Top Three Stock Picks (December 2012 Edition)
When a stock achieves nearly universal disdain, it is typically a good time to buy, especially when that company provides a needed good or service. A seemingly risky stock, if the price paid is low enough in relation to underlying assets, can oftentimes be a safer investment than a company perceived as high quality. There are times when an investor is presented with a high quality stock at a reasonable price, which is the ideal situation, however, investors would be wise to maintain wide horizons and remain open to all possibilities. Below are my top three stock picks for December.
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].
Gencor Industries (GENC, $7.48), based in Florida, designs, manufactures, and sells machinery products for the production of highway construction materials, synthetic fuels, and environmental control equipment. GENC’s stock price has languished due to its reliance on highway construction and the lack of passage of a signficant highway improvement bill by U. S. lawmakers. However, it is likely at some point there will be a realization that highway deterioration is an impediment to a efficiently functioning society and its economy. The democratic presidential victory indicates a move towards less military and foreign interventionist spending, and perhaps, a thoughtful re-building of the nation’s infrastructure. GENC stock has a significant margin of safety as its balance sheet shows $7.38 per share of net-net cash (cash balance net of all liabilities). Earnings have not been significant (PE of 16), however, the company has no long-term debt and a book value over $10. GENC should be able to continue operating for many years even if highway spending remains depressed. The company could generate at least $1 a share in earnings subsequent to the approval of a reasonable highway spending bill. The company doesn’t pay a dividend. Investors should use limit orders as the stock is very thinly traded.
Intel Corporation (INTC, $20.23), based in Santa Clara, California, designs, manufactures, and sells integrated digital technology platforms worldwide. It is the dominant supplier of microchips for the computer industry. The internet, along with the computing power needed to access it efficiently, continues its penetration to a global populace of billions of consumers. This growth in technological access should continue largely unabated for years to come. INTC trades at a very reasonable valuation of 9 times earnings and yields 4.5%. The risk of owning INTC centers around the migration of many computer users to tablets and mobile phones. INTC is not the dominant supplier in this new computing environment as it has been in PCs. However, most consumers and businesses continue to employ PCs due to their reasonable price and allowance of the ability to utilize a keyboard and perform actual work. The utility of PCs will not likely be supplanted for many years to come. This should allow INTC time to shift their business model to the changing reality.
QC Holdings (QCCO, $3.14) provides credit solutions and other products and services to consumers and small business owners in the U.S. and Canada. QCCO is in the business of payday loans, which provide cash to the customers in exchange for a promissory note with a maturity of two to three weeks. It also offers consumer financial services, such as installment loans, credit services, check cashing services, title loans, open-end credit, money transfers, and money orders. QCCO is a very inexpensive stock trading around five times earnings, yielding over six percent and quoted below its book value of $4.99 per share. Similar companies such as ACE Cash Express and Advance America were once publicly traded companies and bought out at significant premiums to their stock prices. Risks to QCCO include a stronger regulatory environment with the rise in prominence of such figures as Elizabeth Warren and the recent move of traditional banks into the payday lending business. Limit orders are suggested as QCCO stock is thinly traded.
Disclosure: I currently hold positions in Intel and QC Holdings.