What companies are tomorrow's big winners? In our ongoing series, I'm chatting with Fool analysts and advisors to discover the stocks they're watching and the catalysts that would signal it's time to buy.
Today, Stock Advisor analyst Jim Mueller shares three companies on his watchlist and one that he's loading up on now. (For your convenience, you can now create your own version at MyWatchlist.com, your free customized hub to follow the performance and Fool coverage of the companies you care about.)
Jim is a devotee of expectations investing, the theory espoused by investing guru Michael Mauboussin that essentially reverses the traditional discounted cash flow analysis. In his "messed-up expectations" portfolio, Jim screens for stocks that the market expects little or no growth from and then digs in to find if those expectations are justified. Turning up on his most recent screen is Dr Pepper Snapple Group
Similarly, Dean Foods
While the market isn't quite as pessimistic about the growth prospects for Microsoft
And one he's buying ... twice
When he ran his screen in late October, Jim came across Transocean
"Now consider the following," he continued. "Over the past five years, Transocean has grown free cash flow by an average of 41.7% per year. Over the past year, it managed 4.9% growth. Given the concerns above, yes, it might have a bit of a problem growing free cash flow for the next couple of years. But, a lot of that concern is going to be resolved over the next few years with the likelihood of higher expectations baked into the price, which means higher prices."
Today, shares trade at $70 per share, and Jim is going back for seconds. As he wrote, "Buffett reminds us that we pay a hefty price for a cheery consensus. There is definitely not one surrounding Transocean today, but waiting until the risks are resolved will not serve us well."
And that's why it pays to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click below to start following one of the stocks mentioned above:
Roger Friedman doesn't own shares of any companies mentioned, but they're all now on his watchlist. Coca-Cola and Microsoft are Motley Fool Inside Value recommendations. Coca-Cola is a Motley Fool Global Gains pick and a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Coca-Cola, Microsoft, and Transocean. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.