No ifs, ands or buts -- stock prices are barreling ahead again. For how long is anybody's guess. Let's say for argument's sake that you buy Wall Street's rapidly swelling party line that the economy is on the road to recovery, and therefore it makes sense to begin nibbling away at the stock market. Or maybe you feel it's time to throw caution to the wind and take on more risk. Keeping in mind that the market has already ballooned some 50% in the past seven months -- meaning you just could be too late to the party -- what do you buy?
For some ideas, let's look at what a couple of responsible parties are pitching. One is Morgan Stanley's research team, which provides us with its nifty nine -- a portfolio of its analysts' nine top picks, stocks the brokerage thinks can appreciate anywhere from about 20%-plus to more than 100% over the next 12 months.
The other stock picker is clearly the most informed investor around -- the corporate insider, a company's officers and directors who are directly privy to how business is faring within their own firms. The specific stock picks here come from Insider Insights, a newsletter that tracks what the insiders are buying and selling. In this instance, the letter has come up with five names that it says have positive insider profiles.
Let's kick off with Morgan Stanley, and more specifically with one of its top selections among its nifty nine, Walt Disney, which the brokerage rates as the type of high quality company (strong balance sheet, solid free cash flow, solid brands, management strength, etc.) that offers the best risk/reward profile in the equity market.
Further, its media analyst, Benjamin Swinburne, contends that Wall Street is overlooking potential earnings upside in 2010 from a rebound in auto advertising, a recovery in the film studio business, and initial opportunities from Disney's recently announced $4 billion acquisition of comic book biggie Marvel Entertainment. Swinburne's per-share earnings estimates call for $1.74 this year and $1.90 next year. His 12-month target price for the stock, currently $28.64, is $35.
Rounding out Morgan Stanley's nifty nine, along with their current prices, the analysts' 2009 and 2010 per-share earnings estimates and projected 12-month price targets, are the following:
- Baker Hughes (44.88), 2009 and 20120 estimates:2.09 and 2.25; target: $90.
- Bank of America (17.50), estimates:0.28 and2.18; target:$30.
- Celgene Corp. (54.78), estimates:2.04 and 2.66; target: $63.
- Danaher Corp. (67.84), estimates:3.40 and 3.75; target: $80.
- Hewlett-Packard (47.38), estimates:3.82 and 4.42; target: $62.
- Suncor (35.97), estimates:1.07 and 3.71; target: $49.
- Textron (19.49), estimates: (0.24) and 0.52; target: $25.
- Union Pacific Corp. (59.79), estimates:3.60 and 4.68; target: $80.
Now to those companies with positive insider profiles. They are Kinder Morgan Management, Enterprise Products, Valliant Pharmaceuticals, Prospect Capital and Amtrust Financial.
How come only five positive profiles? Because, says Jonathan Moreland, editor of Insider Insights, "that's all I can find."
A word of caution: There are plenty of guys out there with compelling arguments that economic risks still abound; likewise, that the market's 50%-plus rally over the past seven months is not supported by fundamentals.
Write to Dan Dorfman.