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.
Isaac Pino: I like to bet on companies that prove they can thrive even when their back is against the wall. SodaStream's (SODA) been there -- its stock was cut in half during August 2011 -- and now the company has its work cut out for it again. I think it will endure.
With Coca-Cola and Green Mountain Coffee Roasters entering the ring, the pressure's mounting while SodaStream's margins are suffering. But this industry's an odd one indeed, and the negativity seems overdone. If you take a close look, SodaStream's revenue growth in its core Western Europe market remained impressive at 38% in the latest quarter. You might expect that region to be slowing, but it's quite robust for the moment. In general, it speaks to the quality and staying power of SodaStream's products, which have been prevalent in Europe for decades.
Further, SodaStream's performance overseas shows this company can really accelerate once it fully understands a given market. Tastes and deep-rooted allegiances to name brands will cause its marketing tactics to falter in different regions. So far, SodaStream's products haven't resonated as strongly in the U.S., but it's making progress.
SodaStream's stock is currently trading at 21 times forward earnings, so investors aren't expecting explosive growth anyway. At this price, even value investors like Whitney Tilson are snatching up shares. For now, SodaStream just needs to work through the fourth-quarter supply chain hiccup, and things will look bubblier in due time.
Buck Hartzell: It's a great thing when the world's best capital allocator is on sale, so you'd better take advantage when the opportunity presents itself. Berkshire Hathaway (BRK.B 1.30%) recently reported an increase in book value per share of 18.2% over the past year -- not too shabby for such a large entity.
Serious investors should consider purchasing Berkshire now because Berkshire is a much better bargain than the S&P 500. An investor is currently paying about 2.7 times book value to purchase the S&P 500, and less than 1.4 times book value to own Berkshire Hathaway. I'll take that bet every time.
Not only that, but investors can rest easy with their investment in Berkshire. The company possesses a fortress-like balance sheet with $42 billion in cash. And its insurance operations are unbelievably well-run, and the list of wholly owned businesses just keeps growing. In short, I think it's very unlikely that in the next five years, you'll see Berkshire underperform the S&P 500. What are you waiting for?
Brendan Mathews: Like my good friend Buck Hartzell, I believe Berkshire is a very compelling investment idea right now. The company just reported excellent results for the past year -- its operating businesses, which range from MidAmerican Energy to Dairy Queen, generated a 14% increase in pre-tax operating earnings during the year. And its investments, partially funded by float from GEICO and Berkshire's other insurance operations, increased by 13% during the year.
Based on my valuation, now looks like a good time to add shares. I value the company using the "two-column" approach endorsed by Buffett. This method involves adding investment per share and pre-tax earnings per share times a multiple. You can read all the details of my valuation in another article, but my conservative estimate of intrinsic value is $147 per "B" share. With the shares trading around $125, my intrinsic value is 18% higher than the current price. Admittedly, that's not a huge discount, but for a safe, reliable company like Berkshire, it could be a very attractive entry point.
Patrick Morris: Deciding to buy a stock based on its performance relative to the market is always a risky proposition. Yet one stock that has dramatically trailed the return of the market might be one to consider.
Over the last year, Coca-Cola (KO 2.14%) has watched its stock price fall by 1%, while the S&P 500 is up an astounding 20%. And Coca-Cola has underperformed the market over the past five years as well, with the benchmark delivering a total return of nearly 200% versus 130% for Coke. Despite those discouraging results, this might indicate a great opportunity for growth in the future.
The company has a lot going for it at the moment. Its price-to-earnings ratio is a very reasonable 20, and it maintains a commanding market position. Its solid dividend yield and endorsement from Buffett don't hurt, either.
However one of the things for investors to consider is the company's willingness to expand its operations. Indeed, it's likely the businesses that have propelled it over the last 100 years aren't going to be the ones that move it forward over the next 100 years.
Among the newer businesses, there are its investments in Honest Tea and Glaceau Vitaminwater, which will grow as consumers become more health-conscious. There is also its recent announcement of a global strategic partnership with Green Mountain Coffee Roasters (GMCR.DL), in which Coke has taken a 10% stake in the coffee firm. Coke knows drinks high in sugar are becoming less popular. With people more willing to pay more money for healthier options, it is seeking to command those new markets as well.
When you add it all up, Coca-Cola remains a compelling investment consideration, despite its relative underperformance over the past five years.
Simon Erickson: MercadoLibre (MELI -1.01%) is offering long-term investors an incredible opportunity right now. The company runs an e-commerce site -- very similar to eBay -- that operates in 13 Latin American countries. It has grown its business incredibly quickly, with gross merchandise volume up 44%, items sold up 23%, and registered users up 22% during 2013.
However, there's a catch. Latin American currency devaluations (particularly in Argentina and Venezuela) have wreaked havoc on the financials of companies that operate in the region. As an example, MercadoLibre grew revenue 50% and earnings 58% during the fourth quarter. But those growth rates got knocked down to 30% and 35% (respectively) when converted back to U.S. dollars -- which is the currency MercadoLibre reports in. Anyone looking at the dollar figures isn't getting the full picture of this company's incredible growth.
Herein lies the opportunity. Unfavorable currency fluctuations have rained on MercadoLibre's fiesta. But they can only last for so long, and Foolish investors should recognize the long-term potential of what the company is building. The number of Internet users in Latin America is growing at 13% per year -- faster than any other global region. MercadoPago (similar to PayPal) is now used for 35% of merchandise volume -- and the company gets a cut from each transaction. Users are making MercadoLibre their go-to site for e-commerce. As eBay and Amazon have shown us stateside, that position can be extremely rewarding for shareholders.
Andres Cardenal: I like MercadoLibre as well. The company is often called "the eBay of Latin America," not only because eBay owns nearly 18% of the company, but also because both companies have similar business models. But MercadoLibre has one big advantage over eBay: It doesn't have to face the same level of aggressive pricing competition from Amazon. MercadoLibre is the undisputed e-commerce leader in the region, and it enjoys sky-high operating margins thanks to its rock-solid competitive position.
The stock is down by more than 30% over the last six months as Wall Street analysts are concerned about the possible impact of economic problems in Argentina and Venezuela. Economic headwinds could create some volatility in the coming quarters, but MercadoLIbre is proving it has what it takes to successfully sail through the storm with growing sales and earnings despite unfavorable currency fluctuations.
Justin Loiseau: It's not often I use creepy 70-year-old men on subways as part of my investment thesis. But when I saw said character hit on a 20-something and depart with the words "Facebook me," I got a real-life reminder of just how omnipresent this social network really is.
In just 10 years, Facebook (META -4.13%) has become arguably the world's most important (or at least most addictive) communication medium. The latest data shows that 745 million people use Facebook every single day -- that's equal to 10.4% of the entire human population.
But for growth investors, what's more alluring is who is using Facebook how. Four out of five users are outside North America, making this tech stock an emerging market growth opportunity. Add on the fact that its mobile monthly active users now clock in at 945 million, and you've got yourselves an ad company with eons of information in the pockets of people in every corner of this little marble we call earth.
Almost 50% of the company's ad revenue now comes from mobile, and it just began delivering online ads directly through other mobile apps, regardless of Facebook syncability. That means this social network has caught the scent of soaring sales Google AdSense left behind -- and if future forays are anything like past ones, Facebook's not going to stop until it's gotten its own piece of the next big profit.
