As we do each month, we asked a handful of our top analysts across sectors for one stock that looks especially compelling right now. Here are the companies they singled out.
Rick Munarriz: It's time to get a smoothie fix. I'm going with Jamba (JMBA) this month. The parent company of the Jamba Juice smoothie chain will be hosting a conference call next week to get investors up to speed with its outlook for the year ahead and the progress that it has made in fleshing out its product offerings and expanding its JambaGo line of self-serve kiosks.
This should be a good time for Jamba. Back in August it was targeting 4% to 6% in comps growth for 2013, even though same-store sales through the first half of the year only rose 2.8%. Revenue growth has been uninspiring as Jamba hands over company-owned stores to franchisees, but profitability is growing at a healthier clip. Analysts see a profit of $0.36 a share this year, soaring to $0.66 a share come 2014. There may be a growing number of places where one can get a smoothie these days, but Jamba's been able to set itself apart as mainstream fast-food chains and baristas educate the beverage sippers on the merits of blended fruit drinks.
Chuck Saletta: Right now, natural gas pipeline giant Kinder Morgan (KMI -0.03%) looks like an interesting opportunity for income-oriented investors with a long time horizon. In December of 2012, the company projected that it would pay $1.57 in dividends in 2013. In May, it increased its projection to $1.60, a projection it reaffirmed in September. With only one quarter remaining in 2013, Kinder Morgan has paid $1.15 in dividends, which means that it needs to pay $0.45 in the fourth quarter to meet its projection.
In spite of that solid projection, Kinder Morgan's stock is down since that update, in part because it had to stretch to pay its third-quarter dividend. With low natural gas prices and an aggressive expansion plan, Kinder Morgan may need to stretch again if it plans to meet its projected dividend, and there's also the chance that it simply won't reach its projection.
That risk of either missing or stretching for its dividend isn't helping the company's stock. Still, when it was originally selected for the real-money Inflation-Protected Income Growth portfolio last December, I estimated its fair value at $36.16 per share. Its recent price of $35.57 is around that level, even though it's continuing to expand in a way that is anticipated to create long-term value in spite of any near-term hiccups.
With a decent valuation and long-term income growth plan, Kinder Morgan looks like a stock worth buying in October.
Maxx Chatsko: If only there existed a company that was spearheaded by an industry legend, allowed you to tap into growth in emerging markets, led an entire industry's response to climate change, and was virtually locked-in for double-digit growth for years to come.
Oh wait, that sounds an awful lot like Air Lease (AL -1.02%), which buys energy-efficient aircraft and leases them to airlines throughout the world. The company was founded by aircraft guru Steven Udvar-Hazy in 2010, who, in addition to leading International Lease Finance Corp. for 37 years before selling it to AIG, has more than three decades of jet flying experience. That gives the company a unique edge in advising Boeing, Embraer, Airbus, and ATR on new design concepts. You read that right: Air Lease tells them what to build.
September was a busy month for the company, as it announced the placement of one aircraft each with Georgian Airways and Ukraine International Airlines and the finalization of orders for 30 new aircraft from Boeing. It's all part of the bigger picture: boosting aircraft from 176 now to 283 by the end of 2016. With year-over-year second-quarter sales and net income growing by 31% and 53%, respectively, I would say any month is a good time to add shares.
Sean Williams: Halloween may be right around the corner, but I'm looking to put the tricks back in the bag and point out one treat-like contrarian stock, American Eagle Outfitters (AEO -0.61%).
There's no sugar-coating the back-to-school shopping season -- it was atrocious. It really doesn't matter which teen retailer we choose -- from the low end of Aeropostale (AROPQ) to the higher end Abercombie & Fitch (ANF -2.52%) -- sales stunk! But American Eagle holds a few key advantages over its peers.
To begin with, American Eagle is perched in a perfectly priced niche. Teens want branded clothing and parents want non-branded pricing. Whereas Aeropostale doesn't exactly fit the bill of "cool" branded clothing among teens, American Eagle and Abercrombie do. Fortunately for American Eagle, Abercrombie's comparably higher price points and multiple PR gaffes have put it off most parents' radar.
American Eagle is also more fluid with its inventory than either of its peers. Although second-quarter same-store sales dipped 7%, it has completely cleared its inventory backlog. Aeropostale, on the other hand, has been dealing with inventory issues for two years and counting. While discounting isn't preferable, American Eagle understands when to cut its losses and move into more profitable ventures.
Speaking of profitable ventures, the company's direct-to-consumer segment remains on fire, posting a low double-digit increase in the second quarter. As long as American Eagle can continue to connect with its core teen customer both in the store and online, it should have no trouble rebounding from its recent swoon.
Brendan Mathews: My favorite stock this month is Accenture (ACN -0.03%) -- one of the largest management consulting, system integration, and outsourcing companies in the world. The company, which was also recommended in September, has a strong competitive advantage, it is awash in cash, and the company has a history of rewarding shareholders.
Accenture employees work closely with clients, often becoming indispensable. Ninety-two of the company's top 100 clients have been customers for at least 10 years. This customer loyalty is a strong competitive advantage, which fuels Accenture's superior economics.
Thanks to customer loyalty, pricing power, and an asset-light business model, Accenture produces plenty of cash. In the past year, the company generated over $3 billion in free cash flow. And the company has nearly $6 billion of cash on its books, with virtually no debt. That's a lot of cash coming in (and on the books) for a $47 billion market cap company.
It's great to have plenty of cash, but it's even better when its ends up in shareholder pockets. That's where Accenture excels, since is IPO over a decade ago, the company has returned 90% of the free cash flow generated to shareholders, either via its growing dividend or share repurchases.
Jim Mueller: I like homebuilder Meritage Homes (MTH -0.38%) because of strong demographic trends and clear-sighted management.
First, there is huge pent-up demand for home purchases and a large wave of buyers behind that. Many people delayed starting their own households during the Great Recession. As the economy slowly improves, they're feeling greater pressure to do so. Plus, there are millions aged 20-24 today who will be entering the prime housebuying ages of 25-35 over the next several years, more than 4 million a year. That's more than will be exiting that bracket each year, which should drive up housing demand.
Second, I greatly admire CEO and co-founder Steve Hilton. He reacted quickly when the housing bubble started bursting by switching the company from growth to survival mode, paying down and refinancing debt and growing the cash balance . With the company on stronger footing , he then started buying developed lots at deep discounts from less savvy developers . Then he turned the company toward coming out of the recession with improving sales tactics and creating a competitive advantage with implementing more energy efficiency in the homes .
All through the crisis and coming out of it, he explained what the company would do and then the company did it. No excuses, no complaining, just clear, forthright management that navigated Meritage successfully through the troubles and brought the company back to profitability.
Keith Speights: Intuitive Surgical (ISRG 0.48%) has been a longtime winner for many investors, but 2013 has unfolded as an ugly year for the robotic surgical systems maker. Sales have been disappointing due to financial pressures on hospitals and sluggish growth in procedure volumes as questions have arisen about the safety of the company's devices. Intuitive's shares have dropped by 26% year-to-date as a result.
That's the bad news. However, there are several good reasons to buy this stock. Intuitive Surgical is priced more attractively now than it has been since early 2009. Despite significant headwinds this year, demand is still growing for Intuitive's daVinci surgical systems.
Those financial pressures experienced by hospitals could be alleviated at least partially in 2014 as previously uninsured Americans gain coverage through the Obamacare health insurance exchanges. As for the safety questions, I expect that Intuitive will be able to address these satisfactorily.
Intuitive Surgical's recurring revenue from instruments, accessories, and services accounts for a whopping 57% of total sales. The old razor-and-blades business model works for robots, too. I think Intuitive will get past its current woes and reward shareholders who maintain a long-term perspective.
Tamara Rutter: Starbucks (SBUX 0.65%) is on a roll this year. The coffee giant's stock has gained 44% year-to-date and shares are trading near an all-time high of more than $77 apiece. As a result, many investors avoid Starbucks and default to the "buy low, sell high" mantra. However, there are still catalysts that should push the stock higher from here.
For starters, Starbucks is facing lower input costs thanks to declining coffee prices. In fact, "Arabica-coffee futures tumbled to their lowest price in more than four years," according to a recent report by The Wall Street Journal. Of course, coffee prices won't remain depressed forever. But that won't matter for Starbucks thanks to the brand's pricing power. In June, Starbucks increased prices at its U.S. stores by an average of about 1%. Yet, Starbucks customers hardly noticed. This isn't the first time the java retailer has raised prices, and it won't be the last. Starbucks' profit margins should continue to benefit from the company's ability to charge customers more, whether or not it pays less for raw materials.
A beverage maker named Fizzio is another potential catalyst for Starbucks that's not yet priced into the stock. Starbucks recently filed a patent application for the device, which makes carbonated drinks . This could thrust the coffee company into a fast-growing at-home soda market that's currently dominated by SodaStream. Make no mistake; Starbucks CEO Howard Schultz has a near-flawless track record when it comes to launching food and beverage offerings. Moreover, a company spokesperson confirmed that Starbucks is already testing flavored sodas in its Atlanta and Austin stores, which means an official Fizzio debut may be just around the corner.
Kevin Chen: You may have lost hope for Sohu.com (SOHU 0.52%) years ago, but, now, there's ever more reason for you to be bullish.
Investors got a huge vote of confidence last month after Tencent announced a $448 million deal to merge its Soso search engine with Sohu’s Sogou.com. While Tencent now owns a 36.5% stake in Sogou.com, Sohu still maintains majority control of its search business. This gives Sohu a great shot at tackling its competitors in the search space.
Adding up the numbers, Sogou.com market share has jumped 3.4 percentage points to 12.2%. Search results get better the more a search engine is used, so don’t be surprised if Sogou.com grows even faster in the year to come.
More importantly, Sohu now has the space to really focus on search -- or any industry. Before, Sohu was fighting what seemed like a losing battle in mobile, online video, and online portals -- the company saw double-digit growth over recent months, but its market share lagged far behind competitors. One of those competitors is Tencent, a leader in each of those industries. As the deal shows the two companies on friendly terms, Sohu seems to have one less competitor to worry about.
While Sohu stock has yet to fully rebound after dropping from its high of $105 in 2011, the company now trades around $80 per share, having increased 70% so far this year. If this deal becomes an enduring partnership, you can be sure that Sohu’s stock will rise even more.
Patrick Morris: While PNC (PNC 0.47%) had a difficult 2012, it has begun to turn the corner through the first two quarters of 2013 as it has watched its return on assets and equity draw closer to its highly esteemed peer US Bancorp.
This has been the result of a diligent focus on transforming its business to be less dependent on traditional bank interest income from its consumer division, and a greater focus on its more highly profitable corporate clients. In addition it has watched incredible growth in its 22% BlackRock stake -- which added $220 million to its bottom line through the first six months of the year, compared to just $178 million last year. It is also pursuing growth in its automobile and commercial health care businesses, which will likely stand to benefit from expanding market conditions.
While its businesses are growing at a healthy rate and present a compelling case in and of themselves, it also has a very attractive valuation, with a price-to-tangible book value of 1.4, while peers US Bancorp and BB&T sit at 3.1 and 2.1, respectively. In all of this, PNC makes for a compelling consideration to buy in October.
Matt DiLallo: The average oil well in America only produces about a third of the oil that's in the ground. That means oil companies are leaving untold billions of barrels of oil worth hundreds of billions of dollars just sitting there. This is oil that could be fueling our economy, but it's not...yet.
It's that remaining oil that my top stock this month, Denbury Resources (DNR), is focused on getting out of the ground. The company uses an enhanced oil recovery method which sees it injecting carbon dioxide into those wells to get more oil out. While the method has been around since the 1970s, Denbury is the first company to build its business almost exclusively around that process.
What I like about Denbury is that it's a great long-term buy-to-hold oil stock. The company has a plan in place to grow its production by a low teens annual rate for the next decade. Right now it's investing heavily to build the infrastructure needed to bring that growth online. However, because of how the economics of enhanced oil recovery works, the company should be producing significant free cash flow in a couple of years. That means that patient long-term investors should eventually see a substantial dividend to go along with solid oil production growth. That makes Denbury a great way to play the American oil story.
