Investors don’t often encounter “heads-I-win, tails-you-lose” scenarios, where they can get large gains from a stock even if the underlying firm has a major setback.  But that’s the scenario now in place for venerable defense contractor Northrop-Grumman Corp. (NYSE: NOC). The company may or may not win a key new contract. In either case, this is a stock to own.  Northrop-Grumman, best known for the B-2 stealth bomber, is in a tight race for an estimated $90-billion contract to design and build a successor to the B-2. The Air Force wants a next-generation long-range bomber that incorporates the latest stealth technology, nuclear weapons capability and perhaps the ability to be flown without a pilot. A contract announcement should come any time now.  For Northrop-Grumman, a contract win would lead to strong sales and profits for many… Read More

 Investors don’t often encounter “heads-I-win, tails-you-lose” scenarios, where they can get large gains from a stock even if the underlying firm has a major setback.  But that’s the scenario now in place for venerable defense contractor Northrop-Grumman Corp. (NYSE: NOC). The company may or may not win a key new contract. In either case, this is a stock to own.  Northrop-Grumman, best known for the B-2 stealth bomber, is in a tight race for an estimated $90-billion contract to design and build a successor to the B-2. The Air Force wants a next-generation long-range bomber that incorporates the latest stealth technology, nuclear weapons capability and perhaps the ability to be flown without a pilot. A contract announcement should come any time now.  For Northrop-Grumman, a contract win would lead to strong sales and profits for many years to come.   A contract loss may spell trouble — but that would, paradoxically, be a good thing for NOC shareholders.   A Wide-Open Race  Northrup-Grumman is bidding for the contract against rivals Lockheed Martin Corp. (NYSE: LMT) and Boeing Co. (NYSE: BA), which have teamed up to jointly pursue the award. The race is likely neck-and-neck, although analysts at Goldman Sachs think Northrop-Grumman has an edge thanks to its long, successful history with the B-2, and a design team renowned for aircraft innovation.  Moreover, the firm often acts as a key supplier in other plane programs, even when it doesn’t act as the lead supplier. For instance, a portion of the fuselage… Read More

In business, progress doesn’t occur in a vacuum. Innovation arises out of need, and is often adapted from concepts or technologies initially developed in unrelated industries. For instance, who could have guessed that Netflix Inc. (Nasdaq: NFLX) would inspire the creation of an emerging leader in digital education? That company, Chegg, Inc. (NYSE: CHGG), is a fast-evolving small-cap with an online education platform for high school and college students. Streaming media has become this company’s “killer app.” Chegg’s roots go back to 2001, when several students at the University of Iowa launched a textbook rental website. With the help of… Read More

In business, progress doesn’t occur in a vacuum. Innovation arises out of need, and is often adapted from concepts or technologies initially developed in unrelated industries. For instance, who could have guessed that Netflix Inc. (Nasdaq: NFLX) would inspire the creation of an emerging leader in digital education? That company, Chegg, Inc. (NYSE: CHGG), is a fast-evolving small-cap with an online education platform for high school and college students. Streaming media has become this company’s “killer app.” Chegg’s roots go back to 2001, when several students at the University of Iowa launched a textbook rental website. With the help of outside investors, the founders expanded on that premise, deploying a Netflix-type business model. By 2010, Chegg had rented more than two million textbooks through a mail-based distribution system and was generating $149 million a year of revenue: The key virtue: students found that simply renting textbooks was cheaper than owning them. These days, Chegg does much more than rent textbooks (though that service still accounts for roughly half of the company’s $300 million annual revenue base). Over the past several years, the company has made a big push into the dynamic digital education space. Chegg now offers a series of… Read More

When picking stocks, I favor established leaders — typically larger companies that have solid balance sheets and can dominate in flourishing industries. Stick with those types of stocks, and it’s tough to go wrong. #-ad_banner-# Tough, but not impossible. Indeed, there’s a distinct danger to this strategy in the electronic payments space, where industry front-runner PayPal Holdings Inc. (Nasdaq: PYPL) generated lots of buzz with its July spin-off from e-commerce stalwart eBay Inc. (Nasdaq: EBAY). Many market watchers probably see PayPal as a virtually bulletproof investment. After all, it has been number one in electronic payments for nearly two decades… Read More

When picking stocks, I favor established leaders — typically larger companies that have solid balance sheets and can dominate in flourishing industries. Stick with those types of stocks, and it’s tough to go wrong. #-ad_banner-# Tough, but not impossible. Indeed, there’s a distinct danger to this strategy in the electronic payments space, where industry front-runner PayPal Holdings Inc. (Nasdaq: PYPL) generated lots of buzz with its July spin-off from e-commerce stalwart eBay Inc. (Nasdaq: EBAY). Many market watchers probably see PayPal as a virtually bulletproof investment. After all, it has been number one in electronic payments for nearly two decades and currently has nearly 170 million active users in 200 countries. PayPal’s market capitalization of more than $45 billion already exceeds that of eBay by nearly $13 billion.       Plus, recent performance is promising. In the second quarter, PayPal accounted for about half of eBay’s $4.4 billion of revenue and reported large increases in key growth metrics such as the number of active customer accounts and transactions per account. Analysts foresee revenue of nearly $11 billion next year and a 17% pace of earnings growth in the coming five years.   Mobile Payments: A Breeding Ground For Competition… Read More

For some companies, specialization is the path to success. For others, it is diversification. One fast-growing mid-cap that favors the latter approach is global consumer products distributor Jarden Corp. (NYSE: JAH). #-ad_banner-# Thanks to a steady slate of acquisitions over the years, this company now has a diverse product portfolio of 120 leading brands. These range from Bicycle playing cards and Coleman camping equipment, to Sunbeam home appliances and Rawlings baseball gear. The company’s distribution channels are extensive as well, and include buying clubs, retail chains, mass merchants and direct-to-consumer channels (such as the Internet). By continually adding top brands… Read More

For some companies, specialization is the path to success. For others, it is diversification. One fast-growing mid-cap that favors the latter approach is global consumer products distributor Jarden Corp. (NYSE: JAH). #-ad_banner-# Thanks to a steady slate of acquisitions over the years, this company now has a diverse product portfolio of 120 leading brands. These range from Bicycle playing cards and Coleman camping equipment, to Sunbeam home appliances and Rawlings baseball gear. The company’s distribution channels are extensive as well, and include buying clubs, retail chains, mass merchants and direct-to-consumer channels (such as the Internet). By continually adding top brands and broadening their sales channel exposure, Jarden has posted one the best expansion records of the past decade. Since 2005, sales have nearly tripled to $8.3 billion, and profits jumped nearly ten-fold to $0.98 per share. Not surprisingly, shares of the firm are crushing the market.     After such a steep run-up, it’s also no surprise that Jarden now sports a frothy price-to-earnings (P/E) ratio. At 57, it’s more than twice the stock’s five-year average of 27. While this could indicate that shares are topping out, I believe they still have market-beating gain potential in the coming 12 months,… Read More

An inexpensively-priced stock isn’t always a bargain. A thorough fundamental analysis is essential to spot the chance that overlooked problems will make it a perilous value trap. As an example, take the venerable property & casualty (P&C) insurer and long-time Dow component The Travelers Companies Inc. (NYSE: TRV). A price-to-earnings (P/E) ratio of just under 10 was low enough to make it the cheapest stock in the Dow Jones Industrial Average until very recently. (Faltering oil and gas giant Chevron Corp. (NYSE: CVX) now holds that distinction, with a P/E of a little over 9.) #-ad_banner-# But you can’t interpret… Read More

An inexpensively-priced stock isn’t always a bargain. A thorough fundamental analysis is essential to spot the chance that overlooked problems will make it a perilous value trap. As an example, take the venerable property & casualty (P&C) insurer and long-time Dow component The Travelers Companies Inc. (NYSE: TRV). A price-to-earnings (P/E) ratio of just under 10 was low enough to make it the cheapest stock in the Dow Jones Industrial Average until very recently. (Faltering oil and gas giant Chevron Corp. (NYSE: CVX) now holds that distinction, with a P/E of a little over 9.) #-ad_banner-# But you can’t interpret TRV’s low valuation as a buying opportunity without confirmation. After all, revenue growth has been below-average for several years and profit margins have stagnated in the face of a persistently soft market for P&C policies. The key question now: is TRV withering under tough industry conditions, or is it still a fundamentally robust enterprise that’s substantially underpriced? Market sentiment suggests the former. TRV’s stock is up solidly in the past few years, but not nearly as much as those of major rivals such as Markel Corporation (NYSE: MKL), The Hanover Insurance Group Inc. (NYSE: THG) and HCC Insurance Holdings Inc. Read More

Too often, companies are painted with a broad brush, and are mistakenly lumped in with seemingly comparable businesses that don’t quite measure up. Case in point: a misreading of the core business model of Ameriprise Financial Inc. (NYSE: AMP). The market still thinks of this company as an old-line insurer. But a business model transformation suggests it’s time for a fresh look. No longer a traditional insurance company, this company is now a money management juggernaut, with about 9,700 financial advisors and more than $800 billion in assets under management (AUM). But the market is ignoring this transformation. Today Ameriprise… Read More

Too often, companies are painted with a broad brush, and are mistakenly lumped in with seemingly comparable businesses that don’t quite measure up. Case in point: a misreading of the core business model of Ameriprise Financial Inc. (NYSE: AMP). The market still thinks of this company as an old-line insurer. But a business model transformation suggests it’s time for a fresh look. No longer a traditional insurance company, this company is now a money management juggernaut, with about 9,700 financial advisors and more than $800 billion in assets under management (AUM). But the market is ignoring this transformation. Today Ameriprise sports a price-to-earnings (P/E) ratio of 14.5, which is nearly 24% below the industry average of 19. #-ad_banner-# Why the discrepancy? Ameriprise is still widely compared with insurers because life insurance and annuities were the firm’s core offerings when it was spun off from American Express Co. (NYSE: AXP) a decade ago. On average, companies focusing on such products are only trading for around 13 times earnings, thanks to growth-stifling headwinds such as low interest rates and poor pricing power. But in this case, misperception is the mother of opportunity. At some point, the market will realize its mistake and… Read More

#-ad_banner-#As the long-running bull market shows signs of tiring, investors are searching for pockets of safety. But even seemingly safe stocks may not always provide a refuge. A clear example: StoneMor Partners LP (NYSE: STON), the nation’s second-largest owner and operator cemeteries and funeral homes, has announced modest dividend increases every year for a decade. But that impressive run may soon end. At first glance, this master limited partnership holds solid appeal. Partnership units currently yield an attention-grabbing 8.2%, and yields have ranged from about 7% to nearly 18% since 2005. However, StoneMor’s operational results tell a different story. The… Read More

#-ad_banner-#As the long-running bull market shows signs of tiring, investors are searching for pockets of safety. But even seemingly safe stocks may not always provide a refuge. A clear example: StoneMor Partners LP (NYSE: STON), the nation’s second-largest owner and operator cemeteries and funeral homes, has announced modest dividend increases every year for a decade. But that impressive run may soon end. At first glance, this master limited partnership holds solid appeal. Partnership units currently yield an attention-grabbing 8.2%, and yields have ranged from about 7% to nearly 18% since 2005. However, StoneMor’s operational results tell a different story. The firm has been unprofitable for nearly seven years, posting per-share losses ranging from $0.09-to-$0.89. And it’s unlikely to get back into the black anytime soon for several reasons. Overpriced Acquisitions Cemeteries and funeral homes are dependable, but stagnant businesses. As a result, StoneMor has only been able to grow through acquisitions. From 2010 through 2014, the firm obtained nearly 90 properties, about half of which were cemeteries. The strategy successfully increased the top line, which has risen 46% in the past five years, to $288 million. However, StoneMor spent $153 million to acquire that additional… Read More

While momentum stocks can be unbeatable when they’re on a roll, they can also quickly shift course and unwind recent gains. But I don’t see that happening any time soon for one widely-owned momentum stock. Shares of leading video game maker Electronic Arts, Inc. (Nasdaq: EA) have surged more than 500% in the past three years, yet a set of catalysts should take shares yet higher in coming quarters. Don’t assume that strong stock price gains translate into an overvalued stock. EA’s profits have quickly risen in tandem with the share price, and the stock is actually more than… Read More

While momentum stocks can be unbeatable when they’re on a roll, they can also quickly shift course and unwind recent gains. But I don’t see that happening any time soon for one widely-owned momentum stock. Shares of leading video game maker Electronic Arts, Inc. (Nasdaq: EA) have surged more than 500% in the past three years, yet a set of catalysts should take shares yet higher in coming quarters. Don’t assume that strong stock price gains translate into an overvalued stock. EA’s profits have quickly risen in tandem with the share price, and the stock is actually more than 20% undervalued relative to peers, with a price-to-earnings ratio of 27 versus the industry average of 34. Look for that profit momentum to continue. EA is garnering a great deal of buzz for a November 2015 launch of a new Star Wars game, which will be released a month before the next instalment of the popular movie franchise. Management projects that the game will sell nine-to-10 million units in fiscal (March) 2016. #-ad_banner-#UBS analyst Eric Sheridan is even more optimistic. He sees unit sales of 12-to-14 million based on consumer surveys and an enthusiastic response to the new Star Wars… Read More

#-ad_banner-#Health care stocks have delivered the strongest recent gains of any sector. As a group, they have risen  roughly 24% annually over the past five years, topping the rate of return from the next-best sector — consumer cyclicals — by more than three percentage points. Look for this outperformance to continue. Among the sector’s strongest catalysts: the Affordable Care Act (aka Obamacare), which looks like it’s here to stay following a recent Supreme Court decision to uphold the premium subsidies available under the Act. Despite harsh criticism and numerous repeal attempts, the five-year-old law has proven to be a boon… Read More

#-ad_banner-#Health care stocks have delivered the strongest recent gains of any sector. As a group, they have risen  roughly 24% annually over the past five years, topping the rate of return from the next-best sector — consumer cyclicals — by more than three percentage points. Look for this outperformance to continue. Among the sector’s strongest catalysts: the Affordable Care Act (aka Obamacare), which looks like it’s here to stay following a recent Supreme Court decision to uphold the premium subsidies available under the Act. Despite harsh criticism and numerous repeal attempts, the five-year-old law has proven to be a boon to many health care firms by getting millions of previously uninsured people into the market for health care products and services. The graying of the U.S. population is a powerful growth catalyst, too, progressively increasing health care utilization as age-related maladies surge. Clearly, broad exposure to health care stocks makes good sense. The question is: how best to get that exposure? For investors who favor actively managed, no-load mutual funds, I’ve identified three top choices. They all have high performance ranks and reasonable expense ratios. But they’re noticeably different in terms of risk. Here are all the pertinent details. Vanguard… Read More

By many measures, the U.S. housing market looks better than it has since before the financial crisis. Sales of newly-built homes are picking up, and applications for new building permits recently hit an eight-year high. Home listings are up, and so are mortgage applications (despite rising borrowing costs). In the first quarter, real estate investment expanded at a 5% annualized rate while mortgage delinquencies and foreclosures continued to decline. That makes this a good time to seek out a pure play on real estate. My top pick is the number-one supplier of wallboard and joint compound used in building construction… Read More

By many measures, the U.S. housing market looks better than it has since before the financial crisis. Sales of newly-built homes are picking up, and applications for new building permits recently hit an eight-year high. Home listings are up, and so are mortgage applications (despite rising borrowing costs). In the first quarter, real estate investment expanded at a 5% annualized rate while mortgage delinquencies and foreclosures continued to decline. That makes this a good time to seek out a pure play on real estate. My top pick is the number-one supplier of wallboard and joint compound used in building construction and remodeling, USG Corp. (NYSE: USG). The company has certainly seen its share of turmoil. Shortly after emerging from bankruptcy in 2006, USG found itself mired in the financial crisis. This brought five-straight years of painful losses, totaling nearly $2.2 billion, as building and remodeling activity tanked. Operations got back into the black in 2013, but growth slowed dramatically last year as the housing recovery took a breather. Now the recovery is picking up steam, and there’s a powerful catalyst to keep it going: the millennial generation. As I noted in a recent profile of spirits maker Constellation Brands, Inc. Read More