3 Stocks to Buy in 2008

Why wait?

In a few weeks, every financial publication worth its weight in analytical salt will be spitting out lists of top-performing picks for the year ahead. However, you don't have to go out as far as you can on the cliff of late December to see the catalysts that will drive certain stocks come 2008.

Let's dig into a few of the stocks that are positioning themselves for a powerful 2008. Oh, and if you're a worrywart pessimist at heart, come back on Wednesday when I'll go over the stocks to sell in 2008.

Best Buy (NYSE: BBY  )
You probably know all about the giant in consumer electronics. Despite its leadership position, investors may be smarting because the stock is trading nearly 25% below last year's peak.

A lot has happened since then.

  • Its nearest rival -- Circuit City (NYSE: CC  ) -- has lost three senior-level executives and hacked away at payroll.
  • Discount department stores have expanded aggressively into consumer electronics.
  • Smaller players like Tweeter have buckled under by filing for Chapter 11 bankruptcy protection.

So why get excited about Best Buy? Well, go ahead and circle Feb. 18, 2009, on your calendar. That is the day when broadcasters will no longer transmit analog signals. If you don't have a digital television by then, you will need to get one or anchor down your obsolete boob tube with a digital converter box. In other words, even though many homes have already upgraded their living room sets to high-def systems or more affordable flat-screen digital solutions, the rest of the house is due for an upgrade over the next year or so. A lot of that transactional traffic is going to go through the folks in blue at Best Buy. Get in now before digital TVs become the no-brainer holiday hit of 2008.

Ctrip.com (Nasdaq: CTRP  )
The Olympic Games are coming to Beijing next summer. An argument can be made for just about any Chinese company. In fact, I almost went with Focus Media (Nasdaq: FMCN  ) . If you're not familiar with Focus, the company is a marketing juggernaut in China, watching over a network of giant outdoor LED billboard displays, small poster frames in elevators, and a fleet of tens of thousands of TV monitors that blend content with brand marketing in highly trafficked areas. Advertisers are going to spend a lot to get noticed during the global event, and Focus will be there to collect.

I'm going with Ctrip, though, because it's the one public company that will have the most immediate Olympic Games benefit. As China's leading online travel website, Ctrip is on a roll in an improving economy where leisure travel is just starting to take off. Revenues and profits grew by 55% and 68%, respectively, during the latest quarter.

Ctrip isn't cheap, but you don't expect it to be. Ctrip trades at 57 times next year's profit forecast, more than double Focus Media's year-ahead multiple. That is steep, but it is growing its profitability even faster. Tourism in Beijing will naturally be hopping over the summer, but China seen in a favorable light during the games by a global audience may just begin to scratch the surface of the travel industry's potential in China.

Apple (Nasdaq: AAPL  )
Betting against Apple has been hazardous to your portfolio's health. The company has blown away Wall Street profit expectations on a quarterly basis for nearly five years now. Can it get better? Of course it can. It already owns the digital music market, but the company is perpetually putting out enhanced iPod models. This summer's iPhone is a hit, and this is a trend that will build through the summer of 2009 as consumers wiggle their way out of their two-year cell phone contracts with other carriers. Then we move on from early adopters to the mass market!

However, perhaps the best reason to fall in love with Apple is that it continues to swipe market share in the PC space. It once commanded a meager 3% slice of the market. It is now bumping up against a 6% chunk. That is still small enough -- with ticket prices high enough -- to create tremendous upside here. I'm convinced that the 94% of the market that doesn't own a Mac, deep down inside, wants to make the switch.

This doesn't mean that Hewlett-Packard (NYSE: HPQ  ) or Dell (Nasdaq: DELL  ) are toast. The market itself is expanding. However, just as HP's turnaround has been more about margin improvement than top-line growth, Apple's renaissance truly is hitting on all cylinders.

Putting it all together
Is it too late to get into these stocks? Logic would dictate that the hefty market premiums -- particularly for Ctrip and Apple -- indicate that a lot of the 2008 catalysts are already baked in.

I disagree. I think the market sees the trends but is underestimating the impact that in some cases will be exponential as next year plays itself out. Digital TVs, Chinese travel, and the Apple halo are going to be huge market drivers next year.

Why wait? Do yourself a favor and ask to ride shotgun before the rest of the market does. 


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