I'm not a big fan of the "Gazillion Stocks to Buy NOW" articles that you see in so many personal finance magazines these days. It's not that I don't appreciate stock ideas -- over at the Rule Breakers newsletter service we love them dearly -- it's just that those print stories are usually full of yesterday's news. The analysis is limited to companies you probably already know regurgitating what those companies already did.
Rearview mirrors are important -- especially if you love going in reverse or find yourself being chased by a Tyrannosaurus Rex -- but there is little value in investing exclusively on the painted road behind you. I mean, we all know that, right? What has happened is mostly baked into the market price. Even the company's guidance for the year ahead, or at least Wall Street's best guess as to what that may be, is built into the shares that you are looking at.
That's why you have to look beyond tomorrow. If you can find the catalysts that no one presently sees you will be in great shape if your vision comes within striking distance of the eventual reality.
So I'm going to do something a little different this time. I'm going to take a look at three public companies that I think have more to offer come next year than the market is currently giving them credit for. Looking ahead is something that we do in much greater detail in the Rule Breakers newsletter, with growth stock recommendations and columns devoted to early adopters, biotechnology, and the promise of nanotechnology. Consider this a superficial sampler. Dig into a 30-day free trial if you want to see what the newsletter service really tastes like.
1. Sirius Satellite Radio
There are few companies as misunderstood as Sirius. Because it has a staggering 1.3 billion shares outstanding and a low share price there are gargantuan factions on both sides. As a staple on the Most Actives list, it's got a wide pool of faithful shareholders at any given time. Yet the large number of shares outstanding has many wondering why Sirius deserves a market cap similar to XM Satellite Radio
It's polarizing. It's perplexing. And I like it that way. My wife has made it a point that I'm not allowed to talk about three things at parties -- religion, politics, or satellite radio -- but we're not at a party now, are we?
See, XM was first to the market and it first landed the largest car manufacturer to insure a steady diet of factory installations. Yet Sirius has been catching up on the OEM front, and now that XM hiked its price to match Sirius without a similar spike in the caliber of its programming, Sirius has it just where it wants it. Sirius has the content. It has the NFL. It will have Howard Stern come 2006. It will take over XM's NASCAR contract come 2007. They each offer more than 60 commercial-free digital music channels, yet it's what Sirius is doing with the balance of its network that should win over the fence-sitters as 2005 wears on. By this year's final quarter I wouldn't be surprised to see Sirius landing more new subscribers than XM -- and that will resonate with investors come 2006.
2. DreamWorks Animation
It's important to put the company's most recent quarter in perspective. It had the all-time animation box office winner Shrek2 selling millions of DVDs in the retail market while Shark Tale was a hit at the multiplex. So you can't try to annualize the $1.99 per share that it earned over those three months to arrive at a stock price that finds the company trading at just five times annualized earnings. Even the $4.05 a share that DreamWorks Animation mustered for this past year as a whole, inferring a still dirt cheap P/E multiple of 10, can't be taken for rudimentary gospel. That's because while Shark Tale will sell briskly and the May theatrical release of Madagascar looks promising, it's not going to top last year's results.
So what do you get when you cross a promising stock and a likely dip in earnings come 2005? That's right, you get a buying opportunity. Shrek3 will come out in 2007 and the Puss in Boots spin-off will follow a year later. The company has an ambitious release schedule of two new releases a year -- far more aggressive than Pixar's
One of the more shocking charts I've seen came earlier this month when Japan's Sony announced an executive shuffle. Going back five years you would find a company fetching a little more than a quarter of what it did when its shares peaked in 2000. That's because while Sony is often seen as a maker of home entertainment and portable multimedia devices, the bulk of its operating profits have come from its video game business.
Collecting royalties on every software title, even if means practically giving away the hardware, has served Sony well with its PlayStation and PlayStation 2. Yet Microsoft
That is likely to happen with this week's rollout of the Sony PSP. As a handheld gaming device that is far more advanced than the current Nintendo Gameboy offerings, Sony has even more to gain this time because it does more than play games. It also plays movies on a proprietary format and while its pricey memory sticks may be too limiting to make the PSP a music-streaming device, it can in fact do all of these multimedia things.
The advantage of buying early
While all three of these companies are established -- with each one commanding a market cap well in excess of $4 billion -- they all share the same trait of laying down the roots in 2005 for what should be a stellar 2006.
That's the kind of misunderstood investing opportunity that also drives many of the smaller companies we single out every month for our Rule Breakers newsletter subscribers. From stock recommendations to profiling emerging industries to lively discussion boards, it's all about seeing the catalysts that the shortsighted market fails to make out on the horizon. You don't need to scour eBay
If you're intrigued, why not kick the tires as part of a 30-day free trial? While that won't take you all the way through to 2006 as the more formal annual subscriptions would, at least you will have your invitation to the mother of all investing parties. Don't forget to RSVP.
Before you set your wake-up call to 2006, why not:
- Check out which stocks are making the cut these days in our Rule Breakers newsletter.
- Read up on the great quarter that DreamWorks inked out.
- Find out the compelling story stocks worth telling.
Longtime Fool contributor Rick Munarriz never did find that time machine that Napoleon Dynamite was so fond of -- but that doesn't stop him from taking field trips to see what 2006 may ultimately shape up to be. He does own shares in Pixar. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.