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EScroogeJr (< 20)

I spent the day studying Kiplinger's list

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January 23, 2007 – Comments (2)

Last week, Yahoo Finance published a list of Kiplinger's 10 recommendations for 2007.

http://www.k...lassman.html

In general, I don't waste my time on free advice (you get what you payed for), but I make an exception for Kiplinger becuase their 2005 and 2006 lists have performed quite well.

OK, so here we have the list of 10 stocks: ATRI, CCRT, EME, JNJ, LMT, MDP, NTLS, SKYW, COP, UFPI.

So, what do I make of this list? Any potential two-baggers here?

Too big to grow:

I don't have much hope for either JNJ or COP. Both are simply too big to show any outstanding growth. In addition, I believe that the oil cycle is coming to an end, and COP and others will have to adopt to oil prices around $40-50 per barrel. I can see JNJ growing another 10% this year, as it always does, but certainly not more than that.

Expensive as it is:

ATRI is already expensive as hell, besides, selling equipment to hospitals is intrinsically a losing proposition, becuase there is no piece of medical equipment that a hospital couldn't do without. Of course, a company can thrive in any environment if its CEO is a genious, but I don't like to bet on that.

MDP is surely a good company, but it's not exactly a fast grower. Its margins are already high enough, so I don't expect them to double. With forward PE of 16 and a slim chance to grow revenues substantially, I estimate its potential for 2007 at 20-25% at most.

Richly valued but promising:

LMT could be had for only $65 a year ago (deep sigh). However, it seems pretty clear that the army will never lose its appetite for expensive toys. Could it go up another 50%? Well, why not?

NTLS is precisely the kind of stock that would make me run screaming in horror. I mean, $700 mln for some wireless services in West Virginia? But somehow, it manages to squeeze $80 mln in operating cash flow from these ridiculous activities. Of course, it all gets reinvested, but then, this is not necessarily bad news.

Intriguing:

SkyWest? Yes, this one could do the trick. With airlines, you either win big or lose your shirt, but SKYW looks pretty safe and even relatively cheap. And oil is down!

EME is engaged in business that looks pretty stable, neither growing nor shrinking. If it can increase its razor-thin margins, a two-bagger is not out of the question. Of course, the opposite is also true - c'est la vie.

CCRT. This is the one that I think has the best chance to achieve a two-bagger status. After all, what is your best bet in a country that does not produce anything except financial services? For all the talk of financial and credit bubbles, financing remains so much more remunerative than old boring manufacture...

And last but not least,

My favorite:

UFPI. It won't double in a year, but it offers almost no downside potential. The reality is that the construction of new houses has always been pretty stable, and no matter what happens to prices (in other words, how fast they grow), the woes of new home buyers don't affect UFPI. Its business is to sell lumber and other such products to builders, and nobody has yet found a way to build a house without buying construction materials. This is the risk-reward ratio that I like.

2 Comments – Post Your Own

#1) On February 02, 2007 at 1:59 PM, manuvns (< 20) wrote:

your list do not include any great potential emerging market stock like INFY IBN or CTSH

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#2) On February 02, 2007 at 6:09 PM, EScroogeJr (< 20) wrote:

If Kiplinger did not put them on their list, there's nothing I can do to make them appear there.

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