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12 Buys of Christmas

Stocks in this article: DAL HA AMR UAL

This commentary originally appeared Dec. 19 on RealMoney -- the popular investors' source for comprehensive financial coverage and insightful analysis. Click here to learn more.

NEW YORK ( RealMoney) -- As we wind down in this week before Christmas, it is time to look for hot ideas to buy for 2012. We'll take a page from our caroling song books and look more closely at "The 12 Names of Christmas." This is a short list of names that meet my key criteria of strong earnings momentum, in the form of upward earnings estimate revisions, and low multiples.

These names have very low expectations, while at the same time showing great earnings performance -- a volatile combination that usually results in capital appreciation. When the Street recognizes the earnings power, the stocks are typically re-rated to more appropriate multiples. That means you get the double-dip of multiple expansion and earnings growth.

>>12 Buys of Christmas, Part II

>>12 Buys of Christmas, Part III

It's surprising, but two airlines top our list -- Delta (DAL) and Hawaiian (HA). In the wake of bankruptcy at American Airlines parent AMR (AMR), expectations are very low for the group, and high margins are under pressure with oil prices.

Nonetheless, the new Delta (resulting from the merger between Delta and Northwest) is reaping huge cost benefits as they consolidate the two systems and exploit hub pricing at multiple hubs in Minneapolis, Atlanta and so on. With another global-giant combination in United Continental (UAL), American was left in the dust and needed the reorganization. Meanwhile Delta, at 4x earnings, shows solid appreciation potential simply on modest multiple expansion to a 6x or 8x level.

>>Learn about this premium service that hands investors investment strategies from veteran Wall Street pros.

Equally surprising is the two financial names that follow up our airlines. Although the pathetically low multiples are not a surprise, nothing is supposed to have earnings momentum in that group. Sterling Financial (STSA) is bucking the trend, as this small Spokane, Wash.-based community bank delivers earnings the old fashioned way, with local lending to strong credits.

Several members of my "cabal" have noted that they see a lot of opportunity in the regional-bank sector, as it remains removed from europhobia and is able to enforce solid credit standards. Our other financial name, CAI International (CAP), leases containers to intermodal shipping companies. As global commerce slowly picks up, especially between the U.S. and Asia, CAI is positioned for positive growth in 2012.

As we sign off, take my usual caveat. That these names are listed here does not mean they are automatic buys. Rather, this is a starting point for more research. Nonetheless, the best way to catch fish is to go where they are biting, and the pond of earnings momentum and low valuation is a good one in which to fish.

>>To see these stocks in action, visit the 12 Stocks to Buy for 2012 portfolio on Stockpickr.

At the time of publication, Dvorchak was long DAL.

Gary Dvorchak is a managing member of Channel Island Partners LLC, a Los Angeles-based hedge fund that manages large cap growth and growth-and-income funds. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.

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