;a href=&q;https://cabotwealth.com/subscription-offers/cabot-growth-investor/&q; target=&q;_blank&q;&g;&l;strong&g;Cabot Growth Investor&l;/strong&g;&l;/a&g;

At the start of 2017, we chose &l;strong&g;Arista Networks&l;/strong&g; as our favorite stock; it has since risen 148%. Arista came public during the choppy 2014-2016 time frame and, despite solid growth, did nothing for a couple of years.

But it&a;rsquo;s been one of the real growth leaders this year, as the firm&a;rsquo;s made-for-the-cloud networking hardware and software have led to a string of estimate-beating growth.

Short-term, I think the stock needs a rest. For new buyers, it&a;rsquo;s more of a Watch than a Buy right now as the bulls and bears fight it out while Arista builds a new launching pad. Long-term, Arista is clearly way ahead of its competitors and the stock still has great potential.

&l;strong&g;Five Below&l;/strong&g; is probably our favorite retail story from a fundamental perspective. The company is a unique dollar store, offering teen and pre-teen merchandise for $5 or less, including everything from smartphone cases to makeup to sports equipment to books to candy to party supplies.

The secret sauce here is the combination of the company&a;rsquo;s outstanding store economics and the underlying attractiveness of its products.

On the economic front, a successful retail firm might make its initial investment in a new store back in two or three years, but Five Below has a history of making it back in a year or less, which has allowed for a rapid expansion plan.

The company is boosting its store count by about 20% this year (it had 625 locations at the end of October), with 15% to 20% store growth likely for years to come. Long-term, management believes there&a;rsquo;s room for more than 2,000 locations in the U.S. alone!

And, as for its products, the company has notched 11 straight years of comparable store growth, and last quarter&a;rsquo;s tally (up 8.5%) was one of its strongest in years.

All told, 20%-ish growth is likely for a long time to come, and the stock, which built a seemingly endless consolidation during the past few years, has finally broken out on the upside. We think 2018 will be a great year for Five Below.


&l;strong&g;Gordon Pape, &l;/strong&g;&l;a href=&q;http://buildingwealth.ca/iwb/&q; target=&q;_blank&q;&g;&l;strong&g;Internet Wealth Builder&l;/strong&g;&l;/a&g;

Ottawa-based &l;strong&g;Shopify&l;/strong&g;, which provides marketing platforms to small businesses, was my top pick for 2017, and it certainly delivered with a gain of 139%.

Indeed, the stock rose as high as $123.94 in September. Then notorious short-seller Andrew Left took aim at the company questioning its business practices and the stock dived to the $90 range. The company hit back, denying the allegations and releasing third-quarter results that showed a 72% year-over-year revenue gain and an 86% increase in gross profits.

The shares bounced back to the $105 range but are still well below the 52-week high. We made a nice profit on this stock, but the upside from here looks more precarious. Sell and move on.

My top pick for aggressive investors in 2018 is &l;strong&g;Torstar Inc.&l;/strong&g; &a;nbsp;Nobody wants to invest in newspapers. So it&a;rsquo;s not surprising that this company &a;mdash; which publishes Canada&a;rsquo;s largest circulation newspaper, &l;em&g;The Toronto Star&l;/em&g; &a;mdash; has been a market disaster in recent years.

In 2014, the shares traded for more than C$8 in Toronto. As I write, they are at C$1.60 and showing no signs of recovery. The latest quarterly results showed more losses, despite stringent cost-cutting. But there are some interesting things happening behind the scenes.

Fairfax Financial, run by a canny investor named Prem Watsa who has been called the Warren Buffett of Canada, recently spent C$11.8 million to increase its holding of Torstar&a;rsquo;s non-voting shares to 40.6%.

Meantime, Torstar has been doing deals with another troubled media giant, Postmedia, which some think may be the precursor to a merger. Despite recent losses, Torstar has more than C$60 million in cash and no bank indebtedness. The stock continues to pay a small quarterly dividend of $0.025, to yield 6.25%.

This stock could conceivably go to zero.&a;nbsp; But if Fairfax successfully applies its turnaround skills (it says it will consult with management even if it only owns non-voting shares) and/or a deal emerges with Postmedia to combine their most valuable assets and shed the rest, this stock could be a big surprise.


&l;strong&g;Richard Moroney, &l;/strong&g;&l;a href=&q;http://www.dowtheory.com/&q; target=&q;_blank&q;&g;&l;strong&g;Dow Theory Forecasts&l;/strong&g;&l;/a&g;

What a difference a decade makes. Ten years ago, &l;strong&g;Lam Research&l;/strong&g; made one semiconductor-etching product. Today, it produces a variety of etching, cleaning and deposition machines and provides a range of services to chipmakers. Lam&a;rsquo;s addressable market has expanded to more than 35% of the industry.

Lam wears its market leadership well, delivering the growth of a much smaller firm without becoming too expensive. While the stock has surged over the past year, rising 75%, so have earnings, sales and cash flow. Lam expects industry demand to remain strong in the year ahead, and also expects to grow faster than the industry.

&l;strong&g;ON Semiconductor&l;/strong&g;, our top pick for the coming year, is a small player in the volatile, highly cyclical semiconductor industry. The company makes sensors and power-management components in automotive, industrial and computing products.

The stock earns a value score of 86 (out of 100) in the proprietary Quadrix ranking system and trades at a substantial discount to the semiconductor group on most valuation ratios.

Given the company&a;rsquo;s operating momentum, the appealing valuation is a bit of a surprise. The firm&a;rsquo;s sales rose more than 50% and its per-share pro&a;#64257;ts more than doubled over the last year, helped by an acquisition.

Pro&a;#64257;t margins extended a multiyear uptrend. The company reported solid pricing power and continued strong demand trends in the most recent quarter. Analysts target pro&a;#64257;t growth of 27% for the December quarter and 15% for 2018.


&l;strong&g;Bryan Perry, &l;/strong&g;&l;a href=&q;https://www.bryanperryinvesting.com/&q; target=&q;_blank&q;&g;&l;strong&g;Cash Machine&l;/strong&g;&l;/a&g;

Digital payments technology has become mainstream in the money transaction business and &l;strong&g;PayPal&l;/strong&g;, our top pick for 2017, is rapidly enjoying widespread adoption of its payment platform, especially with millennials fully in love with its Venmo subsidiary.

2017 was a great year to be long PayPal, with the stock racking up a nearly 90% gain, but this juggernaut has more upside for 2018 with several big catalysts set to push the stock higher.

The firm&a;rsquo;s decision to sell its loan portfolio to Synchrony Financial for $6 billion in cash strengthens its balance sheet. And PayPal&a;rsquo;s latest foray into forging a relationship with European banking deposit leader Raisin has customers using its platform to direct savings to depositories with the best rates.

Wall Street is forecasting sales growth of 18.6% for the year ahead with plenty of room for upside surprises. Get long and stay long PayPal because the landscape for global digital payments has now become a three-horse race.

My top pick for 2018 is Tulsa, Oklahoma-based &l;strong&g;NGL Energy Partners LP&l;/strong&g;. Oil prices have staged a nice rebound, with WTI trading between $55-$60/bbl. and yet tax-loss related selling continues to weigh on most of the energy sector from depressed pricing for most of 2017.

In light of this dislocation of the stronger commodity pricing and weak investor demand, I&a;rsquo;m looking to take advantage of this disparity by adding NGL Energy as a speculative buy. The master limited partnership currently yields 12%. This is not a pure play on oil, but rather a spread play on different aspects of the energy distribution, logistics and refining operations.

I remain in the camp there is ample supply of oil and gas, but moving it, storing it and refining it stand to largely benefit from a strengthening economy as demand rises and NGL Energy is one of those companies that are seeing improving margins in all these segments of its business.

As to the $1.56 per share annual distribution, the trailing 12-month distribution coverage is 0.80, which implies the current payout is secure. The CEO has pledged to maintain it with the intention of raising it.

I&a;rsquo;m betting on the combination of better business conditions shaping up for NGL Energy Partners and yield-hungry buyers looking for a company that has both pricing power and offers a nice inflation hedge. I look toward another upbeat update in the first quarter of 2018 and look for the stock to continue its steady rebound in the months ahead with a price target of $20.

For more investment ideas, click here for &q;&l;a href=&q;https://www.moneyshow.com/top-stock-picks/&q; target=&q;_blank&q;&g;MoneyShow&a;rsquo;s 35th Annual Top Stock Picks Report: The 100 Best Stocks for 2018.&l;/a&g;&q;



&l;strong&g;Crista Huff, &l;/strong&g;&l;a href=&q;https://cabotwealth.com/subscription-offers/cabot-undervalued-stocks-advisor/&q; target=&q;_blank&q;&g;&l;strong&g;Cabot Undervalued Stocks Advisor&l;/strong&g;&l;/a&g;

When I chose &l;strong&g;Vertex Pharmaceuticals&l;/strong&g; as my top stop pick for 2017, it was an extremely undervalued, aggressive growth biotech stock, and the share price was ridiculously depressed. In 2018, investors discovered this hidden gem and the share price more than doubled between January and July.

At this point, with the stock up 105% over the past year, Vertex is still an undervalued aggressive growth stock, although everything has moderated: earnings growth is less aggressive, the P/E is less undervalued and the share price pullback is less alarming. Still, there&a;rsquo;s money to be made for both traders and longer-term aggressive growth investors.

&l;strong&g;Baker Hughes a GE Company&l;/strong&g; is my top aggressive stock pick for 2018. The company offers products, services and digital solutions to the international oil and gas community. &l;strong&g;General Electric&l;/strong&g; merged its oil and gas equipment and services operations with Baker Hughes in July 2017, and now owns 62.5% of the shares.

It&a;rsquo;s quite common that stocks flounder in the wake of big corporate events that can take months or years to unfold. But once the dust settles, the market focuses on earnings growth.

Wall Street analysts are incredibly bullish on Baker Hughes&a;rsquo; earnings outlook, expecting earnings per share growth of about 150% in 2018 and over 60% in 2019. The corresponding P/Es are drastically lower than the EPS growth rates at about 30 and 18, telling you that Baker Hughes is a very undervalued aggressively growing company.

In November, Baker Hughes&a;rsquo; management announced their intention to repurchase $3 billion of stock, or 8% of outstanding shares, including shares owned by General Electric. The company also pays an attractive dividend, yielding 2.2%. (The most recent dividend increase took place in November.)

How high can the stock climb? Barring a prolonged U.S. stock market downturn, I fully expect the stock to retrace its December 2016 high of $46 during 2018, offering new investors up to a 40% total return. I rate the stock a Strong Buy.


&l;strong&g;John McCamant, &l;/strong&g;&l;a href=&q;http://www.bioinvest.com/&q; target=&q;_blank&q;&g;&l;strong&g;The Medical Technology Stock Letter&l;/strong&g;&l;/a&g;

Rising 519%, our top pick for 2017, &l;strong&g;Madrigal Pharmaceuticals&l;/strong&g; emerged as one of the leaders in drug development for the extremely large and untapped NASH market, a $35 billion opportunity.

NASH is one of the hottest sectors in drug development as large biopharma companies have inked a slew of huge licensing deals and acquisitions over the past few years.

Madrigal has a first-in-class thyroid hormone receptor-&a;beta; agonist, MGL-3196, which recently reported proof-of-concept (POC) data showing it can safely and significantly reduce liver fat in NASH patients.

The 3196 unique mechanism of action and safety profile give it the potential to be a standalone NASH therapy, but should also be complementary to most other NASH mechanisms of action.

Our confidence is very high in CEO Paul Friedman who has an excellent track record of leveraging positive Phase II data into shareholder value. In our view, 3196 is the most attractive drug candidate for the treatment of NASH and has the potential to be a best-in-class molecule. Madrigal is a Buy under $100 with a target price of $140.

Our top pick for 2018 is &l;strong&g;Sangamo Therapeutics&l;/strong&g;. Over the past year, we witnessed the incredible transformation of the company from a Wall Street has-been to a widely respected powerhouse in both gene therapy and gene editing. In fact, this year it became the first company ever to treat a patient with gene editing technology.

Despite all the hype for other gene editing technologies like CRISPR and TALNS, the firm&a;rsquo;s tightly held, widely patented zinc finger technology (ZFN) has emerged as a major player in the exciting fields of gene therapy and gene editing.

Meanwhile, there are two partnerships to come that represent significant catalysts for the company. While not giving specific dates or deadlines, Sangamo is in talks to form new collaborations with large pharma/biotech companies for both its cellular immuno-oncology (CAR-T) and tau protein/Alzheimer&a;rsquo;s disease programs.

In our view, these external programs are not on any investors&a;rsquo; radar screens yet, but the size of the deal(s) will, in our view, be large enough and the partners high-end enough for investors to begin to take notice and add substantially to the stock&a;rsquo;s valuation.

Importantly, Sangamo is poised to deliver proof-of-concept data in 2018 from their four clinical-stage programs, hemophilia A, MPS I &a;amp; II, and Beta Thal.&a;nbsp; Positive data from any of these four programs will also serve as positive stock catalysts as it would help de-risk the other programs.

As a reflection of our growing confidence in both the firm&a;rsquo;s technology platform and management&a;rsquo;s ability to execute and create significant shareholder value, we recently raised our Buy price from $15 to $19.


Leave a Reply

Your email address will not be published. Required fields are marked *