Raise your hand if you want to know the three best-performing stocks for March. (Raises Hand!) Wouldn't it be great if investing in the best companies was that simple, so we could all retire early and with an abundance of cash? The only things we can do are to research previous financial performance and make educated guesses at future trends that will allow our stocks to continue performing better than the market.
The three stocks below have a lot going for them that makes them valuable investments. Depending on your investing style, I have a little bit for everyone. First up, we'll look at a risky investment that could rebound sharply this year, and then we'll take a look at two of my favorite stocks. Let's check them out, and highlight the risk and reward potential and what it means for potential investors.
First up
Liquidity Services (LQDT -1.13%) , isn't a sexy business; but who cares as long as it makes money, which it has done consistently over the last three years. A company like this, with a small market cap of roughly $1 billion, is often overlooked by bankers, analysts, and media. This causes them to be inefficiently priced. That partially explains this stock's high volatility, such as the recent 20% drop after the earnings report. That said, the 20% drop was too drastic, as the core business model is still in good shape. I think LQDT has an interesting niche, and could be poised for a rebound this year.
Its business model is an interesting combination, somewhere between eBay and Amazon. It has an auction market for excess inventory or salvageable/damaged products. It focuses more on business-to-business rather than business-to-consumer, allowing commercial buyers to shop online for a huge range of products. It has major retailer customers such as Target and Wal-Mart, and also has a nice chunk of business from government agencies.
I will be watching to make sure Amazon isn't feeling froggy and willing to make a reverse leap into this type of wholesale business. If that doesn't ever materialize, I'll be happy with the purchase I made after the 20% drop, and expect the business to continue growing consistently.
Next up
Ford (F -1.15%) has finally cooled down, after it raced up to $14 over the last few months. I'm still bullish on Ford, and the pullback gives investors a chance to jump in while the U.S. automotive market continues to rebound. Ford has just about everything you could want in an investment. It's drastically improved its debt situation, while boosting margins and operating efficiency. It's making inroads in the biggest automotive market in the world, China, while defending its home turf in North America. It dominates a hugely profitable truck segment, and is quickly making up ground in mid-size vehicles, with the Fusion and Focus selling extremely well. It's also gaining a lot of sales traction with its Escape and Explorer.
Aside from what it has going for it presently, another huge factor that makes Ford a great investment is its management. Alan Mulally has consistently kept the company on the right track since the recession. He had the forward thinking to secure loans before the recession to avoid government bailouts, and continues to have this forward thinking for Ford's entire operation. Using that thinking, Ford is way ahead when it comes to attracting the next generation of customers to its vehicles. Ford has a lot going for it; take advantage of the recent pullback, and get into a solid company at a good price.
Next up
Priceline.com (BKNG -0.51%) has done well outmaneuvering its rival Expedia by focusing on the Europe and Asia travel markets, through acquisitions, all the while creating a strong brand image. The company's financials are a role model of what you want to see. It's free cash flow consistently increases, as does its top and bottom lines, all while keeping healthy margins. It's grown revenue at an annual rate of 31% over the last five years, compared to the numbers in the teens for its rival Expedia. It boasts impressive margins over the industry average, which investors love, because it takes more of every dollar to the bank. Its operating margin sits at a healthy 34.8% versus the industry average of 13.4%. Its net margin, at 26.8%, is just as impressive, compared to the industry average 9.1%.
Management has shown an ability to sustain growth in original markets, while it plans to make inroads in new territories in Australia and New Zealand. The rising disposable income in emerging markets also offers reason for optimism to Priceline investors. Don't let the high stock price scare you away; it's a silly mental factor. There is still plenty of room to fly for this stock, as Priceline only represents a fraction of global bookings.
Bottom line
Everyone wants to hit the home run 10-bagger, and I wish it were that easy. Sometimes, we just have to sit back and realize that buying $1.00 for $0.50 is the best approach. That's exactly what Ford and Priceline can offer: a stable company with great management and plenty of upside. That's how you make a market-beating portfolio, and I think these prices are still very fair, if not slightly undervalued. I also believe Liquidity Services is a company that was victim of a classic market overreaction, and provides an opportunity for significant gains going forward. Keep an eye on these companies starting in March; I don't think you'll be disappointed!
