As we do each month, we asked 10 of our top analysts across various sectors for one stock that looks especially compelling right now. Here are the companies they singled out.
Jim Mueller: You may have heard that PC sales are slowing down, but that news hasn't hurt hard disk drive maker Western Digital (WDC 2.94%). It grew revenue by 24% in its fiscal third quarter thanks to "the secular growth of digital data." And that's the part Wall Street is missing. Digital data is growing by leaps and bounds and what is kept has to be stored somewhere. When you or a business stores something in "the cloud," it's stored on disk drives. Western Digital and Seagate Technology control the vast majority of the HDD market, with Western Digital sitting at about 44%. The company has generated about $2.5 billion in free cash flow over the past year , yet the market is pricing its shares as if that level will never grow from here. Given the expected growth of the cloud, I think that's ridiculous and I recently added to my personal holding in the company.
Tim Beyers: Even as Walt Disney has touched new highs on the record-setting performance of Iron Man 3, another record-setter -- IMAX (IMAX 0.47%) -- is improving slowly. Investors have bid up shares of the premium movie specialist about 20% year to date versus 32% for Disney and 15% for the S&P 500.
No doubt Disney and its Marvel Studios subsidiary stands to gain more from the success of IM3, the studio's second consecutive billion-dollar film after last summer's The Avengers. But what about the films to come? Time Warner has Man of Steel next month. November brings another installment in The Hunger Games series. Premium showings are likely to be in demand for some time, yet IMAX, with a PEG ratio of 0.95, trades for less than the long-term growth analysts expect.
At more than 44 times trailing earnings, this isn't a cheap stock, but the growth opportunity seems to more than compensate for the risk of buying at current levels.
Jim Gillies: Biglari Holdings (BH 0.29%) is the holding company that owns Midwestern burger icon Steak 'n Shake, as well as steak and buffet chain Western Sizzlin. The company is led by CEO and namesake Sardar Biglari, who often invites not entirely apt comparisons to a young Warren Buffett. Biglari's playbook typically sees him buying large stakes in target companies, then agitating for change and improved shareholder value creation, as well as board representation. He won the two aforementioned wholly owned chains through application of this maneuver, as well as making good money through forcing the Northeastern chain Friendly's Ice Cream into the hands of private equity.
His latest play, however, has so far worked out exceedingly well. Biglari Holdings is the largest shareholder (just shy of 20%) of Cracker Barrel Old Country Store. And while Cracker Barrel management has, so far, repelled Biglari's attempts to gain board seats, they've also enacted many of the value-creating changes he demanded. The result? Since Bigarli's initial investment was revealed, Cracker Barrel has gained 97%, while the dividend has been raised 127%. Biglari might not have gained board access, but the pile of money he's made for himself and shareholders should salve that sting.
Biglari's stock price has not matched Cracker Barrel's gain. Biglari's wholly owned operations are performing fine, but Cracker Barrel is now more than 60% of Biglari's enterprise value. Cracker Barrel's strong performance looks poised to continue. Eventually Biglari will monetize its stake and the stock price should reflect this winning investment.
Anders Bylund: Cirrus Logic (CRUS 0.11%) CEO Jason Rhode stepped onstage at a Barclays tech conference last week to update analysts and investors on the state of the audio chip market. Along the way, he also noted that gross margins are under pressure from a soft smartphone market this summer. Keep in mind that Apple is Cirrus' only significant smartphone customer, and the slowing growth of iPhone sales should trip your Spidey sense. Investors panicked. By the end of the day, shares traded 20% lower, at prices not seen since the first few days of 2012.
I'm no Apple advocate, and I do worry that Cirrus' most important customer may be on the skids with little hope of a turnaround. But in my mind Cirrus makes up for it by diversifying into new markets. In particular, Rhode is excited about the potential for explosive growth in LED lighting controller chips.
Lightbulb replacement is the very definition of a mass market, where even a low-cost component with low margins becomes extremely profitable as you multiply it by millions or even billions of potential unit sales. I believe that Apple's demise will be slow enough to soften the impact on Cirrus, and that LED products will take over the core business in a matter of three or four years.
And at today's prices, none of these dynamics seem to be priced in. This sudden discount places Cirrus shares at a trailing P/E ratio south of 9 and a PEG ratio below 0.4 (where 1.0 typically points to a fair value and lower numbers are cheaper). That's a mouthwatering value on a temporarily misunderstood stock.
Daniel Miller: The most important thing to find while investing is a company with a sustainable and profitable future. General Motors (GM 4.24%) has restructured its operations enough that analysts estimate its breakeven point to be 10 million vehicles sold in the U.S. market. That's a huge improvement from its previous 16-million-vehicle mark, and that alone will provide sustainable profits.
In addition to its leaner operation, GM enjoys a strong position in the world's largest automotive market: China. Not only is it already the world's largest, it's also the world's fastest-growing market. China is expected to grow its auto sales by nearly 12 million vehicles by 2020. That's the equivalent to Europe's entire market today, and that growth will fuel GM's to- line revenues.
When it comes to the bottom line, full-size pickups haul the profit margins. GM's redesigned 2014 models of the Silverado and Sierra will hit showrooms very soon, and if successful will help drive bottom-line profits higher. In a unique move for Detroit autos, GM is bringing back two midsize trucks in an attempt to create incremental sales. Next year its new Colorado -- which might be renamed -- will take aim at a younger "lifestyle" consumer while the Canyon will be aimed toward fleet buyers.
Overall, GM plans to refresh, redesign, or replace almost 90% of its vehicle portfolio by 2016. I expect this portfolio dust-off to bring additional market share and revenues for GM. Changes are sweeping over the company in many ways, and this looks like a good time to jump on for the ride.
Brian Stoffel: My pick for this month is laser maker IPG Photonics (IPGP 0.93%). The company is a first-mover and one of the only vertically integrated companies in the field of fiber-optic lasers. These lasers are more powerful, more energy-efficient, and generally cheaper than the carbon-based lasers that have been the industry standard for the past few decades.
Currently, materials processing companies that use the lasers to cut and weld large pieces of metal make up the overwhelming bulk of IPG's revenue. In an attempt to gain further market share in materials processing -- and to drive adoption rates in the communications and medical fields as well -- IPG started selling its lasers at a discount last quarter.
Wall Street didn't like the move, and shares are currently 10% lower than they were before earnings came out. I think this presents a great entry point for investors. As IPG is able to get its lasers in the hands of more and more customers, these customers will experience the real advantages that the company's fiber-optic lasers offer. Once they see this, I see them being customers for life -- paying full price for all future lasers.
Matt DiLallo: My pick this month, SandRidge Energy (NYSE: SD), is not for the faint of heart. The oil and gas driller, due to some missteps, has become somewhat of a special opportunity. Let me explain.
Thanks to pressure from activist investors, CEO Tom Ward is on the hot seat. After years of underperformance, questionable practices, and lavish pay packages, the newly expanded board has until the end of June to determine his fate. If he is let go, the company is likely to pursue a strategy to unlock shareholder value. Even if Ward stays, the board's makeup will shift so that a majority of its members will be activists. This looming day of reckoning is a major catalyst for the company as it will remove a good portion of its current cloud of uncertainty.
Once SandRidge can get past its past, investors will see a company that has a prime position in the emerging Mississippi Lime formation that runs through Oklahoma and Kansas. The shallow oil and gas play offers high returns potential, which is becoming more certain as SandRidge and its industry peers further develop the play. With its improving fundamentals and a rock-bottom stock price, investors who aren't afraid of a little volatility could do very well buying SandRidge this month.
Alex Planes: Allow me to suggest that you "store" (pardon the pun) some of your portfolio's value in Seagate (STX) one of the world's two primary hard-disk-drive suppliers. You might think this is an odd choice when so much of the tech world seems to be obsessed with telling you that the PC is dying. Some PC-industry stalwarts are certainly feeling the heat, but Seagate has thus far managed to grow its unit shipments for that market over its current fiscal year compared to 2012.
My colleague Jim Mueller has already pointed out that the cloud is a big source of potential growth in hard drives, and I agree. Right now, Seagate's enterprise segment is by far its smallest, representing (as of the most recent quarter) just 13% of its shipments and 5% of total industry shipments -- but that's a better figure than 2.5%, which is roughly how many servers are sold compared to PCs . Beyond growth potential in servers, Seagate is both cheaper than Western Digital and boasts a slightly better free cash flow growth rate in the past few years, an important consideration when buying a dividend payer with a commitment to good payouts. Those payouts (both in stability and in size) are what tip me to Seagate. It doesn't hurt that it has thus far been the only company to achieve a perfect score on my "Destined for Greatness" analysis, either.
Maxxwell Chatsko: I'm all over CVR Partners (UAN 0.85%) in June. Despite increasing capacity by 50% and completing a biannual turnaround in the beginning of the year, this nitrogen-fertilizer master limited partnership cannot seem to get any momentum. The turnaround closed the sole facility for weeks, which made EPS look artificially weak. The company notched a great first quarter with record production of urea ammonium nitrate, or UAN, handed investors a record payout, and is set to cruise with healthy nitrogen prices heading into planting season this spring and summer. In fact, nitrogen is the only nutrient enjoying higher selling prices in 2013 compared to last year.
That will benefit shareholders looking for a big payout. Management has guided for full-year distribution of $2.15 to $2.45 per share, which represents a 19% to 35% increase from last year. Better yet, investors can take advantage of a recent secondary offering from owner Coffeyville Resources that will cut its stake from 70% to just 53%. The amount of shares outstanding will not be affected and the business will not be fundamentally changed. Shares dropped more than 8% on the news, but I don't expect the opportunity to last long. I'm a buyer this month.
Dan Caplinger: My pick for June is aerospace giant Boeing (BA -0.75%). To some short-term-minded investors, getting into Boeing now might seem like exactly the worst possible time to buy, given that the company has finally gotten its new 787 Dreamliner aircraft stock back into the air after having been grounded for four months due to mechanical issues related to its batteries.
Admittedly, as recently as early March, you could have picked up shares at a 25% discount to their current price. Nevertheless, what has triggered the recent price surge for the stock has been the realization that Boeing's long-term prospects are incredibly strong, with growth opportunities not just from the Dreamliner but from other models as well. In particular, its 737 MAX line is rapidly becoming the must-have new airplane, with a combination of fuel efficiency, cost-effectiveness, and customer satisfaction making the update to the popular 737 especially attractive. Boeing has also challenged rival Airbus in the mini-jumbo-aircraft space, with its 777 gathering several big orders earlier this year as well.
With the potential for trillions of dollars in sales of aircraft over the next two decades, Boeing is the logical choice for those who believe in the future of global aviation, even if it means paying a bit extra for the stock today.
