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Top Stocks to Watch for November - 20515 views
It’s been another incredible month for stocks, and especially for those on my watch list. With rare exception, stocks of all shapes and sizes are getting pummeled and are presenting us with great buying opportunities for those with a long term investment horizon.
I recently wrote that now is a fantastic time to buy shares of companies that you have been watching and whose fundamentals present an excellent risk/reward scenario. This month, I have a broad range of stocks that I am looking at for possible inclusion into the PeakStocks.com portfolio. These stocks enter and exit my top five as constant fluctuations in price, market conditions and business fundamentals constantly alter the investment thesis.
Top Picks From My Own Portfolio
1. GeoEye (GEOY), a leading provider of global space-based and aerial imagery and geospatial information, is my highest pick right now, and the first place where you should put new capital to work.
Its imagery is used in a broad array of applications, including government monitoring and surveillance, intelligence gathering, construction planning, scientific research such as environmental monitoring, and the online mapping industry via Google (GOOG), Yahoo! (YHOO), Microsoft (MSFT) and other partners.
Now that its newest satellite, GeoEye-1, is launched and all but up-and-running, GeoEye is the best company in the commercial imagery space when compared to its rival DigitalGlobe (DGI). If you’ve got new money to invest, GeoEye is my No. 1 recommendation.
1. AAR (AIR), which provides products and services to the aviation, aerospace and defense industries worldwide, is a deeply undervalued stock, even accounting for a slowdown in its business. I re-recommended purchase of AAR’s shares last week at $11.75 each, and while the stock has shot up to $16.00, I still feel that it is undervalued.
Pay special attention to how low AAR is trading compared with its book value, tangible book value and the recent insider buying.
2. uWink (UWKI) is an entertainment and hospitality software development company whose CEO Nolan Bushnell, the founder of Atari (ATAR.PK) and Chuck E. Cheese (CEC). What uWink is doing with its proprietary software should lead them to a huge market in a few year’s time.
It just announced a big deal to test out their touch screen terminals in a Chili’s Too Margarita Bar owned and operated by Delaware North, a global hospitality, food service and retail provider, at the Fort Lauderdale Hollywood International airport. Chili's is owned by Briner International (EAT). uWink also just completed its installation of 100 terminals at a retirement community showing the expansive scope of the possible uses for their budding technology.
The company is just scraping the surface of their potential.
3. eHealth (EHTH) offers Internet-based insurance agency services to individuals, families and small businesses primarily in the U.S. It is becoming increasingly crucial that individuals find affordable health insurance, and eHealth gives them the power of choice.
eHealth just reported solid earnings and reaffirmed its guidance for the remainder of 2008, which says a lot since it was already one month into its final quarter and had great visibility into its current business trends and the effects of the slowing economy on eHealth's business
4. Rick's Cabaret International (RICK), which owns and operates upscale adult nightclubs serving primarily businessmen and professionals, is a best-in-breed player and one of the few public companies that operate in this space.
Rick’s has recently announced a stock buyback program, there has been some slight insider buying, and the company recently preannounced fourth-quarter and full fiscal-year (ended September) earnings and results, which were mostly very positive, including or excluding Rick’s recent acquisitions.
In fact, the company still had positive same-store (or same-club) sales growth in what is an extremely difficult retail environment.
I believe that with Rick’s stock at its current price, a quarter-position buy is warranted for long term investors with a strong stomach for volatility and a long-term horizon. Rick’s will emerge from any current downturn in a much stronger position for future growth due to its continued strong cash flow and margins, as well as intelligent acquisitions.
5. AuthenTec (AUTH) is the world’s leading provider of fingerprint sensors and solutions to the wireless, PC and access control markets.
AuthenTec is hurting as a result of a significant customer loss that will severely impact 2009-2010 sales and earnings and that raises serious questions as to whether or not AuthenTec can even sustain itself as an ongoing company.
That being said, AuthenTec just released earnings this week, and things weren’t horrible.
There were some positive developments, including news that the customer loss that it thought was going to affect its revenue and earnings in the back half of 2009 will not actually impact the company until well into 2010, thus allowing AuthenTec more time to make up the difference and find new customers and applications to overcome this loss.
AuthenTec has $2.38 per share in cash and a tangible book value of about $2.58 per share, and with shares trading at around $2, the downside is limited. With a market cap of only $53 million, and having $67 million in cash on their balance sheet with no debt, the stock is currently trading below cash value.
I do not recommend purchase of shares in AuthenTec for those that are risk-averse, and only recommend it for those who can stomach further losses or are playing this stock for the bounce back that might come as a result of a takeover.
For AuthenTec’s intellectual property alone, there is value in the shares of the company, and I would not be surprised to see it bought out by a larger player within the next six to 12 months because of its dirt-cheap valuation and its assets.
If you own shares of AuthenTec, now is not the time to sell. There is some value here that is not currently priced into the shares of the stock. If you don’t own shares, tread lightly, and at your own risk.
6. Pros Holdings (PRO) is a leading provider of pricing and revenue optimization software worldwide, in five major markets: airline, hotel, cruise, manufacturing and services. When I recommended the purchase of Pros shares, I did not fully appreciate the potential severity of the downturn in IT spending and the markets in which Pros operates.
Even with the stock trading around $7 per share, I thought that there was more downside risk than upside potential. With shares now trading at $5.50 as of this writing, recommending selling shares at $7 when I did was indeed a prudent thing to do.
The question now becomes, with the shares significantly lower than before, is Pros actually a bargain at these prices? I definitely think we are getting there but wouldn’t venture to guess until after its next earnings announcement on Nov. 6.
Stocks on My Watch List
Chipotle (CMG, CMG.B): Best-in-breed player with significantly higher margins and a lower cost structure than other similar fast-casual restaurant chains; their commitment to organic and natural ingredients sets them apart in a crowded restaurant landscape; stock price is starting to become reasonable again after over a year of hype and overindulgence; company is still expanding at a breakneck speed, even in the face of deteriorating business fundamentals positioning themselves for a quick turnaround; same-store sales are still positive; company still churns out significant cash, and pays for its expansion via its own cash generation with almost no debt.
Under Armour (UA): One of the quintessential brands of this decade; Valuation is reaching reasonable to “cheap” levels depending on direction of consumer market and Under Armour’s stock price; Dedicated and fully invested founder with over 77% voting power via class B shares; Improved business fundamentals via better inventory controls and operational structure, and new product offerings; Further expansion available outside the U.S.; Relatively higher margins than competition
ZIX (ZIXI): Technology that is being pushed by legislature and will likely become widely adopted in the years to come providing the company a broad spectrum of runway in terms of future revenue growth; Valuation that has come in line with the company’s fundamentals; Possible merger/takeover target for their IP and applications/customer base; Improving fundamentals, including cash flow positive quarter has company on the verge of solid profitability
Converted Organics (COIN): Great product that will be in higher demand as more and more farms become certified organic and more households and businesses look to stay away from damaging and harmful soil fertilizer products; Management owns a large percentage of the company’s shares with recent small purchases by the CEO on the open market; Intriguing possibilities with a micro cap stock that is in the beginning stages of what could prove to be a huge market; Some visibility into the company’s sales with recently announced deals with distributors as well as big box retailers; Reviews of their products have thus far been positive and well received by the marketplace
While this is not a definitive and comprehensive list of every company that I watch and am interested in, these present the most compelling argument for inclusion sooner rather than later.
These are not formal recommendations, and after digging around, they may never become formal recommendations, but this will give you a heads up if you are looking for some interesting companies to start researching on your own or that you might be hearing about soon.
Chris Fernandez is the founder and CEO of PeakStocks.com, a Web site dedicated to the micro-cap and small-cap stock universe. A version of this article was originally published here.
Author is long AIR, GEOY, UWKI, EHTH, RICK, AUTH, PRO
Posted on Nov. 5, 2008