We asked some of our Fool.com contributors covering technology and consumer goods stocks to pitch their top stock to buy in March. Read on to find out what they had to say about Costco Wholesale (COST -0.24%), GoPro (GPRO -2.86%), LinkedIn (LNKD.DL), Dr Pepper Snapple Group (DPS), Twitter (TWTR), Tesla Motors (TSLA -1.92%), Disney (DIS 0.16%), and Facebook (META -4.13%). Use the comments box below the article to weigh in with your Foolish thoughts.
Dan Caplinger (Costco): Earnings often provide the catalyst for big moves for stocks, and Costco Wholesale is set to give investors its latest read on the big-box warehouse-retail sector on March 5. Right now, shareholders have fairly high expectations for Costco, as they're looking for profit growth of about 13% on sales gains of around 6%. But Costco has done a good job of delivering on its full potential recently, with its 87% membership renewal rate providing considerable margin-rich revenue to help the company offer rock-bottom prices to its shopper members. With the company's latest special dividend of $5 per share in February, Costco is still bringing in ample cash flow and sharing it with its investors.
Perhaps the biggest thing going for Costco is its strong relationship with its employees. In an environment in which competing retailers have had to hike worker pay aggressively to avoid scrutiny from labor-rights advocates, Costco already pays impressive hourly wages to its employees. That has resulted in greater employee retention, reducing the training costs of bringing on new workers and helping to create an environment of better customer service and greater productivity. If Costco's results are in line with its past performance, Costco stock could see big gains in March.
Tamara Walsh (GoPro): Investors have an opportunity to buy this promising growth stock at a significant discount this month. Shares of GoPro have recently traded as much as 55% below the stock's 52-week high, despite several catalysts for the company going forward. In February, the mountable-camera maker delivered monster fourth-quarter results that trounced Wall Street's expectations. GoPro sold an average of 1,000 cameras per hour during the quarter, thus proving that its rugged cameras are much more than a passing fad.
However, strong camera sales are only part of GoPro's growth story. By leveraging consumer-generated content on its GoPro Network, the best-selling camera brand is quickly growing into a global media powerhouse. GoPro-generated content is widely viewed today. In fact, in 2014, GoPro's customers shared nearly four years of video content on YouTube in which GoPro was specifically mentioned in the title.
Looking ahead, the company plans to begin monetizing this media by licensing the content users upload to its site. Additionally, strategic partnerships with sports franchises and multinational hotel brands should help strengthen GoPro's media firepower in the quarters ahead. For example, the company recently teamed up with familiar faces like the NHL, ESPN, and Marriott Hotels. GoPro's tie-up with the NHL is particularly exciting because it positions the company to capitalize on other opportunities within the professional sports arena.
With the stock now trading well off its 52-week high, I believe long-term investors have an opportunity in GoPro shares to own a potential multibagger in the early stages of its growth story.
Andrés Cardenal (LinkedIn): LinkedIn has a very compelling business model, the company is the undisputed global leader in online professional contacts and hiring solutions, an industry offering enormous potential for growth over the long term.
With more than 347 million registered users, and growing by 25% in the last quarter, LinkedIn has clearly reached critical mass and established its relevance. The bigger the network, the more valuable it becomes to both hiring companies and job searchers, so the platform becomes more powerful as it grows in size over time.
LinkedIn is firing on all cylinders across its three different business segments. Total sales during 2014 grew by an impressive 45% to $2.2 billion. Sales in talent solutions grew 46%, and so did marketing solution revenues, while premium subscription sales increased 42% over the year. With the three divisions growing at more than 40% annually, everything seems to be indicating that LinkedIn is on track to sustained growth over the coming years.
The business model is quite scalable, and profit margins are consistently on the rise during the last several quarters. Adjusted EBITDA margin was 28% of sales during the fourth quarter in 2014, a material increase versus 25% in the same period during 2013. LinkedIn's sales are booming and, thanks to expanding profit margins, earnings should even outgrow sales in the years ahead.
These things help to make LinkedIn my top stock pick for March.
Asit Sharma (Dr Pepper Snapple Group): In the non-alcoholic beverage category, Coca-Cola (KO 2.14%) and PepsiCo (PEP 1.08%) tend to dominate investor mindshare. But consider this: Since its spinoff from Cadbury Schweppes in May 2008, tiny Dr Pepper Snapple Group has trounced its larger peers, with a cumulative total return of 261%, versus 80% each for Coke and Pepsi over the same period.
Like its competitors, Dr Pepper Snapple has some exposure to declining soda consumption, especially in North America. But the company has invested in a plethora of non-soda products, including flavored mineral water, a drink which has taken off in Latin America. This year, following extremely positive test marketing within the Hispanic community, Dr Pepper will launch its popular Mexican mineral water brand Peñafiel in the U.S.
In addition, look for the company to potentially boost margins by offering smaller package sizes of its drinks at higher price points. Consumers have demonstrated that they're willing to pay more to enjoy guilty pleasures in reduced doses, as seen by the success of Coke's 7.5 ounce "Coca-Cola Mini" can. On a recent earnings call, DPS management seemed to acknowledge untapped opportunity in this practice.
DPS stock has soared 49% over the last 12 months. But at 21.9 times trailing-12-month earnings, it's undervalued relative to both PepsiCo (23.2) and Coca-Cola (26.6). The stock run-up has pushed the company's dividend yield from near 3% down to 2%. To begin to remedy this, management announced a 17% increase in the quarterly dividend two weeks ago, providing another reason to consider this beverage underdog for your portfolio.
Tim Beyers (Twitter): To look at Twitter today is to see a company that's easily dwarfed by its principal rival, Facebook. The microblogger's 288 million monthly active users are about one-fifth the footprint of its larger peer. Why not just invest in the leader and move on? Because Twitter is aiming for heights that should take its market cap into Facebook territory, a seven-bagger at current prices.
In November, Twitter executives described a scenario in which the company would earn $14 billion in annual revenue within 10 years. They key? Monetizing hundreds of millions of users who don't log into Twitter directly but who engage with ads delivered via Twitter on other sites. Think of a hashtag feed at a popular entertainment site, or an embedded search at a popular sports news site. In each case, Twitter would be serving sponsored content alongside live tweets.
There's reason to believe we'll see more of this sort of distribution. Consider the broadcast television networks, which have come to depend on "live tweeting" with fans of shows in order to boost the live plus same day ratings needed to get the highest ad revenue rates. A search deal with Google (GOOGL -1.23%) (GOOG -1.10%) should also help to put more tweets in more places.
And what happens if Twitter succeeds at capitalizing on its maximum opportunity? It becomes Facebook, and a potential seven-bagger. (The social network ended 2014 having earned about $12.5 billion in revenue.)
Anders Bylund (Tesla Motors): I know, I know -- Tesla Motors always looks expensive. It's the usual old story about high-growth stocks demanding ridiculous valuations, especially before they've matured enough to turn a consistent profit. You've heard this all before, time and time again.
That's the backdrop around Tesla's shares today. Skeptics worry about unsustainable cash losses paired with downright insane valuation. Tesla trades for 49 times forward earnings and 820 times trailing EBITDA profits.
This newfound market skepticism only sets Tesla up for a big rebound in the coming years. And it's coming.
Sales soared 60% higher year-over-year in 2014, nearly doubling Tesla's gross profits. These improvements never hit the bottom line, since Tesla is in maximum growth mode. The rising income was reinvested in doubling Tesla's sales and R&D budgets. Meanwhile, Tesla's capital expenses nearly quadrupled as the company scaled up its manufacturing facilities -- which includes starting the construction of a game-changing battery factory of massive proportions. Constrained by weak battery supply lines, Tesla made just 33,000 vehicles last year. The so-called Gigafactory will crank out enough batteries to power 500,000 cars a year, once it's up to speed.
These investments will pay off handsomely, but not right away. The Gigafactory boost will be complete by 2020, and Tesla is likely to keep the pedal to the metal even beyond that. But we're watching a future giant earning its wings right here, and Mr. Market isn't looking at that big picture.
So Tesla is priced for disaster but poised for big gains, in my view. If you agree, this looks like a great time to pick up shares on the cheap.
Keith Noonan (Disney): Disney stock is trading at all-time highs, but I think the media and theme park empire still has a lot of potential upside. The House of Mouse has the most powerful stable of franchises and characters in the entertainment industry, and 2015 is on track to be a banner year thanks to new films in the Star Wars and Avengers series. These blockbuster properties are set to receive a bevy of side-stories and sequels that are likely to deliver huge wins throughout the next decade at the box office and beyond. Disney is also in the midst of a successful push to reenergize dormant franchises, and has been on an incredible hot streak at creating new series and characters, with Frozen and Big Hero 6 establishing Disney Animation Studios as a Pixar-caliber asset.
Disney's diluted annual earnings per share have increased roughly 110% over the last five years, and the synergy of its entertainment properties across film, theme parks, and merchandise creates the opportunity for impressive growth going forward. The company also looks to benefit from the ongoing rise of streaming video and Internet content distribution.
The company's dividend further sweetens the pot. While big share price gains have suppressed yield to roughly 1.09% even after a 34% payout increase in December, its payout ratio sits at just 23.8%, which suggests that the House of Mouse has plenty of room to raise its dividend. The company has never lowered its payout, and its dividend has increased by 187.5% in the last five years.
Even at historic highs, there's plenty of magic in Disney's kingdom and March could be a great time to buy.
Tim Brugger (Facebook): As Facebook stock bumps up against its 52-week high, some may suggest other investment alternatives for March. After all, it's a bit late to get onboard the Facebook train, right? Not to mention, expenses nearly doubled last quarter compared to a year ago, pressuring GAAP (including one-time items) earnings per share, and investors can expect more of the same spending this year.
However, the "downsides" mentioned above only apply to short-term investors. Over the long haul, Facebook is positioned for years of outstanding growth. Facebook, at long-last, is rolling out video ads for widespread use across the site. During the testing phase, video ads were commanding $1 million a day. That, in and of itself, should be music to investors' ears -- and Facebook's 2 million marketing partners -- but the good news hardly stops there.
Naysayers may reference Facebook's relatively anemic user growth last quarter, growing from 1.35 billion to "just" 1.39 billion monthly average users (MAUs). The answer to that "problem?" The 700 million MAUs -- and counting -- Facebook-owned WhatsApp commands, and the 500 million-plus Messenger MAUs, along with Instagram's over 300 million MAUs. Instagram alone would generate an estimated $2 billion in revenue annually if it were fully monetized today, and it's getting larger.
Toss the soon-to-released Oculus virtual reality headset into the mix, and all those fast-growing Facebook properties that have as yet generated little to no revenue will drive outstanding growth long after March has come and gone.
