Motley Fool picks for 2007
MOTLEY FOOL 2007 STOCKS
Someone kindly forwarded me MF’s take on 2007. I thought I’d share my view of their picks
Yet again, I am scratching my head because I don't agree with most of their picks. But they liked Dolby and I didn't and they were right.
On the other hand, DLB went up because of strong growth, something missing from most of their picks.
ANF – Abercrombie & Fitch. Clothing is always vulnerable to trends. GAP, for example, is suffering from lack of trendiness. They are trading at their 52 week high and they don’t seem overpriced relative to value.
I am not a fan of retail going forward, so I’ll pass.
BAK – Brazilian petrochemical firm. Chemicals continue to grow, but I don’t like the way they are so dependent on the price of oil. Also, the cyclical nature of the business is something that I’ll avoid as economies soften a bit.
CNC – Centene is a healthcare play with a twist: they focus on Medicare and similar government subsidized programs. That could be bad or good: there is a lot of focus on reducing the cost of healthcare.
CHS – Chicos clothing has been a darling of Motley Fool for some time. After steadily crashing 50% in the last year, the stock price seems to be flatlining. I think the heady growth days are over and, while there is some growth to be had, I don’t like retail in a softening environment.
CVH – Coventry healthcare is another healthcare play. Compared to Aetna or United Healthcare, CVH is smaller and so growth looks bigger for them. But they seem fairly valued and they don’t have AET’s warchest.
FCFS – First cash operates pawn shops. I like this area and my favorite play here has been CSH. FCFS is a good play: they are growing faster and have better margins. I like this company
IBM – Services companies are ho, but IBM is too big for me. IBM is certainly looking strong these days. Margins are improving, which says a lot for a large company like IBM. But growth is pretty mild ere. I tend to go for more pure play companies whereas IBM is hardware, software and services. I like the play but prefer CTSH or INFY.
LOGI - Logitech. I like this play. LOGI can benefit from iPOD accessory growth just as PC sales accessory growth softens. But long term, Chinese and Korean companies are lurking.
MCHX – Marchex has a lot of online marketing companies with well known names. As online sales have continued to grow, so too has MCHX. So why is the stock down 50% in 1 year? Because they have to invest a lot more to keep their businesses growing. Motley Fool likes them not because they have a great product and sales are growing but because they think MCHX is undervalued. Considering that MCHX keeps lowering sales and profit expectations, I’m not so sure. I’d consider them once they stem the tide of blood.
PAYX – Pacychex handles payroll for small businesses. Think ADP for smaller companies. With unemployment so low, this is a great area. However, small businesses tend to be the first to get hit in a recession, so I would be a bit concerned here. While BoA has announced similar services, PAYX is diversifying into Europe. Otherwise, the company is growing and managing itself well. I don’t see anything remarkable here.
PHM – Pulte Homes. Hunh? These guys are in the single worst marketplace. Cancellations, higher costs and lower sales, oh my. The worst has yet to happen – every month a home builder announces even worse results and lowers guidance and forecasts. DR Horton today said 2007 won’t even be the year the market bottoms out. And we’ve only just started 2007. But analysts think housing stocks.
Partly because it’s a game of keeping the cash flowing to pay off the interest on their massive debt. PHM is one of the deeper pocketed companies. In picking PHM Motley Fool points out the excellent concentration in Arizona, Florida and California. As anyone knows, Florida is now a disaster and Arizona is not much better. PHM is exposed in the worst housing markets – MF really missed this one. Smart pick in 18 months, dumb pick right now.
S – I’ve said that I like Sprint. They are a sinking ship but they will be bought by Comcast or TWC, which need some kind of cell phone service.
URBN – Urban outfitters. Yet another clothing company. And an expensive one – P/E of 35. Any comeback has already happened.
Now look at the mix of companies: MF has chosen many stocks that will suffer in a downturn: retail clothing, housing, and commodity stocks. Yikes.
Retail clothing – 3
Housing – 1
Commodity – 1
Payroll Services – 1
Healthcare – 2
High Tech - 3
Web services – 1
Pawn shop - 1
Someone kindly forwarded me MF’s take on 2007. I thought I’d share my view of their picks
Yet again, I am scratching my head because I don't agree with most of their picks. But they liked Dolby and I didn't and they were right.
On the other hand, DLB went up because of strong growth, something missing from most of their picks.
ANF – Abercrombie & Fitch. Clothing is always vulnerable to trends. GAP, for example, is suffering from lack of trendiness. They are trading at their 52 week high and they don’t seem overpriced relative to value.
I am not a fan of retail going forward, so I’ll pass.
BAK – Brazilian petrochemical firm. Chemicals continue to grow, but I don’t like the way they are so dependent on the price of oil. Also, the cyclical nature of the business is something that I’ll avoid as economies soften a bit.
CNC – Centene is a healthcare play with a twist: they focus on Medicare and similar government subsidized programs. That could be bad or good: there is a lot of focus on reducing the cost of healthcare.
CHS – Chicos clothing has been a darling of Motley Fool for some time. After steadily crashing 50% in the last year, the stock price seems to be flatlining. I think the heady growth days are over and, while there is some growth to be had, I don’t like retail in a softening environment.
CVH – Coventry healthcare is another healthcare play. Compared to Aetna or United Healthcare, CVH is smaller and so growth looks bigger for them. But they seem fairly valued and they don’t have AET’s warchest.
FCFS – First cash operates pawn shops. I like this area and my favorite play here has been CSH. FCFS is a good play: they are growing faster and have better margins. I like this company
IBM – Services companies are ho, but IBM is too big for me. IBM is certainly looking strong these days. Margins are improving, which says a lot for a large company like IBM. But growth is pretty mild ere. I tend to go for more pure play companies whereas IBM is hardware, software and services. I like the play but prefer CTSH or INFY.
LOGI - Logitech. I like this play. LOGI can benefit from iPOD accessory growth just as PC sales accessory growth softens. But long term, Chinese and Korean companies are lurking.
MCHX – Marchex has a lot of online marketing companies with well known names. As online sales have continued to grow, so too has MCHX. So why is the stock down 50% in 1 year? Because they have to invest a lot more to keep their businesses growing. Motley Fool likes them not because they have a great product and sales are growing but because they think MCHX is undervalued. Considering that MCHX keeps lowering sales and profit expectations, I’m not so sure. I’d consider them once they stem the tide of blood.
PAYX – Pacychex handles payroll for small businesses. Think ADP for smaller companies. With unemployment so low, this is a great area. However, small businesses tend to be the first to get hit in a recession, so I would be a bit concerned here. While BoA has announced similar services, PAYX is diversifying into Europe. Otherwise, the company is growing and managing itself well. I don’t see anything remarkable here.
PHM – Pulte Homes. Hunh? These guys are in the single worst marketplace. Cancellations, higher costs and lower sales, oh my. The worst has yet to happen – every month a home builder announces even worse results and lowers guidance and forecasts. DR Horton today said 2007 won’t even be the year the market bottoms out. And we’ve only just started 2007. But analysts think housing stocks.
Partly because it’s a game of keeping the cash flowing to pay off the interest on their massive debt. PHM is one of the deeper pocketed companies. In picking PHM Motley Fool points out the excellent concentration in Arizona, Florida and California. As anyone knows, Florida is now a disaster and Arizona is not much better. PHM is exposed in the worst housing markets – MF really missed this one. Smart pick in 18 months, dumb pick right now.
S – I’ve said that I like Sprint. They are a sinking ship but they will be bought by Comcast or TWC, which need some kind of cell phone service.
URBN – Urban outfitters. Yet another clothing company. And an expensive one – P/E of 35. Any comeback has already happened.
Now look at the mix of companies: MF has chosen many stocks that will suffer in a downturn: retail clothing, housing, and commodity stocks. Yikes.
Retail clothing – 3
Housing – 1
Commodity – 1
Payroll Services – 1
Healthcare – 2
High Tech - 3
Web services – 1
Pawn shop - 1
posted by Andrew at
6:50 PM
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