Three Top Stock Picks (November 2012 Edition)
Here comes the end of the month and the regular feature of three top stock picks I started a few months ago hasn’t been fulfilled. It’s problematic investing money when you’re headed for a “fiscal cliff,” but I will attempt to make three suggestions nonetheless.
As always, stock picking is tricky and there is no assertion being made that the selections will be profitable. Investors should conduct their own due diligence before committing money to any investment. My belief is that the majority of individuals should stick to an asset allocation plan which includes widely diversified low cost indexed mutual funds. For those choosing to pick their own stocks it can be fun and rewarding; however it can also be very unpredictable, unprofitable and downright frustrating. Here is the link to last month’s selections [link].
Cliff’s Natural Resources (CLF, $28.93) is a mining and natural resources company, engaged in the production of iron ore pellets, fines and lump ore, and metallurgical coal. Unfortunately for holders of CLF, the stock has fallen off its own proverbial cliff, as it was nearly $80 per share in the past 52 weeks. The stock price has been destroyed mainly due to the falling price of iron ore. According to Wikipedia, iron ores are rocks and minerals from which metallic iron can be economically extracted. Most reserves of such ore have now been depleted. Iron ore is the raw material used to make pig iron, which is one of the main raw materials to make steel. 98% of the mined iron ore is used to make steel. It has been argued that iron ore is “more integral to the global economy than any other commodity, except perhaps oil.” It has been noted that China is a large consumer of iron ore and stockpiled substantial quantities when the price was low in 2009. When these reserves are depleted, it is believed the price of iron ore will recover. Holders of CLF will likely require patience until this occurs. Currently they are being paid generously to wait as CLF’s dividend exceeds an 8% annual payout (granted, it could be cut). CLF has a book value of $44 and a long-term debt to capital ratio of around 50% so it appears to have the staying power to last through the downturn.
iRobot Corporation (IRBT, $18.67) designs, develops, and markets robots for the consumer, government, and industrial markets worldwide. IRBT makes the well-known Roomba line of vacuuming robots. IRBT has attracted a competitor in this space based in California’s Silicon Valley going by the name of Neato Robotics, which released their first robot in 2010. Competition will likely be good for this industry as both companies push each other to develop more capable and reliable vacuuming and cleaning robots, which should expand the market. IRBT is attractively valued at 15 times earnings and has over $6 per share in cash with no long-term debt.
France Telecom (FTE, $10.67) provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers, businesses, and telecommunications operators under the Orange and France Telecom brand names. It has over $3 cash per share and a 10% yield, but is ladened down with quite a bit of long-term debt (around 150% of capital). With a PE of around 6, FTE is definitely in the bargain bin. Management at FTE has made it known they will likely cut the dividend payout by over 40%, leaving it with a still fairly generous yield of over 6% at the current quote. The faltering French economy makes this a risky pick, but with a fairly significant upside if things improve.
Disclosure: I currently hold positions in Cliffs Natural Resources and France Telecom.