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Monday, January 23, 2012

Big Returns In 2012? Go W/ Small Cap , Mid cap, Large Cap, or Penny Stocks ?

Small-caps have started to outperform large-caps, but they remain depressed from year-ago levels. We are still early in the economic recovery, which suggests smaller companies have room to run fundamentally. I have shared other reasons for my favorable outlook. If you agree, you might want to shift your exposure by focusing on smaller companies. Alternatively, you can use ETFs such as the iShares Russell 2000 (IWM) or the iShares Russell Micro-Cap (IWC).

How valuable is Southern Company?

Thinking about the value of a company, I think about growth. What kind of opportunity does a company have for growth in the future? If we look at SO's price to sales ratio, it will give us a good barometric reading of its potential for growth. The lower the price/sales ratio, the healthier it is. Comparing SO to the electric industry, (2.87 to 41.11) we realize that this company is by far a huge leader in its industry and had very good growth potential for a long term investor.

Caribou Coffee Company Inc. (CBOU) is currently trading near $13 a share with a 52-week range of $8.50 to $17.40. It does not pay a dividend. Earnings per share is $1.66, and price to earnings ratio is 8.01. Market capitalization is $275.82 million. Management reported net sales of $80.3 million for the second quarter ended July 3. This is up 16.5 percent over last year’s second quarter net sales of $68.9 million. Cost of sales increased 24.1 percent, with second quarter 2011 costs of $37.9 million versus $30.5 million for the same quarter 2010. Management increased earnings expectations throughout the remainder of the year.

The coffee industry has been characterized by volatility, but recent reports indicate that world coffee demand outpaces supply, which bodes well for the immediate growth future of JVA. A seasonal spike in sales is expected over the holiday season. JVA is trading near the lower end of its 52-week range at a price that doesn’t frighten investors, but the range itself points to a great deal of price volatility. Though somewhat speculative, a purchase seems reasonable and can be averaged over time with additional purchases.

Chipotle Mexican Grill, Inc. (CMG) – This operator of fresh, casual Mexican restaurants is currently trading near $315.48, which is toward the higher end of its 52-week range of $178.09 to $346.78. It does not pay a dividend. Earnings per share is $6.05, and price to earnings ratio is 52.15. Market capitalization is $9.89 billion.

Second quarter results announced in July were strong. Revenue increased 22.4 percent to $571.6 million. Net income rose to $50.7 million from $46.5 million for the same period last year. Costs were up 80 basis points over the same period last year, which management attributed to an increase in stock-based compensation and higher legal costs. The company opened 39 new restaurants and now boasts a total of 1,131. It opened 12 in the first quarter 2011 and 22 in the same quarter last year. Third quarter results are due out on Oct. 20.

Panera Bread Company (PNRA), another health-branded bakery/eatery, is currently trading near $111, which is in the middle of its 52-week range of $88.75 to $133.43. It does not pay a dividend. Earnings per share is $4.22, and price to earnings ratio is 26.43. Market capitalization is $3.33 billion. PNRA reported second quarter revenue of $451 million, which is up 19 percent over the same quarter last year. The company also showed improved operating margin of about 50 basis points over the same period last year. A total of 28 new bakery/cafes opened in the second quarter, which is up from 19 in the first quarter 2011 and 13 during the second quarter 2010. There are 1,493 total bakery-cafes in operation. Third quarter results will be released next week.

The CMG brand is fresh, healthy, sustainable and ethical. The food is good. The company is growing. The stock is high, though, and requires a significant outlay of cash to make a purchase. While I am taking a wait-and-see stance with CMG, I am looking forward to my next meal at Chipotle Mexican Grill and my next loaf of Panera bread.

Travelzoo Inc. (TZOO) – This online publisher of travel and entertainment deals through its network of websites is currently trading near $29, which is at the low end of its 52-week range of $20.68 to $103.80. It does not pay a dividend. It is showing a loss per share of $0.10. Market capitalization is $481.98 million. Second quarter results showed a 34 percent increase year-over-year in revenue or $37.6 million. Operating profit of $7.6 million was up 29 percent over the same period 2010. The company’s $4.9 million in net income was up 51 percent over the same period last year. Management said the second quarter 2011 produced the fastest growth rate in four years. Investments in television advertising, the addition of 27 new “Local Deals” markets and an increased its subscriber base point to continued growth.

Its larger competitor Expedia Inc. (EXPE) is currently trading near $28 and has ranged from $19.61 to $32.89 over the past year. Its dividend yield is 1 percent or $0.28. Earnings per share is $1.56, and price to earnings ratio is 18.02. Market capitalization is $7.7 billion. Second quarter earnings showed an increase in revenue of 23 percent to $1.02 billion, up from $834 million for the same quarter 2010. Cost of revenue also increased the second quarter by 18 percent. Adjusted net income increased by $26 million over the same period last year.

TZOO launched a new iPhone application in celebration of its fifth anniversary. In August, management announced the authorization of the repurchase of up to 500,000 shares.

I like where this stock has been. I like management’s focus on growth. Third quarter results are due out next week, and I expect to see continued growth. For investors who are willing to take a chance, a small purchase at today’s price could prove gainful in the medium to longer term, particularly for those who dollar-cost average. Should TZOO’s third quarter results fall short of expectations, an opportunity to buy more shares could arise.

priceline.com Incorporated (PCLN) – This online hotel airline reservation provider is currently trading near $491. Over the past 52 weeks it has ranged from $337.47 to $561.88. It does not pay a dividend. Earnings per share is $14.10, and price to earnings ratio is 34.83. Market capitalization is $24.45 billion. The company reported gross bookings or total sales of $5.8 billion for the second quarter. Revenues were $1.1 billion or 44 percent higher than the same period last year. Gross profit increased 68 percent to $749.2 million. Management expects total sales to increase by 47 to 52 percent, year over year, revenue to increase 37 to 42 percent, year over year, and gross profit to increase by 54 to 59 percent year over year in the coming quarter.

Orbits Worldwide, Inc. (OWW) is currently trading near $1.88. It has ranged between $1.57 and $7.01. It does not pay a dividend. It shows a loss per share of $0,62. Market capitalization is $194.3 million. Gross bookings totaled $3 million for the quarter ended June 30, which was down slightly from $3.1 billion for the same period last year. Net revenue increased four percent to $201.8 million, and cost of revenue increased four percent from $34 million to $35.5 million.

Reports are beginning to circulate that airfares may be higher throughout the holiday travel season, thanks to airlines reducing flights earlier this year. Analysts like this stock, with most recommendations ranging from “Strong Buy” to “Buy.” It is awfully high, though Again, because of its high price, investors who purchase now with an outlay of cash necessary to obtain a meaningful holding have a lot more to lose than those who invest in a lower priced stock.
If I want to know how much money is flowing through this company as compared to its price, I might look at its price to cash flow ratio. The closer the ratio gets to that magical "100" the less capability a company has. "100" means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 19.10 while SO is less than half of that coming in at 8.80. We have an abundance of upside potential compared to the industry as a whole.

While the Electric Industry as a whole might be losing favor with analysts, we see Southern Company as a rock solid long term investment. Not only are they consistently bullish but they have a solid dividend program that continues to grow. This company should be in your portfolio if you are looking for long term growth investments or investing in a company for dividend income.

All figures are taken from: (MSN Money)

 Red Hat compared with a variety of competitors providing operating systems, middleware and/or virtualization solutions, along with two subscription-based, software-as-a-service vendors, Symantec and Ariba.


Red Hat Microsoft Oracle VMware Citrix Symantec Ariba
Ticker RHT MSFT ORCL VMW CTXS SYMC ARBA
Price (1/20/12) $46.32 $29.67 $28.60 $87.68 $67.95 $16.77 $29.13
Market Cap $8.95 b $248.7 b $143.7 b $37.1b $12.7 b $12.4 b $2.73b
LTM Revs $1.08 b $71.1 b $36.7 b $3.54 b $2.12 b $6.61 b $443.9 m
Op CF Margins 33.2% 38.4% 35.8% 52.8% 32.5% 29.7% 17.1%
MRQ Rev Growth 23.1% 7.3% 2.4% 31.9% 19.7% 13.6% 44.6%
Forward P:E 40.3 9.83 11.2 34.9 24.8 8.84 25.6
EV: Revs 7.63 2.72 3.47 9.47 5.75 1.81 5.69
Float: Shares Out 0.994 0.898 0.779 0.183 0.995 0.996 0.987
Source: Yahoo Finance LTM=Last 12 months, CF=Cash Flow, MRQ=Most Recent Quarter




We had two takeaways from this data:

  • Red Hat has the highest forward price:earnings ratio among this group, but it seems proportional to its growth rate. (Note that Ariba’s higher revenue growth rate includes an acquisition made in 2011);
  • VMware stands out for its very large cash flow margins and revenue growth. It also commands a premium multiple (though its P:E is not as high as Red Hat’s), probably owing to its 85% market share in virtualization


Company (Ticker) Lump-Sum Investment Lump-Sum Price (Shares) DCA Investment DCA Price (Shares)
American Electric Power (AEP) $6,000 $39.70 (151.1) $500 $39.70 (12.6)
HCP, Inc. (HCP) $6,000 $39.35 (152.5) $500 $39.35 (12.7)
Rogers Communications (RCI) $6,000 $36.91 (162.6) $500 $36.91 (13.5)
Verizon Communications (VZ) $6,000 $39.04 (153.7) $500 $39.04 (12.8)



Status, At The Close, January 19, 2012


Ticker Lump-Sum Investment Lump-Sum Current Shares/Price Lump-Sum % Change
AEP $6,000 151.1/$41.10 3.5%
HCP $6,000 152.5/$41.38 5.2%
RCI $6,000 162.6/$38.88 5.3%
VZ $6,000 153.7/$39.00 -0.1%
TWX $7,454 200.0/$37.73 1.2%



Ticker DCA Investment #2* DCA #2 Price/Shares DCA Cumulative Shares/Cost Basis DCA % Change
AEP $500 $41.10/12.2 24.8/$40.40 1.7%
HCP $500 $41.38/12.1 24.8/$40.37 2.5%
RCI $500 $38.88/12.9 26.4/$37.90 2.6%
VZ $500 $39.00/12.8 25.6/$39.02 -0.5%
TWX $621 (*DCA #1) $37.73/16.5 16.5/$37.73 XXX




Ticker Shares Cost Basis Price, Close 1/19/12 % Change
CMLS 500 $3.76 (Stop: $3.00) $3.89 3.5%
SIRI 380 $2.14 (Stop: $1.95) $2.15 0.5%

Penny stocks are stocks that trade under $5.00 and trade on the NASDAQ, AMEX, or OTCBB and PINKSHEETS. These stocks are highly volatile and therefore are considered risky. However, with significant interest, we have seen penny stocks quadruple or even gone as high as 10X. Examples of penny stocks that have gone this crazy are JAZZ, HGSI, and DNDN.

Penny stocks are very sensitive to news and events as it pertains to the company. When a company releases news that is deemed significant or groundbreaking, it is typical for traders to step in and buy the stock, and hold it for forward looking events that will keep the price up or keep interest in the stock.


initial investment of just $5,000 and what the gains would've been if you would have purchased the stock during its micro-cap days.
Company Ticker Date Purchase Purchase Price Market Cap Today's Price Return
Green Mountain Coffee (GMCR) Sep. 2002 $0.98 $151.5 million $45.31 $231,000
Select Comfort (SCSS) Dec. 2008 $0.19 $10.67 million $22.04 $580,000
Hansen Natural (HANS) Mar. 2003 $0.49 $42.66 million $95 $970,000
Questcor Pharm (QCOR) Aug. 2007 $0.35 $21.96 million $43.39 $620,000
Evcarco Inc (OTC:EVCA) no change during last trading session to close at $0.0006 with the trading volume of 61.82 million shares.
SavWatt USA Inc (OTC:SAVW) went up 18.18% to close at $0.0013 with the trading volume of 37.86 million shares.

IDO Security, Inc. (OTC:IDOI) no change during last trading session to close at $0.0001 with the trading volume of 35.30 million shares.

NaturalNano, Inc. (OTC:NNAN) went down 5.56% to close at $0.0017 with the trading volume of 18.29 million shares.

Attitude Drinks Incorporated (OTC:ATTD) went down 34.21% to close at $0.0025 with the trading volume of 15.17 million shares.

Silverado Gold Mines Ltd. (USA) (OTC:SLGLF) went down 5.00% to close at $0.002 with the trading volume of 1.12 million shares.
Evcarco Inc (OTC:EVCA) went up 33.33% to close at $0.0003 with the trading volume of 9.99 million shares.

Far East Energy Corporation (OTC:FEEC) went up 25.00% to close at $0.2 with the trading volume of 1.88 million shares.

Drinks Americas Holdings, Ltd. (OTC:DKAM) went up 4.35% to close at $0.0023 with the trading volume of 5.38 million shares.

Kiwibox.com Inc (OTC:KIWB) went down 6.67% to close at $0.045 with the trading volume of 6.04 million shares.


Thoughts ?
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