Thursday, July 23, 2015

Want a 'Sweet 16' Portfolio? Here Are the First 8 U.S. Stocks to Buy

NEW YORK (TheStreet) - Looking for some stock-picking inspiration?
Jim Collins, a contributor to Real Money (a sister-site to TheStreet), created a Sweet 16 list of long-only U.S. stocks together for an international client. Collins, who runs Portfolio Guru, noted the list does not include any preferred shares, ETFs, call options, etc.
"I certainly don't see much near-term upside for this market, so I leaned heavily on my income-investing principles in the construction of his portfolio," Collins wrote on Thursday. "We'll beat a flat market because of the portfolio's yield of about 5%, and we should substantially outperform a declining market due to the portfolio's low risk profile.
Here are the first eight stocks in Collins' list. We've included assessments from TheStreet Ratings for added perspective.

Image result for stock PortfolioTheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecast company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Note: Year-to-date returns are based on July 23, 2015, closing prices.
ABX Chart ABX data by YCharts 
1. Barrick Gold (ABX - Get Report) 
Industry: Materials/Gold
Market Cap: $8.6 billion 
Year-to-date return: -31.5%
Barrick Gold produces and sells gold and copper. The company is also involved in exploration and mine development activities.
Collins said: Oh my God, did I really buy a gold stock? When something hits a 25-year low, you have to at least take a look. ABX's 2.7% yield fits in well and there is upside when/if gold prices recover.
TheStreet Ratings: Sell, D
TheStreet said: "We rate BARRICK GOLD CORP (ABX) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow, generally disappointing historical performance in the stock itself and unimpressive growth in net income."
Highlights from the analysis by TheStreet Ratings Team are as follows:
  • The debt-to-equity ratio of 1.27 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • Net operating cash flow has decreased to $316.00 million or 45.98% when compared to the same quarter last year. Despite a decrease in cash flow of 45.98%, BARRICK GOLD CORP is in line with the industry average cash flow growth rate of -54.90%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 51.09%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 37.50% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The change in net income from the same quarter one year ago has exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 35.2% when compared to the same quarter one year ago, falling from $88.00 million to $57.00 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, BARRICK GOLD CORP's return on equity significantly trails that of both the industry average and the S&P 500.
 
 
DHT Chart DHT data by YCharts 
2. DHT Holdings (DHT - Get Report) 
Industry: Energy/Oil & Gas Storage & Transportation
Market Cap: $820 million 
Year-to-date return: 21.7%
DHT Holdings operates crude oil tankers. As of March 10, 2015, its fleet consisted of 18 crude oil tankers, including 14 very large crude carriers, two  Suezmax tankers, and two Aframax tankers. The company was incorporated in 2005 and is headquartered in Hamilton, Bermuda.
Collins said: Low crude prices benefit oil shippers more than any other sector, and DHT's fleet of VLCC tankers is perfectly positioned. Current yield is 6.79%, and DHT management announced Wednesday that the company will return at least 60% of ordinary net income to shareholders via dividends, so there's upside to that payout.
TheStreet Ratings: Hold, C
TheStreet said: "We rate DHT HOLDINGS INC (DHT) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."
Highlights from the analysis by TheStreet Ratings Team are as follows:
  • DHT's very impressive revenue growth greatly exceeded the industry average of 38.8%. Since the same quarter one year prior, revenues leaped by 290.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.94, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with this, the company maintains a quick ratio of 3.47, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 323.83% to $42.77 million when compared to the same quarter last year. In addition, DHT HOLDINGS INC has also vastly surpassed the industry average cash flow growth rate of -53.44%.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, DHT HOLDINGS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

DFT Chart DFT data by YCharts 
3. DuPont Fabros Technology (DFT - Get Report) 
Industry: Financial Services/Specialized ETFs
Market Cap: $2.4 billion 
Year-to-date return: -9.3%
DuPont Fabros Technology, a real estate investment trust, engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States.
Collins said: Data center REITs are such a good idea and DFT's three biggest tenants --Facebook (FB - Get Report) ,Microsoft (MSFT - Get Report) and Yahoo! (YHOO) -- are unlikely to go out of business. Yield: 5.57%.
TheStreet Ratings: Buy, B
TheStreet said: "We rate DUPONT FABROS TECHNOLOGY INC (DFT) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, solid stock price performance and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team are as follows:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $49.09 million or 10.34% when compared to the same quarter last year. In addition, DUPONT FABROS TECHNOLOGY INC has also modestly surpassed the industry average cash flow growth rate of 2.10%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, DUPONT FABROS TECHNOLOGY INC's return on equity is below that of both the industry average and the S&P 500.

GDP Chart GDP data by YCharts 
4. Goodrich Petroleum (GDP) 
Industry: Energy/Oil & Gas Exploration & Production
Market Cap: $54 million 
Year-to-date return: -78.6%
Goodrich Petroleum Corporation, an independent oil and natural gas company, engages in the exploration, development, and production of oil and natural gas.
Collins said: Oil prices will recover. GDP has options to increase liquidity, including sale of its Eagle Ford assets and potential joint venture in its core Tuscaloosa Marine Shale play.
TheStreet Ratings: Sell, D
TheStreet said: "We rate GOODRICH PETROLEUM CORP (GDP) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team are as follows:


  • The debt-to-equity ratio is very high at 28.35 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.21, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, GOODRICH PETROLEUM CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • GDP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 93.80%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Net operating cash flow has decreased to $5.72 million or 12.78% when compared to the same quarter last year. Despite a decrease in cash flow GOODRICH PETROLEUM CORP is still faring well by exceeding its industry average cash flow growth rate of -53.44%.
  • Along with the very weak revenue results, GDP underperformed when compared to the industry average of 38.8%. Since the same quarter one year prior, revenues plummeted by 53.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
MHR Chart MHR data by YCharts

5. Magnum Hunter Resources  (MHR) 
Industry: Energy/Oil & Gas Exploration & Production
Market Cap: $236.4 million 
Year-to-date return: -64%
Magnum Hunter Resources, an independent oil and gas company, explores for, exploits, acquires, develops, and produces crude oil, natural gas, and natural gas liquid resources in the United States. The company operates through the U.S.
Collins said: I would say ditto to GDP, but contrary to the market's perception, MHR doesn't drill for much oil; production is more than 90% natural gas, on which I'm bullish. Impending sale of 45% stake in Eureka Hunter pipeline will address liquidity concerns with finality.
TheStreet Ratings: Sell, D
TheStreet said: "We rate MAGNUM HUNTER RESOURCES CORP (MHR) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team are as follows:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 72.0% when compared to the same quarter one year ago, falling from -$61.59 million to -$105.92 million.
  • The debt-to-equity ratio is very high at 2.22 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.20, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MAGNUM HUNTER RESOURCES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 82.03%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 39.02% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • MAGNUM HUNTER RESOURCES CORP's earnings per share declined by 39.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, MAGNUM HUNTER RESOURCES CORP continued to lose money by earning -$1.29 versus -$1.69 in the prior year. For the next year, the market is expecting a contraction of 6.6% in earnings (-$1.38 versus -$1.29).
MNKD Chart MNKD data by YCharts 
6. MannKind (MNKD) 
Industry: Biopharmaceuticals
Market Cap: $2.2 billion 
Year-to-date return: 4.6%
MannKind, a biopharmaceutical company, focuses on the discovery, development, and commercialization of therapeutic products for diabetes in the United States. Its lead product is Afrezza inhalation powder, an insulin product to control high blood sugar in adults with type 1 and type 2 diabetes.
Collins said: MNKD's Afrezza inhalable insulin delivery system is truly a game-changer in the diabetes treatment space. But Afrezza seemed to hit the market with a thud after its launch in February, and the stock crashed down to $3.46 after initial sales results disappointed. It was a case of "too soon," as this was always going to be a gradual, methodical rollout, and there is just no way marketing partner Sanofi (SNY) is going to let Afrezza die on the vine.
TheStreet Ratings: Not rated

NEWT Chart NEWT data by YCharts 
7. Newtek Business Services (NEWT) 
Industry: Financial Services/Asset Management & Custody Banks
Market Cap: $198 million 
Year-to-date return: 28.3%
Newtek Business Services, a business development company, provides financial and business services to the small- and medium-sized business market in the United States and internationally.
Collins said: Newtek recently underwent the transition to a business development company and still needs to distribute excess retained income. I expect an announcement on special dividend timing/size in the very near future. In the meantime, the regular dividend yield of 9.97% is tasty.
TheStreet Ratings: Buy, B
TheStreet said: "We rate NEWTEK BUSINESS SERVICES CP (NEWT) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income, attractive valuation levels and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team are as follows:
  • Powered by its strong earnings growth of 390.00% and other important driving factors, this stock has surged by 42.36% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NEWT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 619.1% when compared to the same quarter one year prior, rising from $1.39 million to $10.00 million.
  • NEWTEK BUSINESS SERVICES CP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NEWTEK BUSINESS SERVICES CP reported lower earnings of $0.59 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $0.59).
  • NEWT, with its very weak revenue results, has greatly underperformed against the industry average of 3.8%. Since the same quarter one year prior, revenues plummeted by 86.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

EYES Chart EYES data by YCharts 
8. Second Sight Medical Products (EYES) 
Industry: Health Care
Market Cap: $509 million 
Year-to-date return: 40%
Second Sight Medical Products develops, manufactures, and markets implantable prosthetic devices to restore functional vision to blind patients in the United States, Canada, Europe and Saudi Arabia.
Collins said: Huge news Wednesday as Argus II was implanted in a patient with age-related macular degeneration for the first time. I defy you to watch this video and not buy the stock.

By Laurie Kulikowski

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