I'm Thinking About Buying These 5 Stocks

Back in August, I started what I hope will be a monthly tradition: publicly choosing one stock to add to my Roth IRA.

After paying down high-interest debt, building up an emergency savings fund, and maxing out any potential match your employer offers to your 401(k), you should absolutely be maxing out ($5,000 per year) your Roth IRA.

But before jumping in and rashly choosing a stock, it's important to keep a watchlist of stocks that you're following. Here are five companies that I'm considering buying and why; add them to your watchlist, and you'll never miss a beat with these companies.

Company

What It Does

Why Buy?

Westport Innovations (Nasdaq: WPRT  )

Engineer natural gas engines

The future is powered by natural gas

Travelzoo (Nasdaq: TZOO  )

Travel and Local Deals

Strong performance relative to price

DG FastChannel (Nasdaq: DGIT  )

Media advertising

Underappreciated media play

Berkshire Hathaway (NYSE: BRK-B  )

Warren Buffett's holding company

At its lowest value in years

Apple (Nasdaq: AAPL  )

Really?

Greatness in the post-Steve Jobs era

Source: Author.

Westport Innovations
To understand this company, you have to realize that its model is pretty simple. It isn't in the business of finding natural gas, nor is it in the business of actually manufacturing natural gas engines. It simply engineers the engines that can run on natural gas, and then outsources the rest.

Agreements with both long-haul trucker Cummins (NYSE: CMI  ) and Royal Dutch Shell (NYE: RDS-A) show that interest in Westport's technology is real. As we continue looking for alternatives to oil, natural gas could be making a bigger and bigger difference in our everyday lives. If that's the case, Westport is set to sail.

Travelzoo
This travel and local deals company just came out with impressive earnings. But the company is getting no love from the market. Consider the following metrics.

Metric

Q3 2010

Q3 2011

Change

Revenue

$27.7

$38.7

40%

EPS

$0.22

$0.36

64%

Subscribers

18.7

21.3

14%

Source: Travelzoo Investor Relations. All number in millions except for EPS.

When you consider that the company's P/E (discounting a one-time payment to the state of Delaware) now stands at about 24, with a forward P/E of just 18, you start to see how cheap the company really is.

Part of that is because short-sellers have really piled on this stock, as they've sold short 55.7% of the current float. Maybe those betting against the company should take a second look at how well Travelzoo's European division is doing, having grown operating profit more than fivefold over the past year.

DG FastChannel
DG FastChannel sits in a sweet spot in today's market: the intersection of traditional and online media. The company's proprietary software is responsible for the distribution of advertising, news, and syndicated content to online partners and traditional media outlets. Basically, these guys can take an advertisement, TV show, or news clip, digitize it, and -- through the use of its satellite technology -- get it to its destination faster than anyone.

The company already has a 99%+ penetration in the traditional (TV, cable, radio, print) media market in the United States. But what's really scary about this company is its potential for future growth.

Currently, the company's Internet division accounts for only 35% of revenue; sales from customers outside of North America account for just 20% of total revenue. The runway for growth could last for years, if not decades.

Berkshire Hathaway
People who are a lot smarter than me have been pitching this company for a while now. I won't waste your time going over all the ink that's already been spilled trying to convince investors to pile on.

Instead, I'll just say this: Warren Buffett is an excellent allocator of capital. Before this year, he'd never used it to buy back shares. The fact that he's doing it now is as clear an indicator as we'll ever get that now's the time to buy.

Apple
I'll admit, I was surprised as anyone that Apple missed analyst earnings estimates in its latest quarter. But dig a little deeper, apply a little common sense, and you'll see there's not much to worry about.

The main culprit in the earnings miss was that iPhone sales were about 3 million short of what was expected. Now let's think about this: You're in the market for a new smartphone. You've heard on the news and on the Internet that Apple will be coming out with a new version soon. Do you buy the old one, or bite the bullet for a week or two and wait for the rollout?

My guess is that most people waited for the rollout. The fact that 4 million iPhone 4Ses sold over the model's first weekend on the market tells me my hunch is probably right. Apple now has a forward P/E of just over 10 -- 10! -- and a PEG of 0.54. That's the type of value you see once in a lifetime with a company like this.

  • Add Apple to My Watchlist.

But none of these companies made the cut
In truth, I already own shares of all five of these companies, except for DG FastChannel -- so I obviously believe in them. Check back in tomorrow to find out which company, with a moat wider than an ocean, I'm putting my money into.

In the meantime, if you're looking for other fantastic investing candidates for your retirement portfolio, I suggest you check out the Fool's newest special free report -- "Secure Your Future With 11 Rock-Solid Dividend Stocks." Inside, you'll get all the details about 11 stocks our analysts have hand-picked as long-term dividend winners. The report is yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Westport, Travelzoo, Berkshire Hathaway, and Apple. Follow him on Twitter at @TMFStoffel.

The Motley Fool owns shares of Berkshire Hathaway and Apple. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Cummins, Travelzoo, Westport Innovations, and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 24, 2011, at 10:38 PM, ayaghsizian wrote:

    It seems obvious that AAPL will go to at least $440 by January earnings day. I've been wrong before, but the year over year growth is just amazing and the PE will be way too low if we earn $9.30/share with 50% growth in most numbers. Apple needs to show the bears that a modest 10%-20% growth rate is sustainable through the next 5 years.

  • Report this Comment On October 24, 2011, at 11:01 PM, ab1387 wrote:

    DGIT could be a double, or at least a 90% gain. Tremendous growth, EBITDA, and potential. Possible buyout candidate (put itself up for third time this summer using GS). Even with no buyout, potential for big revenue gains in 2012 (barring global recession) on ad spend.

  • Report this Comment On October 25, 2011, at 8:53 AM, TMFCheesehead wrote:

    @ab1387-

    Interesting about DGIT. I was unaware they had put themselves up before. Thanks for the info.

    Brian Stoffel

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