Raise your hand if you want to know the three best-performing stocks for February! Me too, so if you find them, let me know. I wish it were that easy, so we could all retire early and with an abundance of cash. The only things we can do are to research previous financial performance and hypothesize future trends that would allow our stocks to continue performing better than the market. The three stocks below have impressive revenue growth and boast industry-thumping margins, and one has an especially bright future. Let's check them out, and highlight the risk and reward potential and what it means for potential investors.
First up
Sirius XM Radio (SIRI +0.00%) has a lot of numbers to brag about. Let's start from the top with three-year average revenue growth of 21.9%, more than double the industry average of 10.9%. Sirius has done a great job minimizing costs over the last five years, leading to great improvements in the bottom line. Sirius does way more than double the industry average trailing-12-month net margin of 12.4%, boasting an unbelievable 102.9%. That's pretty ridiculous, and a testament to decreasing costs rapidly over the last 12 months. The good news doesn't end there. On Jan. 15, insider Liberty Media purchased 50 million shares at $3.16. The insider activity doesn't guarantee the next earnings report will be above expectations, but a bullish insider is always good news in my book.
One thing is clear with Sirius: It has proven financial success. Going forward, it's difficult to prove that Sirius has any kind of economic moat; without that, investing long-term becomes more of a risk. With free substitute products in broadcast radio, keeping valuable content will be key to holding its pricing power, which at $139 per user and 23 million subscribers is the single most important factor for Sirius. It's hard to predict where radio will be in 10 years, but with a history of performance, if Sirius can adapt and continue to dominate the industry, this could pay off huge for investors.
Next up: K-Cup!
Green Mountain Coffee Roasters' (GMCR +0.00%) three-year average revenue growth is an astounding 70%, which we can expect to drop from that unsustainable level in the future. During this rapid growth, however, it was able to nearly double the industry average trailing-12-month net margin with 9.4% versus 5%. Now, for another key performance measurement, return on equity, which measures the investment returns management earns on the existing capital base, where 20% is considered above average: For the trailing 12 months, Green Mountain returned 17.4% compared to the industry average 12.4%. The company is still increasing revenue with healthy margins following. With all the positive numbers, why did the stock decline last year?
One of the reasons was due to Starbucks getting into the single-cup brewing market. The heavyweight coffee maker saw an opportunity to put out its own machine using its brand image to take a piece of the pie. Green Mountain's stock price took a dive, but I think it may be oversold. I personally jumped on the bandwagon and purchased my own Starbucks Verismo, and was drastically disappointed. I'm a Starbucks fan, but if I could go back and do things again, I honestly would buy a Keurig, hands down. While that's my opinion, if it holds true for others as well, Green Mountain could have a nice rebound in 2013, returning nice gains to its loyal investors.
Best for last
What happens in Vegas stays in Vegas. That's the only explanation I have for this stock being so undervalued. Of the three stocks mentioned in this article, Las Vegas Sands (LVS +0.85%) is my favorite.Sands has a history of winning with owning and operating the Venetian Casino Resort, Sands Expo and Convention Center, and the Palazzo Resort Hotel. Its three-year average revenue growth is a juicy 28.9%, embarrassing the industry average of 7.9%. Its trailing-12-month net margin remains a healthy 13.3% as the hotels and resorts bring in a higher dollar amount from its luxury market.
Again, the good news continues. The three-year average growth of 28.9% is high, but I believe high growth is very sustainable for the next few years. Much of Sands' future growth will bank on projects in Asia, including six resort developments and the Venetian Macau. Besides casinos and hotels, the projects include exhibition and conference spaces, showrooms, spas, and restaurants. Adding to its economic moat internationally, it's one of only two casino licenses in Singapore, and one of six in China. For a company proven to print out the cash on lofty margins, the future looks equally bright for it and for investors alike.
Bottom line
All three have solid financials, healthy margins and revenue growth. If Sirius can adapt with the future of radio, and Green Mountain can stave off the single-brew market push from Starbucks, both will have a fantastic 2013 and getting in at February's prices will be a steal. Las Vegas Sands is poised to continue its fantastic growth globally, and while operating on the Vegas strip can be cyclical, it's proven it can reel in the cash and profits for investors. I like all three stocks at February prices.
