Fresh Money Buys
Most portfolio managers have a list of favorite stocks. Typically these are their biggest winners, the stocks that have dutifully marched upward since their buy date. The simple fact that they have moved up a lot means they may have limited upside.
But this doesn’t mean they are good buys right now. So I’ve put together what I think of as my Fresh Money Buy List. These are the stocks that I feel offer the best reward from current prices and in which my confidence is rising.
Cynosure (NSDQ: CYNO) is one of our newest portfolio additions. The manufacturer and marketer of laser systems for aesthetics introduced a new SculpSure laser fat-removal system last fall. Its third quarter, to be reported on Oct. 25, should reflect the continued success the company has had in selling this system. Since its launch, sales rose 26% and 32% in the past two quarters. Current estimates for 30% third-quarter revenue growth look reasonable.
Training of Cynosure’s international sales force is complete and should result in a second wave of demand for systems. European and Australian salespeople are already working to sign on new doctors. As the base of systems grows, revenue from super-profitable disposables will become a larger percentage of revenue, giving earnings another leg up. Cynosure currently trades just around my recommendation price and could rise 25% to hit my $65 target.
Ethan Allen (NYSE: ETH) is up 7% since our March recommendation but looks to be in stronger financial shape after weathering a difficult retail season. Despite other retailers missing revenue and earnings estimates by a country mile, Ethan Allen delivered earnings that met or beat estimates for the past five quarters.
Just last week Ethan Allen pre-announced what could have been interpreted as a bad quarter. Before its analysts meeting this month, the company noted that earnings would be 7 cents shy of estimates due to higher marketing expenses. Sales, however, have remained strong, and backlogged orders are up 8%. Although missed estimates are never a good thing, most investors are willing to turn a cheek to higher marketing expenses if they are delivering strong sales. Indeed the stock rose 7% on this news.
Investors have been eagerly awaiting the company’s launch of its Disney-inspired children’s line of furniture, which will hit stores in November. In the meantime, sales from its newly designed modern lines are appealing to a younger set of customers. With the risk of a less-than-expected earnings report out of the way and excitement building for the new furniture lines, Ethan Allen could move up almost another 40% before hitting my $43 target.
What I love most about U.S. Concrete (NSDQ: USCR) are the tailwinds of municipal dollars spent on infrastructure projects. As noted in my company review on page 1, states and local government bond sales are on track to beat the recent 2010 high. The money raised from these bonds is put to use building and fixing crumbling bridges, roads and airports.
U.S. Concrete trades with a price-to-earnings ratio of just 11, despite 40% growth expected in 2017. A super low valuation like this indicates investor wariness over earnings, a fear we think is overdone. The stock could jump 60% to hit our $80 target.
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