Stock picks for the next quarter

Over the next few weeks, the broader markets will be pre-occupied with a handful of concerns about the economy 1) Inflation & gas prices 2) Consumer spending 3) Signs of a slowdown I expect positive news. People are spending money, as I was reminded this weekend * Vegas hotels are sold out and room rates are high * SF Restaurants are packed Signs of weakness like slow car sales are actually signs of the continuing slow-motion collapse of Detroit. I can't even buy a new Lexus without a waiting list of months. So, anecdotally, people are willing to spend, but it won't be as indiscriminate. For example, I would expect weakness in big ticket items (washing machines, furniture, etc) but that's mainly because folks just bought new ones a few years ago. Throw other positives into the mix like cheaper gas and some kind of Iraqi turnaround, and the market will be happy for a while. The only curveball I see is the bursting of the housing bubble, which would hit the economy incredibly hard. But that is more of a Springtime consideration. A positive outlook coupled with increasing inflation makes me want to go for stocks that can benefit from falling gas prices or are more immune to interest rate increases. My previous winning stocks have included HANS, GOOD, ENER, PWR and a few others with strong stock price growth. Let's see how these do. I have a lot more detail behind why I like these companies, but for now - just the highlights. (NOTE: All growth rates are year-over-year. Margins are gross profit.)
GYI - They are a leader in digital images. While sales growth is moderate (20%), earnings grow faster (46%) and margins are 71% and growing. Notice that the stock price always pop up in the fall.
JBLU - Ever flown Jetblue? Great experience. Planes are always packed. Sales are growing (40%) and will continue to grow thanks to crashing competition and new air routes. The darn gas prices have crushed their earnings but I think that this is a short term buying opportunity. They are stealing market share from the big boys, and I don't see inflation affecting sales, only earnings (people need to fly).
PWR - A double play: they lay fiber optic cable and electric cable. Demand for both is high. Earnings are up 200%+ and, more interestingly, stock volume surged form an average 1M shares to 4M. That means broadening market interest.
RTLX – Ever feel like you are one of the first to know about a company? I feel that way with Retalix. Barely 10,000 shares trade each day and the thin trading affects its share value. Revenue is up 77%, earnings 200% and they pre-announced an earnings upside. Still, the stock price won’t budge. Overpriced perhaps? Nope – trailing PE of 45 and forward PE of 22. Almost no debt and book value is $10. The problem is that almost no institutions own this company. They are immune to inflation and oil pressures.
WFMI – Like Jetblue, I shop here and see first hand the amazing business. Margins are a staggering 35% and probably won’t come under pressure: customers are willing to pay a premium and Whole Foods can always pass on costs. Meanwhile, business is growing. Sales up 23% and earnings up 31%. Normally, I would not include them given the moderate growth, but I foresee some acceleration given new stores and the collapse of many of their competitors (not unlike Jetblue).
DESC – An interesting alternative energy play. They are seeing a booming business thanks to oil price increases. Sales are up 181%. While the stock is strong, I am concerned that their earnings are sluggish. Note the strong and increasing trading volumes.
VDSI – Security systems. Sales up 79% and earnings up 46%. Margins are 67%. Slightly high PE (74) makes this one a bit ahead of itself. Buy on weakness
TNH – A fertilizer company (no shit). Sales are growing slowly (11%) but earnings grew 162%. Margins are 26% and growing. The stock shows cyclical movement. Buy now and sell when it hits $30.
GILD – Let the numbers talk. Sales up 51%, earnings up 58%. Margins at 86% and improving. Biotech companies are a good play right now: counter cyclical, immune to inflation. Trading volumes are picking up as well – indicates broadening interest.
BCSI – Internet security. Nothing mysterious here. Sales up 58%, earnings up 101%. Margins are 68% and a low PEG (1.1). Possibly a takeover play as well.
CERN – Healthcare automation & IT. The one industry that has yet to leverage IT – that spells huge opportunity. Sales are up only 27% but earnings are up 80%. Margins are a strong 37% and the PEG is 1.5 – the stock price is reasonable.
RMD – Medical products. Their portfolio is strong and growing. Sales are up 45% and earnings are up 33%. Margins are a great 65%. And, again, it’s medical products and less exposed to the business cycle
Marvell – Semiconductors. Two reasons to like them. One is their great product portfolio. Rock solid sales growth of 31% is coupled with earnings growth of 171%. Equally solid margins (52%). Right products, right markets. The other key element is that they can attract talent. The other big semi companies are not seeing much stock price movement, so Marvell is an exciting place to work from a compensation story.
JLG – Heavy equipment. This one is tricky. At this point in the cycle, where is demand for heavy equipment. Right now, it’s strong. Sales up 34% and earnings up 133%. Tread carefully here – we are entering the last part of the cycle.
BMHC – Another construction company. I believe in the housing bubble crash of 2006, but for now this company is positioned well given the effects of the Hurricanes. Buy and sell within 6 months.