The 10 Stocks to Watch in 2014
Twitter, Salesforce.com, Nike, and FedEx are among the names attracting our expert contributors' attention.
By André Mouton
There’s a special place in my heart for metaphors, and I’ll be watching Salesforce.com (NYSE:CRM) because, in some ways, the enterprise solutions company has become a grand metaphor for the Great Rally. The stock shows us so many of the trends we’ve come to expect in the last few years: rising market cap, falling volume, persistent short interest. There are plenty of bears, but instead of restraining the market, they’ve only fed it. The second half of 2013 has been absolutely brutal to the shorts, and capitulation may be in the air -- but I wouldn’t bet on it. It’s one thing to catch a falling knife, and another to stare down a freight train.
In terms of its business strategy, Salesforce.com is truly a creature of the present. The focus on top-line growth, the long chain of acquisitions to achieve that growth, the use of stock options to fund the business, and the preference for non-GAAP earnings that hide the scope of those stock options-- I could be describing any number of popular tech companies. If the world were always sunny, we wouldn’t need roofs; and so long as markets are being generous, these companies can nurse their perennial losses without getting investors wet.
With the rally entering its sixth year, it might be wise to keep an eye on the weather forecasts. This means watching companies that, like Salesforce.com, have captured the market’s hopes (and its wallets), and which have the most to lose should that enthusiasm give way to fear.
André Mouton is an independent investor who cut his teeth in the dot-com crash and chewed his lip in the financial crisis. He is a former writer for Offbeat Magazine in New Orleans and a touring (but not itinerant) musician, who now lives in New York. Read more of his work for Minyanville, here.
The 2014 Debt Collector
By Duncan Parker
Virginia Beach, VA-based Portfolio Recovery Associates (NASDAQ:PRAA) has experienced an incredible run of growth that doesn’t look to be ending anytime soon. The 2014 US economy will likely best be described as “concerning." As such, companies with slow-paying debtors will hire companies like Portfolio Recovery Associates to collect on their behalf while keeping their own balance sheet looking solid. From a fundamental standpoint, Portfolio Recovery’s balance sheet deserves an A+. Its opportunity to charge off around $100 million in goodwill (deferred taxes) in the future highlights savvy management at the helm. Its small market cap (around $3 billion) means exponential growth is very possible.
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From a technical lens, a pullback seems possible near-term. Why? My guess is its affiliation with numerous indices could cause this baby to be thrown out with the bath water if we experience a pullback from another debt ceiling debacle. Therefore, Portfolio Recovery Associates is likely more of a second-quarter 2014 buy. Keep this one on the radar!
Duncan Parker left his position as a Financial Advisor at Merrill Lynch in 2012 to focus his time on a handful of high-net-worth clientele and further develop systematic trading algorithms. He is now a Managing Member of Queen Anne’s Revenge, LLC/LP, an RIA and hedge fund employing quantitative strategies through data mining seasonality trends with technical analysis in equities, options, futures, and foreign exchange markets. He is a regular contributor to Minyanville's Buzz and Banter. Read more of his writing for Minyanville, here.
Flotek Industries: A Long-Term Fracking Play for 2014
By Brandon Perry
As America continues on the path of energy independence, I have been looking for some good long-term fracking plays. My favorite in the space is Flotek Industries (NYSE:FTK).
This company is on the Chemicals side rather than on the Exploration & Production side of things. From a fundamental perspective it has just about everything you want: P/E around 20 with a growth rate of close to 40, giving it a low PEG of around 0.5. Plus a return on equity of 29! Net margins are around 15 where 10 is more typical, so management is running an efficient company. It has multiple product streams for further penetration with existing customers. Product lines include drilling products as well as all the various chemicals required for the fracking process. I see the fracking chemicals becoming a lead -n type of product to get its foot in the door and allow for additional product sales once it has established a relationship with the customer.
The balance sheet has high liquidity, with a current ratio around 1.5. Balance sheet management has been top-notch, in my opinion.
The cash-flow statement is a little concerning on the free-cash-flow side at first, but it is distorted by the recent acquisition, as well as by refinancing measures to reduce interest rates on long-term debts. These adjustments have hit cash flows near-term but build sustainability in the long run.
Technically, the company's stock price is in a strong uptrend, which is exactly what you look for in a small growth company. I could easily see this thing doubling in a year, and doubling again in five years. It is pretty much a "catch it on the 50-day dip" type of stock.
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Brandon Perry is the president of Perry Investment Management, LLC. In addition to managing money, Brandon teaches Financial Planning at his Alma Mater, UT Austin, writes the financial columns for Influential Magazine, contributes to Minyanville's Buzz and Banter, and is very active in helping people with their finances in his church. Read more of his writing for Minyanville, here.
Disclosure: Perry has a position in FTK.