|"If You Could Love Only One..."
"If You Could Love Only One..." Since 1981 the combined portfolios of Bob Flaherty's Favorites of the Famous have
topped the S&P 500 for 11 consecutive efforts and 18 of the last 21 tries.
That is the best long-term performance of any similar annual favorite stock
panel on the planet. In spite of sudden sharp correction because of earthquake,
tsunami and nuclear radiation disaster in Japan plus Islamic rebellion in the
oil crucial Middle East, their picks rose an average of 21.2% more than twice
the 9.3% for the S&P 500 Index. Read on for 14 exciting new 2011 Favorites
of the Famous ideas by our all star team of proven pros with global
bargains involving Brazil, China, India, Russia and Bob's Charlie Sheen rehab
play in the U.S.A.
By Robert J. Flaherty and Arnaldo Arroyo
Just a few weeks ago, we thought the preceding 12 months would go
down an easy layup with big gains for our Favorites of the Famous group. The
stock market was rising almost every month ignoring any bad news. Suddenly,
bloody revolution in the oil crucial Middle East followed by Japan's
earthquake, tsunami and nuclear plant radiation disaster erased many of the
early gains. Still, our pros' picks were up 21.2% more than double a gain of
only 9.3% for the S&P 500 Index over the previous 12 months.
For exactly three decades Flaherty's Favorites of the Famous
portfolios have the best long-term record of its kind on the planet by
showcasing combined portfolios which topped the S&P 500 Index 11
consecutive times and 18 of the last 21 efforts. At a moment of maximum
pessimism when energy prices have gone crazy, job recovery is tepid and the
U.S.A. has a president who gives wonderful speeches but still seems to be
spending like a sailor on shore leave, the doomsday for the dollar bunch is at
it again. What can investors do? Once more we turn to the wisdom of the group
with our most popular annual feature "If You Could Love Only One..."
where seasoned money management professionals and financial journalists pick
just one favorite stock to hold for at least one year.
Warning:In this litigious politically correct era, readers should be aware that all of our guest stock pickers will have conflict of interests involving their stock choices. For
example, last year stressing since he is often a director and investor in some
of his picks, Russell Cleveland warned that he should not be considered objective
as a disinterested outsider. (This general conflict of interest warning also
applies to all our Favorites of the Famous guests interviewed in this feature
and naturally Bob F himself.)
A fellow Harvard man who studied history under Professor Henry
Kissinger, John Connor of Third Millennium Russia Fund (TMRIX) chose
Russian gas producer Oao Novatek (NVTK.IL) up 99% and this 2010
Global Depository Receipt (GDR) had the biggest gain among last year's stock
favorites. Oao Novatek is one of the world's fastest growing natural gas companies and the
largest independent natural gas producer in Russia.
A year ago this was a brave contrarian pick. Back then Russian insiders were
confiscating private property (at least in the view of injured western
investors) and many foreigners were keeping their distance. Then as energy
prices rose and then soared as the Middle East went up in flames and protest
marches, the importance of Russia's position not only as a great reservoir of
oil and gas reserves but as the largest energy exporter after Saudi Arabia
seemed suddenly clearer and more valuable. Back in style, Oao Novatek soared.
Hoping for an encore performance, Connor's pick for 2011 is the Global Depository
Receipt of Magnit (LSE: MGNT - 26.92), Russia's largest food retailer.
Based in the Russian city of Krasnodar, Magnit operates convenience stores and
hypermarkets throughout Russia and accounts for just over four percent of the
Third Millennium Russia Fund after a 28% percent increase in value.
After a serious 2008 setback, the consumer boom in Russia is back on track and no
company is benefiting more than Russia's leading retailer. As of the end of
2010, Magnit had over 4,000 stores in more than 1,216 cities in Russia, in
seven out of Russia's eight Federal Districts. The company's expansion plans
call for it to have 8,000 stores by 2020.
Magnit targets cities under 500,000 where disposable income is now also on the rise.
Its stores are properly called convenience stores although it has launched
increasing numbers of supermarkets. Typically, these are neighborhood stores
which the customer walks to two to three times weekly, purchasing a $10 basket.
Expansion has been primarily financed by operating cash flow. Additional measures to
improve profitability, although the net margin has been 4% to 5%, very high by
Western standards, are enhanced product mix, increasing private label
offerings, increasingly using its own logistics system and direct imports.
So far Magnit has experienced low competition as the other successful retailers are
supermarket chains in larger population centers (primarily Moscow and St.
Petersburg). Overall, the top 10 retailers in Russia account for less than 10%
of retail sales, as independent milk, meat and bread stores still dominate.
Although the European format of apartment dwelling will continue to support the
neighborhood format for the foreseeable future, Magnit increasingly will
benefit from consolidation and roll ups of existing store fronts.
Last year Larry Auriana, co founder of Federated
Kaufmann Fund (KAUFX), now mid cap focused, Federated Kaufmann Small Cap
Fund (FKCSX) and the newest Federated Kaufmann Large Cap Fund (KLCAX),
went with then out of favor Dynavax Technologies Corp. (Nasdaq:2.58) up
96%. Led by President Dr. Dino Dina Dynavax is progressing with Phase III
Heplisav (liver-saver) trials for its hepatitis B vaccine which promises faster
more effective life-saving protection with fewer doses and injections. This
disease can cause deadly cirrhosis of the liver and cancer. If the trial
succeeds, the drug could be a blockbuster. In China alone 120 million people,
about 10% of the entire population, already are infected with Hepatitis B and
there is a desperate need for an improved vaccination. Heplisav could be a
Longer term Dynavax is developing other blockbuster products
already allied with partners to help commercialize them. For example, Dynavax
and mighty GlaxoSmithKline (NYSE:GSK) have a worldwide strategic alliance to
conduct research and early clinical development in up to four programs and
Dynavax is eligible to receive sizable milestone payments for each program.
Typically Larry likes to wait to the last second before he makes a
new pick but Bob pleaded he had an overseas plane flight to catch and couldn't
wait a week.
"If I have to pick a stock now I will stay with my same pick
of Dynavax," Larry responded. "Can I do that? I think it is a $9
Smiling, Bob remembered when he first interviewed Larry when his
Kaufmann Fund had just $16 million in assets and how excited he could get about
his portfolio picks. Decades have passed and now his three funds have combined
assets of over $11.3 billion but Larry still gets just as excited. "Yes,
Larry, you can pick Dynavax again, but why do you think it can go up another
"Dynavax plans to file its new Heplisav new vaccine
application before the end of the year," Larry says. "Phase III
results should l be in. I don't think there will be clinical risk or safety
issues. By year end they should have a deal with a major pharmaceutical company
for either the domestic market or more probably the foreign market.
"Dynavax is rolling right along," Larry sums up. "I
think the risks are very low and the upside isn't reflected in any important way
in the stock. Beyond the Heplisav vaccine, they have technology that could lead
to a development to treat Lupus and there are really no effective treatments
for Lupus. This is all on the come! I think it is a double or triple."
Last year Chairman Russell Cleveland of Global Entrepreneurs Fund, Inc.
(NYSE Amex RCG) believed Oklahoma-based Access Plans, Inc. (APNC.OB) up
61% was "the cheapest stock in my whole portfolio and out of 50 companies
that is a very big statement." Russ was sure that he would come in first.
Alas, Access is an extremely difficult enterprise to explain to
investors and complexity can dampen a share price. Because a 5,000 agent Access
sales force sells low cost health insurance, many investors automatically
assumed Obamacare would do it in. But there is a lot more to this company.
Access Plans offers other discount value cards which can save money for
America's suddenly value conscious consumers in other areas such as
restaurants, food, shopping, entertainment, automotive service, etc. A
membership and insurance marketer, Access Plans sells wholesale membership
programs through clients like Rent-A-Center and CVS among others. Access'
program for Rent-A-Center, which has thousands of stores, offers a discount
card for all kinds of things like restaurants, etc for modest weekly fees just
right for today's penny pinched citizens. Access also designed and runs a
discount card program for CVS Pharmacy where for a modest amount a year generic
drugs can be bought for a very low price plus other advantages. That is the
essence of their business.
"Hello, Bob, I am glad I came in 3rd place," Russell
began. "With the momentum results at Access Plans, I believe within a
month or so I would have won, but, hey, I ran out of time. In November 2010 Access
announced the retention of an investment banker to explore alternatives to
create shareholder value, i.e., selling the company, going private, etc., so
"My new pick is an old favorite Bovie Medical Inc.
(NYSEAmex:BVX-2.80). Last June Bovie was sued by another medical company to try
to prevent Bovie from moving ahead with its new saline cutting device used in
surgery, citing a patent infringement. This is a devise that Bovie was not even
selling, but nevertheless the stock dropped 50%. This suit has been settled
with Bovie receiving $750,000 and a promise (from the other company) not to go
ahead in this field. The real future of new products for Bovie is a new
instrument called J-Plasma which could revolutionize a number of procedures in surgery.
Bovie has applied for a 510K from the FDA which should be forth coming. A new
marketing effort will be underway. Several years ago the stock hit a high of $9
versus a recent price around $3. Hope springs eternal. I have been a
shareholder here for a long time and I am looking for a big rebound!"
Celebrating his 25th anniversary of starting the first
African-American founded mutual fund, John W. Rogers Jr.'s Chicago-based
Ariel Investments has added three more mutual funds and now tops over $6 billion
under management. For daring to pick a real estate management company Jones
Lang LaSalle (NYSE:JLL) for 2009 during the horrible real estate collapse,
Rogers was rewarded with a 250% gain.
For 2010 John chose global advertising powerhouse Interpublic Group of
Companies (NYSE:IPG) up 40% correctly betting more companies would need to
look for creative ways to market their products in the recovery.
Now for 2011 out of the sixty stocks he personally follows closest John picked
for his new favorite stock another comeback company Fair Isaac Corp. (NYSE:FICO-27.86).
FICO provides analytical solutions, credit scoring and credit account
management products and services to banks, credit reporting agencies, credit
card processing agencies, insurers, retailers and healthcare organizations
"FICO's out of favor because it showed explosive growth when
housing was taking off but now the housing cycle is down," explains
Ariel's John Miller. "Fair Isaac should do really well when lenders once
again need to check on the credit worthiness of an increasing number of new
applicants for mortgage loans."
"It is partly a play on housing recovery because the FICO
scores will be very important to banks on whether to approve a mortgage or
not," says John Rogers. "Warren Buffet thinks the housing market is a
year away from recovery. So we are buying near the bottom of the down cycle in
housing and also for individuals in terms of their credit. Also we like the
company for another reason. Fair Isaac was painted unfairly with the same brush
as Moody's and Standard & Poor's, rating agencies that didn't do a good job
during the crisis in appropriately evaluating risk. In contrast, Fair Isaac's
FICO data was very solid. Now even more outfits rely on it."
So looking ahead, there will be more need for FICO scores as
lenders will want to be sure people they lend to have the wherewithal to repay.
FICO scores are not the be- all or end- all but FICOs are embedded in banks and
other lenders as part of their process.
Because John has played pickup basketball games with President
Obama for many years and still remains close, we asked John three difficult
questions which trouble us. We wanted to see if he had a different take on what
was happening in America. One: In this extended boom, federal, state and local
governments increased spending and entitlements. Now job growth in our recovery
is tepid and the doomsayers claim we are broke and the dollar is doomed. Are
you optimistic we can get America back on track?
"Yes," says John. "All the data from the Fed and
top economists show unemployment numbers are coming down and our best days are
still ahead of us. Our own research shows companies are recovering very
rapidly. Now pro business leaders are working closely with the President to
make sure that our businesses grow and thrive to provide jobs."
"I hope you're right. Government in China is helping new companies. But in
the U.S.A it's never been harder for small business to succeed; no one seems to
appreciate the value of making it easier to start up small enterprises where
the jobs get created. We'll see. I'm optimistic on America. All the immigrants
come in with drive and their children filled with the American dream of doing
better than your parents will take us up again."
Question Two: In the globalization of industry over the last
decade many of the old well paying blue collar jobs for non college workers
have migrated offshore to places like China and India. What will happen to the
millions of non scholars we graduate each year? Will we have a generation with
"I think we will evolve as always and new jobs will come from
the Facebooks. Here in Chicago Groupon is growing at warp speed hiring hundreds
of people. Thousands of people have opportunities in these new fast growing industries.
It's inevitable our economy evolves and changes. It's fine as long as we are
growing new job opportunities in fields no one could have imagined five or ten
"Final question: Everyone has become terribly short term in how quickly
they want to make money. Few have patience to build a business. Can our economy
get back to where we develop growth corporations again instead of just swapping
paper? Paper shuffling makes the top 2% of the country richer but it doesn't
help the rest of the population and often makes the country weaker. What is
your take on that?"
John: "These emotions go in cycles, waves. About 30% of
Princeton graduates are going into financial services. They read about John
Paulson making $5 billion a year and about instant wealth among the hedge fund
guys. Everyone is chasing that quick buck. The same thing happened with the
Internet world and it all fell apart. Some of this race to get rich quickly in
financial services, and in particular hedge funds, is going to have a reality
check. People will again realize that working for tried and true businesses
that build brands and add value for the long term will be worthwhile career
"I hope so. We need dedicated doctors and teachers and cops and everybody
else non financial. America will be a lot stronger when people start taking
pride and again do whatever job needs to be done as well as they can. "
Last year, Greenwich Village gadfly Ray Dirks' favorite
stock pick was Arabian American Development (Nasdaq: ARSD), up 36%. ARSD
is in the chemical business and also has a 50% stake in a Saudi Arabian mine. A
few weeks ago Ray was sporting a gain of 65%. Then in the spreading Islamic
revolt Saudi Arabia didn't seem as safe especially as the worried monarchy sent
troops to Bahrain.
A leader in the field of high purity petrochemical solvents, ARSD has a
petrochemical facility in Beaumont, Texas. "Unfortunately, they're not
showing very much yet in earnings, but they're making tremendous progress with
their deposits of gold and copper in Saudi Arabia," says Dirks.
"These are the original facilities for King Solomon's mines, but hasn't
been mined for 2000 years. ARSD is also going to be making a lot of money in
the U.S. as well. They have two segments of the business, so I think it will be
This year Ray is once again swinging for the fences and will probably make either a
homerun or strikeout with the only new stock pick trading below $1. The mighty
mite's new favorite is highly speculative Debut Broadcasting
Corp. (OTC BB: DBTB - 0.29), which at under $6 million has the
smallest total stock market cap of any of this year's new picks. Debut is a
tiny national radio broadcasting company that owns and operates 11 AM
and FM stations with eight towers in the Southern part of the U.S. The company
also syndicates radio content to approximately 1,400 small-audience radio
stations by means of satellite in the U.S.
In mid-2010, a new turnaround management team took control of the company. Within
the past several months new CEO Ron Heineman reduced unnecessary costs by over
$2 million annually but retained the vital services that are provided to the
company's stations and networks. Now several acquisition candidates are
currently under consideration.
"Debut is going to have a huge move to the $4 level in the next 12 months and $30
within 3 years," says Dirks and the thinly-traded shares already have
doubled from $0.14 when Dirks became involved in Feb. "First of all, Debut
has moved into the black in a significant way. Management eliminated $2 million
of overhead. Their overhead is modest, but they're still growing at about 50% a
year because they have two sources of income. One is their owned and operated
radio stations. In addition, they service through a satellite network about
1,400 radio stations around the country, primarily in the south, but they're
expanding that dramatically. So every time they grow about 80% goes to the
A large portion of Debut Broadcasting's valuation is due to its radio syndication
activities which reach 35 million people across the U.S. in smaller-audience
markets, thus attracting both large, nationally-known advertisers such as
General Motors and small local advertisers such as restaurants and retail
Our old friend Mario Gabelli's GAMCO Investors (NYSE:GBL) with
numerous Gabelli Funds (www.gabelli.com) now manages over $33 billion in
assets. Not bad considering in our first interview way back in my days as a cub
reporter at Forbes Mario had just passed $3 million.
For his last year's pick, Gabelli bet that as investors try to
recoup the downslide in their portfolios from the previous declines , there
would be increased emphasis on wealth management. His play was GAM Holding
(GAM.SW) up 24%, a Swiss diversified asset management company listed on the
Swiss Stock Exchange.
Asked for a new pick as the morning radio station announced it was Mario Day in the
U.S.A, Mario responded with word "Midas." In the old days Mario used
to be an auto parts analyst and clearly he still keeps his hand in.
Midas, Inc. (NYSE: MDS - 8.91) is, one of the world's largest providers of
automotive repair, including brake, maintenance, tires, steering, suspension,
and exhaust services. The company is currently the franchisor of over 2,650
Midas and SpeeDee automotive repair shops worldwide, including 1,600 in the
U.S. and Canada. Midas-branded franchises generate approximately $1.2 billion
in annual sales.
There's been a slowdown in new automobiles sales in the U.S. so why Midas? "Unless
there's a mass migration to bicycles or public transportation, multimillions of
North American car owners will eventually have to shell out cash to keep their
current vehicles road-worthy," Mario responds. And that should be great
Right now, there are approximately 240 million light duty vehicles on the road in the
U.S., with just over 200 million licensed drivers. Servicing those vehicles are
250,000 repair outlets, with Midas the largest and best known group. After
averaging over 16 million new vehicle sales from 1997 to 2007, new car sales in
the U.S. fell below replacement levels of 13 million to 14 million for the past
three years. This effectively pushes the average age of vehicles in use in the
U.S. close to a record 10 years. As the vehicle population ages, wear and tear
on those vehicles increases and means more sales at service outlets. Midas has
competitive scale advantage in advertising ("Trust the Midas touch!")
and purchasing over local service providers.
Traditionally, a brake and exhaust repair shop, Midas has made great strides entering the oil
change business, helping franchisees begin relationships with customers earlier
in the life of their vehicles. This action will have a profound long term
benefit, as repeated positive experiences will help bring repeat customers back
to Midas when the time comes for more extensive and profitable repairs
necessary as vehicles age.
Midas shares are materially undervalued and trade at a discount to the intrinsic
value of the business. "Using our private market value with a catalyst
methodology, we estimate fair value for Midas to be approximately $290
million," says Gabelli. "After subtracting obligations including
debt, we estimate the equity value of the company to be approximately $210
million, or $15 per share. With shares currently trading at a 40% to 45%
discount to their intrinsic value, a share price of $8.50 to $9 has a built in
margin of safety which helps us invest with confidence."
It is amazing how Mario can always apply the old Ben Graham value investing
idea. No matter how large the company or how much the world changes Mario can
always find a stock where he can buy a $1 of value for $0.50. For Mario, we
wish many more happy Mario Days in the U.S.A!
Douglas Makepeace of New York City-based Sperry Fund Management was a close friend and country
sector advisor to our mutual friend the late Sir John Templeton. Doug is also
the author of A New Way to Choose Money Managers for Greater Safety &
Higher Returns. Makepeace's pick last year of China Petroleum and
Chemical ADR (NYSE:SNP) up 23% is a long term play on the energy needs of
the superior relative growth of the Chinese economy. Doug believes SNP is still
"My new pick is a pure John Templeton bargain deal,"
Doug reveals. "AK Transneft Pfd (TRNFP.ME-38,576 Russian Rubles)
appears on the Bloomberg machines with the symbol TRNFP.RM, but only is traded
in Russia on the Moscow Interbank Currency Exchange (MICE). If one's broker
will execute in Russia, Pershing will clear the stock. With a total stock
market cap of 60 billion rubles and a price under 39,000 Russian rubles
Transneft (Neft means oil in Russian) has a P/E of under TWO. (Sir John loved
P/Es of TWO bargains.) They have a monopoly on oil pipelines across Russia so
this is a huge business. The oil that they own in the pipeline has at various
times been worth the whole market cap, and the pipeline replacement cost is
beyond calculating. If Transneft would start paying a dividend of half of their
earnings (which mathematically at a P/E of two would be 50% of the market cap)
the stock would be yielding 25% and surely jump 100% in short order.
"Of course, managers like Bill Browder of Hermitage, who
pointed this stock out to me years ago, probably have given up long ago in
their attempts to get the company to be more than a giant piggy bank,"
Doug continues. "This stock really is best for someone with a five-year
horizon than just one year.
"In fact, maybe I should pick a Spanish stock that should
double this year, selling at well under half what the assets are worth, as
calculated by the Spanish Warren Buffett. Ferrovial SA (FER: 8.56 Euros)
is an infrastructure operator (e.g. Heathrow airport) and is traded on the
Bolsa in Madrid.
So Doug's pick is the Russian oil pipeline transporter. Should he
have switched and chosen the Spanish bargain instead? We will have to wait and
look at next year's results table to find out. Sir John would have loved both
of these global bargains.
Since we have covered one former associate of Sir John above, now
let us introduce our only husband and wife stock picking combination and this
youthful team is doing their best to keep alive the Templeton touch of global
Before our old guru Sir John Templeton "went home" as he
referred to dying, his grandniece Lauren Templeton of Lauren Templeton
Capital Management, LLC. was encouraged and trained by Sir John. He even
suggested she start a mutual fund as soon as she graduated from high school at
18. After she went to college instead, he helped set her up in her very own
investment firm at 24. Value investing the Templeton way still survives. Now a
veteran at 34 and a mother, Lauren and her husband Scott Phillips, who also
worked for Sir John, are overseeing assets of $131 million. Scott is the
portfolio manager of their Lauren Templeton Global Maximum Pessimism Fund and
the author of "Buying at the Point of Maximum Pessimism."
Lauren's old pick last year was Canadian-based Viterra Inc. (VT.TO Cnd
$9.55) up 17%. A bet on rising global prosperity from ever increasing
technology, Viterra is strengthening its footprint in the global grain trade
and the broader agribusiness industry. Long term Viterra is well positioned to
capitalize on rising food and protein demand in the emerging markets, where per
capita consumption levels remain low, but are growing steadily alongside rising
incomes and standards of living.
Lauren's new pick is Cloud Peak Energy (NYSE:CLD-21.39).
The stock is among the cheapest of the coal names at just 9 times next year's
earnings and 4 times cash flow. It is a pure play on the Powder River Basin
coal region, which is in the strongest position to capture future business from
exports to Asia where the market is tight and in deficit supply.
Sir John's final thesis which has yet to unfold is that China's
stock market cap will surpass that of America's in total stock market value as
China's higher relative growth continues and living standards for its people
continue to improve. So Cloud Peak fits right into that continuing final play.
Husband Scott Phillips' choice last year of Net Servicos
(Brazil ADR - Nasdaq: NETC) up 3% ended rather abruptly. His fund wisely took
part in the majority tender for a price of $13.76 in October 2010.
In the Templeton tradition of buying a bargain when the crowd is
selling in a panic, Scott's his new choice is depressed electronic giant Panasonic
(NYSE:PC-11.86) which has suffered factory damage and injuries. "The
company has been dragged down with the same fear and pessimism affecting all
Japanese equities," says Scott. "Despite this, Panasonic trades at
0.68 times its book value and just slightly above its February 2009 low."
With a stock market cap of $24.8 billion Panasonic is a true proven
multinational player. Remember Japan has recovered from earthquakes before and
also after being defeated and devastated in World War II. Japan has always
recovered to reach new highs. It will again.
Last year Poonkulali Thangavelu, who has written both in
India for a local stock market magazine and also for Bob here in the U.S. on
Indian companies, picked an Indian stock herself. One of the most basic needs
is housing and aspiring to own one's home is a cornerstone of the middle-class
lifestyle. As the name implies, Housing Development Finance Corp. (BSE:
HDFC) up 18% provides financing to make this dream a reality. Initially, set up
in 1977 under the auspices of the Indian government, HDFC now trades as a
public company in Indian Rupees on the Bombay Stock Exchange.
This year interest rates in India are on an upward path. The Reserve Bank of
India, the Indian central bank, has started tightening as fears of global
recession abate and is focusing more on containing inflationary pressure. Even
then, the demand for housing remains more of a necessity, rather than a discretionary
demand. Poonka believes HDFC should do well in the long run. There is
considerable scope for earnings growth in meeting the housing needs of a
country whose population count is second only to China's.
Poonkulali's new Indian pick for 2011 is Hyderabad, India -based Dr. Reddy's Laboratories Ltd. (NYSE:RDY-33.65). Also traded on the Bombay Stock Exchange, Dr. Reddy's has a stock
market cap of over $5.7 billion. This highly successful Indian pharmaceutical
company is actually a play on expiring drug patents in the U.S. Dr. Reddy's
already derives about 70% of its revenues from global generic drugs; the rest
comes from what the company calls "pharmaceutical services and active
ingredients," as well as the sale of "proprietary products."
Ambitiously RDY is looking to extend its reach in the U.S. generic drug market
from the current estimated $350 million to over $1 billion. The cost advantage
of generic drugs, in the current cost conscious environment, is providing extra
momentum. So are some recent favorable generic drug court rulings in the U.S.
Dr. Reddy's the stock trades at a P/E ratio 28 compared to a projected 12 month P/E of 16. Analysts are assuming its generic plans for the U.S and Europe work out and naturally it
continues to do well at home in India.
Muriel Siebert, first lady of finance, has many accomplishments like being the first woman to own a seat on the New York Stock Exchange and being the first and only female founder
and owner of a big board brokerage firm, appropriately named Siebert & Co.
While our rules are that each participant only chose one favorite stock, we are
so delighted to finally have Muriel pick for us that last year for the first
time ever we let a player chose two.
Muriel liked the bluest blue chips Pfizer Inc. (NYSE:PFE)
up 18% and General Electric (NYSE:GE) up 6%. Last year GE, a well run
multinational growth stock combining growth, safety and yields which should
rise over time, seemed the perfect choice for a period of flight from risk.
However, few stocks were hurt more as GE nuclear plants in Japan collapsed in
flames, releasing radiation, and were shut down in far away Germany over safety
concerns. With the global outlook for nuclear power dimmed, Muriel's gain in GE
was cut in half overnight. With all the confusion over recent events Muriel
would rather not go on the record and pick another stock this year.
Also declining to make a new pick in this confusing period is Thomas
Forester of Forester Value Fund, who last year also went with a solid blue
chip Kimberly-Clark Corp. (NYSE:KMB-61.43) up 4%.
Tom Putnam, who is descended from the Patriot at Bunker Hill who ordered, "Don't fire until
you see the whites of their eyes!" always gives us a solid steady new pick
each of the 30 years we have called upon him.
This founder and CEO of Fennimore Asset Management with two no loads FAM
Value Fund and FAM Equity-Income Fund (www.famfunds.com) likes his team to fill his
portfolios with quality companies that have good market share positions not
only in their industries, but have strong characteristics of generating free
cash flow accompanied by low debt balance sheets. Tom seeks not only survivors
in a correction, but winners in an economic rally.
Last year Tom bet on Digital River (Nasdaq:DRIV) up 14%, a provider of
e-commerce outsourcing solutions for software, gaming and consumer electronics
companies. Its customers include household names such as Adobe and Microsoft.
Digital River helps companies run their Websites and also provides product
fulfillment, including handling the complexity involved in multi-country sales
tax collection and customer support in multiple languages.
Tom's new favorite is Home BancShares, Inc. (Nasdaq: HOMB - 21.31), a
bank holding company, based in Conway, AR. Its wholly-owned subsidiary
Centennial Bank provides a broad range of commercial and retail banking plus
related financial services to businesses, real estate developers, investors,
individuals and municipalities. Centennial Bank has a number of locations both
in Arkansas and in Florida.
"Home BancShares has built a sizable presence in Florida, almost entirely through
buying failed banks from the FDIC," says Tom. "More acquisitions of
failed banks from the FDIC are quite possible. This Florida operation is now
roughly the same size as the Arkansas bank. The true earnings power of these
acquired banks is not yet evident. Our thesis is that in time these Florida
banks will become solidly profitable. Florida is already stabilizing. After
all, the weather is still warm and the taxes are still low. So in time Florida
will be just fine
"We have paid 1.5x tangible book for shares, which strikes us as a reasonable price
to pay for a well run bank with a good future. These guys sold a bank once
before and are, in our opinion, reasonably open to selling out at the right
price someday once the banking cycle has turned."
Amazing Max Bowser, the 94-year-old dean of financial
writers, is the active and highly amusing editor of The Bowser Report. www.thebowserreport.com. Max is now in his 35th year as editor and has never missed or been late with a single issue. When he was ridiculed by the media and many critics who dismissed all very low priced shares as penny stocks to be avoided, Max doggedly stuck to covering his niche of quality stocks under $3.
Surprise! From August 9, 2001 to February 28, 2011 Bowser Microcap Stock Index
is up 284%, while the Dow Jones is up an anemic 18% and the Russell 2000 Stock
Index is up 73%. Last year Max picked turnaround stock Canadian-based TurboSonic
Tech (TSTA.OB-0.52) up 4%, which designs and markets air pollution control
devices to industrial customers. He picked TSTA a bit too early and it kept
going down, but recently the stock bounced back nicely.
With panic selling all over the world people feel confused. Events
are being communicated so quickly there is no time spent processing the stream
of bad news and putting their meaning in perspective. So Max is going for the
gold in 2011. Bullion Monarch Mining (BULM.OB-1.45) is a small OTC
Bulletin Board gold stock with some unusual features. With one spectacular
exception, it doesn't own any mines. Instead, it makes small investments in
other gold companies and collects royalty on its investments. The quarter
ending January 31, 2011, was the best one in the company's history.
The one ownership exception to the above strategy was the recent purchase of Dourave. This private mining and exploration company has property in an under-explored region in Brazil that is not only resource rich, but also favorable to mining.
The third leg in the Bullion story is its interest in shale
extraction. It has a patent on a process that it calls EnShale that can extract
the equivalent of a barrel of oil versus the standard price of $100. To explore
its potential, BULM has leased mineral rights on 4,650 acres in Eastern Utah.
That is three ways to win! In his optimism and steadiness Max is
an example for us all. One good year after another creates an impressive record
few can match.
In the Soaring Sixties 73-year-old Larry Rader was known as "The Go Go Kid! But after a
rollercoaster ride from hero to bum, he did the hard work to become one of the
steadiest growth stock performers ever. His success as a student of identifying
outstanding small-cap, non-technology growth stocks brought him to head
small-cap research at Merrill Lynch in the days before investing was replaced
by momentum gambling. He is the only person Editor Bob Flaherty featured in
three different cover stories.
Last year Larry liked Bank of America Corporation (NYSE: BAC), which recently showed a 17% drop as a result of the home market crisis. Although he is betting on a new company this
year, Larry still likes BAC. "The home building area and the bank
repossessions have now peaked and we think the company can show 15% to 20% per
annum growth over the next few years," he says. When you own a good well
managed company Larry thinks there is nothing wrong with sticking with it.
Larry's favorite pick for 2011 is 3M (NYSE: MMM - 88.69). This diversified
multi-national technology company has a presence in industrial and
transportation; health care; display and graphics; consumer and office; safety,
security and protection services, and electro and communications. The company's
products such as Scotch Tape are sold through numerous distribution channels,
including directly to users and through numerous wholesalers, retailers,
jobbers, distributors and dealers in a variety of trades in many countries
"The diversification and cost cutting gives it an important leg up going into a slow
growth economy," says Larry. Of all of our 14 new Favorites of the Famous
picks, 3M has the highest recent stock market cap of $62 billion and so is the
bluest of the blue chips.
Previously Editor Bob Flaherty's own last five Favorites of the Famous
picks in Equities Magazine won top honors with four doubles in five
years. But Bob flopped badly and struck out here at Flaherty Financial News
in both 2009 and 2010. Just in time for Lent Bob learned that his last pick
came in at the very bottom for the first time in 22 years. Remember, Man, thou
art dust! Now that is a depressing thought. When you think you are too smart,
you soon learn that you are just another bozo on the bus.
So for his new 2011 favorite stock pick Bob is shortening his
swing by going back to an old favorite he knows very well. Way back he even
wrote a cover story on PHC Inc. (NYSEAmex: PHC-2.52) when the stock of
the then tiny tot was only $0.30. In January 2003 Bob closed out his October
2001 PHC BUY recommendation at $0.35 in his special situation newsletters for a
gain of 137%. In September 8, 2010 Bob issued a still open BUY on PHC in
Flaherty Special Situation #21 which was recently up 98%. The title says
it all: PHC, Inc. Hope! Treatment! Recovery! A 100% Profit Opportunity!
Call it our Charlie Sheen rehab play. PHC, Inc., doing business as
Pioneer Behavioral Health, is a pure play on post 9/11 America, treating the
ills from stress and violence in the U.S. and substance abuse from drugs,
alcohol and smoking plus gambling addiction. In stress-filled dyslexic America
substance abuse is everywhere. Even children are turning up with dual
Fortunately, with treatment and follow up programs miracles are
happening every day restoring the walking dead to useful lives. Treatment
works! The stock of PHC is a value packed bargain in this explosive hope for
the hopeless growth niche.
The latest quarterly figures from PHC make good reading. In the
second fiscal quarter ending December 31, 2010, net income was up 41.8% to
$503,000 or $0.03 per share. Part of this was driven by the improved patient
census at PHC's Seven Hills Behavior Institute facility in Las Vegas. After
taking a while to be fully certified, this facility is now completely
operational. Also PHC just acquired a Detroit, MI- based Renaissance Recovery
facility, which concentrates on unique behavioral treatment programs for
chemical impaired adolescents ages 12 through 17. This 24-bed residential
program is expected to add $3 million to $5 million annually. The Detroit area
will remain a key growth market for PHC's rehabilitation services.
Currently PHC provides behavioral health services in five states,
including substance abuse treatment facilities in Utah and Virginia and
inpatient and outpatient psychiatric facilities in MI, PA and NV. PHC also
offers internet and telephonic-based referral services that include employee
assistance programs and critical incident services. Besides a 9/11 event,
critical incidents can be transportation accidents, natural disasters, fires,
etc. Contracted services with government agencies, national insurance companies
and major transportation and gaming companies cover more than one million
PHC is currently on a $60 million annual rate run with a 10%
operating margin targeted by yearend. It already improved from 3% to over 8% as
the Seven Hills Behavioral facility in Las Vegas filled out and became
profitable. In addition PHC increased their contract with the Detroit-Wayne
County Community Mental Health Agency 50% annually from $2.8 million to $4.2
million through 2012. At the 10% operating level CEO Bruce Sheer expects just
on the current revenue run rate earnings per share of $0.20 The expanded
Detroit-Wayne County and the adolescent programs should be extra.
So more power to entrepreneur Bruce Sheer's PHC and all the other
companies and outfits offering help and recovery treatment to the casualties in
America's substance abuse epidemic. Their remedial services are badly needed. A
few years from now when PHC is substantially larger it also should be acquired
for a nice premium. A rival was acquired for ratios of revenues to stock price
and EBITDA 2 times higher than those PHC sports now. To read our September 8,
2010 Flaherty Special Situation, which is archived on our website please
visit www.flahertyfinancialnews.com . And for all the Charlie Sheens out there who are not celebrities remember that today is the first day of the rest of your life. Take the first step to a new life. Fortune Favors the Brave! Bob Flaherty