Top Three Stock Picks (August 2012 Edition)
An ongoing addition to this website will be my three favorite stocks (or ETFs) to be updated on a monthly basis. I screen for stocks meeting certain criteria on a regular basis and occasionally find, what I consider, overlooked bargains. The names chosen may be mainstream, or could be off the beaten path of investing. I may, or may not, own positions in the stocks presented (which will be disclosed).
A brief reasoning for each selection will be included. 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 and frustrating.
The top three picks this month are:
Applied Materials (AMAT, $10.81) is the giant of the semiconductor equipment industry with a market cap over $13 billion. The last data I found showed they have about 50% higher sales than the next largest firm in the industry; Tokyo Electron. AMAT has established a solar equipment business in an effort to capitalize on growth in energy demand (some have claimed it a waste of company assets). Solar results fluctuate substantially, but appear to make up 15-20% of AMAT’s total sales.
AMAT’s main semiconductor business is cyclical and the stock price reflects these fluctuations in demand. It is currently trading at the low end of its historical range. AMAT has a strong balance sheet with a very reasonable ratio of long-term debt to equity (22%), a low PE ratio of 10, and pays a generous dividend of over 3%. The stock, on the surface, looks like a true bargain. I currently have a position in Applied Materials.
Electronic Arts (EA, $10.90) is a large player in the video game software industry. The company is the largest seller of sports-based video games and has one of the broadest portfolios in the industry. EA’s popular gaming franchises include Madden NFL, FIFA, Battlefield, and The Sims series.
EA has a strong balance sheet with low long-term debt to equity of 22%, a PE ratio of around 10, and over $5 of cash per share. EA doesn’t pay a dividend. The company just announced a $500 million share buyback plan.
EA’s financial results have fluctuated widely in the past which has led to some skepticism in financial circles as to its merits as an investment. However, the valuation appears extremely reasonable and the risk/reward at this point is enticing. I currently have a position in Electronic Arts.
Corning (GLW, $11.26) is the leading supplier of glass substrates used in liquid crystal displays. The company operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences.
GLW is considered a large-cap company with a market cap of over $16 billion. A review of GLW’s balance sheet indicates it to have above average financial strength with long-term debt as a percentage of equity at 15%, cash per share on the books of over $4, and a book value in excess of $14. GLW pays a 2.6% dividend.
The global economic slowdown has been reflected in GLW’s recent stock performance, which is around the lowest it has traded in three years. GLW’s fiber optic business has grown at 10% in the latest report, but weakness and oversupply in other product lines has been a disappointment. However, GLW’s positioning in the fast growing mobile phone and tablet market should give it significant ballast over the long-term. I currently have a position in Corning.