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Haves and Have Nots

Although tech overall has been an outperformer in 2012, there are very clear leaders within the space, most notably mega cap. These cash rich dividend players, even at these levels, are cheap and are still focused on growth. IBM (IBM) is one of my favorite companies in mega-cap tech land. Earnings for 1H12 were quality and Big Blue took the dividend up 13% from last year. In 2009, IBM reported $10.00 per share and consensus expects $16.90 in 2014 - that's 69% in just over five years, which is tremendous for a company with a $200 billion market cap -- and you get paid the dividend for holding the stock. But, what I love even more is IBM is still growing and focusing on significant expansion in the analytics space which is one of the fastest growing spaces the company operates in. IBM is up 14%, year-to-date, and 46%, year-over-year, and it still represents an excellent value. This is a quality name with solid management that is executing on all metrics. I would own this as a core portfolio holding. Given increasing signs of economic slowing, IBM's diverse portfolio, exposure to emerging markets and emphasis on profitability reinforce the defensive appeal of the shares, and I believe they can get to $225, which represents 12.5% upside.

Moving along to the world of retail, this has certainly been a case of the "haves" and "have nots," with luxury brands outperforming more middle-of-the-road stocks, such as Macy's (M) and JCPenney (JCP). Again, the key to investing in this market is identifying trends pick your spots in quality companies, and brand recognition has been a huge factor in performance. Michael Kors (KORS) is an IPO name that reported excellent earnings for 1Q13. Revenue grew 71% to $425 million, led by new stores and 38% same-store sales growth in North America. The revenue was significantly higher than the consensus estimate. Earnings were also much better than the Street predicted, growing 162%, year-over-year, to $0.34 per share, exceeding estimates by $0.14. KORS also expects to earn $1.32-$1.34 during its second quarter on revenue of $490 million to $500 million. I believe it has the ability to steal market share from competitors like Coach (COH), and would look to add to existing positions or open a new long. I think the stock could get to $60, representing 15% upside.

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