MILLBURN, N.J. (Stockpickr) -- When I select a stock for an investment, one of my priority criteria is that the potential price appreciation has to be at least 20%. This provides enough price return to make me willing to accept the risk of my investment.
On a totally different level, there is a great feeling one gets when a stock that they own goes from double digits (below $100) to triple digits (over $100). Quite often that move is not fleeting but the beginning of more dramatic longer term price and earnings growth. Take stocks such as
International Business Machines
and the granddaddy of them all,
. IBM, thanks to having split its stock on multiple occasions, has broken the $100 price several times.
So I thought it would be a good idea to marry these two seemingly unrelated concepts together, both of which are indicative of a strong stock. Doing so has resulted in a
and should rise above the $100 price level in 2012.
(Price as of Dec. 31, 2011: $88.02)
is a manufacturer of engines and power generation systems. This company is in an industrial/transportation subsector that remains in demand around the globe, especially in the U.S. and emerging economies.
In 2011, the stock price of Cummins declined 20% despite a surge in expected earnings per share of 68%. This resulted in a tremendous contraction of the price-to-earnings multiple, from 21 to about 11. This ratio has been quite volatile for the company's stock, hitting a low of 7 for fiscal 2008 before rising to 21 for fiscal 2010.
I expect that Cummins will earn $10 per share in 2012 and will see its stock price rise to at least $110 and perhaps more if we get the expected expansion in S&P 500 price-earnings multiple that I forecast in 2012.
I also featured Cummins, which appears on a recent list of
, as one of my "
(Price as of Dec. 31, 2011: $83.51)
is a leading global letter and parcel carrier. Despite the economic decline in Europe, demand for domestic and international overnight and two-day shipping is on the rise. This is to a great extent thanks to the growth of internet sales.
Earnings for the fiscal year ended May 2012 are expected to rise 29% to $6.36 per share. For the following year, on a preliminary basis, earnings are expected to increase 16%.
The stock ended 2011 at a price of $83.51. Paying 18 times earnings for this stock is quite reasonable. As a result, the projected stock price should rise by 38% to $115.00 in 2012.
FedEx is one of TheStreet Ratings'
, with a B buy rating.
(Price as of Dec. 31, 2011: $84.76)
is the largest integrated oil company and the largest company by market capitalization in the U.S. One would think that a company of this size can't sustain significant growth. However, Exxon Mobil is able to do just that. The company has invested capital in drilling new wells around the world, expanded into the natural gas business with its purchase of XTO, benefits from rising crude oil prices and can capitalize on emerging market growth.
The stock rose 16% in 2011 to $84.76 to sell at 10 times earnings, down from 12 times earnings at the end of 2010. In 2012, while analysts expect earnings to decline by 2%, I am more bullish. Higher volumes and prices coupled with stock buybacks should generate about 2% earnings growth in 2012.
I am expecting the company's earnings multiple to expand this year. A return to a higher multiple of 12 is not out of the question. When I put it all together, Exxon Mobil stock should rise to about $104 by the end of this year.
Exxon, one of TheStreet Ratings'
, shows up on a list of
(Price as of Dec. 31, 2011: $75.57)
is a footwear company featuring seven brands transcending a variety of styles and weather conditions. I am a long-time owner of Deckers Outdoor stock, with a cost basis significantly lower than current market prices. Toward the end of 2011, the stock was sold off rather dramatically as fears of the company losing cold weather sales during a period of time when the weather was warmer than usual scared off many analysts and traders.
Earnings are expected to grow by 25% in 2011 and 17% in 2012. Earnings growth for Deckers has come both from organic sources and acquisitions over the long term. Deckers will continue to drive that long-term growth of percentages in at least the high teens to low 20s.
Deckers stock currently sells for 17 times trailing earnings and 14.5 times forward earnings. This compares with a historical P/E in the range of 20 to 24 times earnings. I am comfortable placing a conservative 18 multiple and price target of $106 for Deckers Outdoors.
Deckers was one of
in the most recently reported quarter.
(Price as of Dec, 31, 2011: $77.35)
is one of the world's leading manufacturers of farm machinery and related equipment. There is no doubt in my mind that as the world continues to grow in terms of population and more of the world's nations evolve into modern economies, the need to feed the world will ever increase. As a result, the demand both domestically and abroad for more efficient farm equipment will grow.
Currently Wall Street consensus estimates expect Deere to generate 5% earnings growth in 2012 after a surge in earnings of 17% in 2011. I expect Deere to generate 7% earnings growth in 2012 which is consistent with the Bloomberg survey estimates.
The stock is fairly valued at 12 times earnings, which would yield a price target of $101.00 at the end of 2012.
(Price as of Dec. 31, 2011: $79.36)
One up-and-coming retailer that operates in big shopping malls and outlet stores is
. Fossil markets an assortment of products including watches, clothing, handbags and accessories. Recently the company announced that it would acquire Skagen, a sunglass company. While Fossil stores and watches have a luxury appearance to them, you can still get a fun watch at $150 or less, compared with several hundred to thousands of dollars for a Rolex, Omega or Tag Heuer. (I recently purchased some sporty watches for my family and myself at Fossil.) That said, Fossil does also have a luxury aspect to its offerings, with a high-end line of clothing and handbags.
Fundamentally, the company is growing sales in the mid- to high 20s percentages and earnings in the high teens to low-20s percentages. The stock sells at 19 times 2011 estimates and 16 times forward estimates.
I am expecting FOSL to trade up to at least $110 in 2012.
(Price as of Dec. 31, 2011: $87.74)
Of all the stocks in this portfolio, I would consider
to be the most aggressive and speculative pick. Allergan is a specialty health care company that produces a wide variety of products. The most recognized brands would be Botox and the Allergan ophthalmic line of products.
Allergan is one of the fastest growing stocks in its specialty sector. Earnings grew by 19% in 2007; 18% in 2008, a truly poor year for the economy; 8% in 2009; and 14% in 2010. For 2011, earnings are expected to rise 15% and then another 16% in 2012. As a result, the stock has always received a premium multiple.
That is where the risk lies with the stock. I am willing to place a 25 multiple on the stock and see it trading as high as $105 in 2012.
To see these stocks in action, visit the
-- Written by Scott Rothbort in Millburn, N.J.
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At the time of publication, Rothbort was long AAPL, GOOG, FOSL, DECK and CMI, although positions can change at any time.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of
, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of
, an educational social networking site; and, publisher of
. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.
Mr. Rothbort is a regular contributor to
TheStreet.com's RealMoney Silver
website and has frequently appeared as a professional guest on
Fox Business Network
and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.
Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.
Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.