If you were to look at the list of Melbourne Cup winning horses I have picked over the years you would probably advise me against being a betting man. Oddly, I noticed this year that I have picked the winner every fourth year since I was curious five-year-old with a nose for the form guide and under the questionable mentorship of my grandfather. You may say that picking the Melbourne Cup winner every four years isn't too bad given the field of horses but when you divide the payout over the endless hours attending important lead-in races, researching past results and analysing track conditions and distances then I have no doubt that I am behind.
It made me think of how picking a winning horse is similar to picking a winning stock. I don't play the share market – unless you count the thousands of Fairfax shares I bought during my time with the company that I am destined to be buried with before they ever return to the price I paid for them. But what I like about the horses and the stock market is that they are both educated guesses – the information is there in front of you and the trick is in deciphering it and, let's face it, not being conned along the way. Sure, you can never really predict when a Gulf of Mexico-style disaster will wipe half the value off your BP shares, just like you can't predict when your favourite jockey will decide to take the corner wide going into the home straight when there is a blinding gap along the rails. But either one has got to be better than buying a lotto ticket and pinning my hopes on the fact that the winning numbers will be a combination of mine and my family's birth dates.
Not to mention that I live in the financial capital of the world so there has got to be a few knowledgeable people around who can provide some decent tips for 2014. After editing down those companies whose names or colour palate of their logos just didn't scream 'winner' to me, here are five suggestions of US stocks to watch in 2014 from tipsters far better than me.
Louis Navellier is the Chairman and Founder of Navellier & Associates, which manages approximately $2.5 billion in assets, and is one of the world's top money managers.
What I like about Navellier's tips for 2014 is that he has chosen stocks that will weather the sell-off that happens when the US Federal Reserve pulls back on the bond buying program that has been propping up the share market.
"If QE ends definitively, it will make all high-dividend stocks more volatile, especially mortgage REITs. What I expect would happen is that an initial shockwave would hit Wall Street. The kneejerk reactions we've seen to past Fed announcements will pale in comparison to the post-QE pullback. But that doesn't mean you have to get caught up in the panic. You still have a choice to make," he says.
"Option number one is to resign yourself to the market's obsession and get caught up in the selling action that will inevitably result from the end of QE. Option number two is to plan ahead for what's to come in 2014: A flight to quality. I'm sticking with the second option."
Yahoo is Navellier's top technology stock for 2014. He believes the appointment of CEO Melissa Mayer and the billions she has spent on acquisitions is the right choice for the former struggling internet company.
"Mayer is aiming to make the company's online services more engaging and user-friendly in order to boost web surfers' duration and frequency of visits. This in turn drives more advertising revenue," he said. "Mayer has also recast Yahoo's services so they are better suited for smartphone and tablet users. As part of this makeover under Mayer, Yahoo has redesigned its home page, email service and Flickr photo-sharing service. In a bid to be more mobile-friendly, Yahoo has also been snapping up app developers and start-up internet companies like Tumblr and Rockmelt. Through this buying spree, Yahoo has amassed a team of engineers with expertise in mobile applications and social networking."
"Initiatives like this helped the company beat sales and earnings expectations in the third quarter. And analysts are calling for double-digit earnings growth in 2014. Analysts expect Yahoo's 24 per cent stake in Chinese e-commerce giant Alibaba Group and Yahoo Japan to bolster the company's performance next year," he said.
One of the other Navellier's tips that I like is AmerisourceBergen Co. While not a household name in Australia, AmerisourceBergen is one of the world's largest pharmaceutical services companies with an annual revenue of $US100 billion and ranked #32 on the Fortune 500 list. Any company that can bring down the costs of distribution and logistics in an industry expected to be worth $US390 billion next year seems destined to do well.
"Moreover, because it helps drug makers and healthcare providers cut costs, it stands to win big from the (Obamacare) healthcare shift that's just getting underway here in the US," he said. "Analysts expect the company to grow sales 30 per cent and earnings nearly 20 per cent over 2013 results. Just recently, the company's board approved $US750 million in stock buybacks—that's on top of the $US450 million or so it has left on its existing program. Even more impressively, since 2006 the company has increased its quarterly dividend nearly tenfold."
Marc Gerstein is the editor of Forbes low priced stock report and is a man who usually leads with his chin. One of his best tips for 2014 is US pharmacy retailer Rite Aid.
"I first recommended Rite Aid in June 2011 at $US1.05 and again in January at $US1.45. The stock now trades above $US5.00 and I still like it. My original investment case remains alive and well," he said. "One aspect of this is that the company's remodeling efforts, emphasising its new fresh-looking "wellness" format is working. The transition still has a lot of legs left: Only a little more than 1000 stores have been renovated thus far, out of a total of 4600. And with more efficient operating practices, cash flows remain very healthy (as was the case even before GAAP net income moved above zero), meaning the company can comfortably pay the interest on its still-considerable debt and refinance as necessary."
Barclays Head of Equity Research Stu Linde says he prefers European and emerging market stocks over US equities due to the major 2013 run-up but says there are still some likely bolters among the Americans, including chemical company LyondellBasell Industries.
"LyondellBasell represents the best risk/reward in our coverage due to its best-in-class operating profile, leverage to US natural gas, and low-risk capital allocation strategy. Although LYB is no longer the undiscovered name it was in 2011, several company-specific initiatives … could lead to meaningful upside. A combination of bottom-line growth and an above-average dividend yield keeps it as our preferred investment," he said.
The final tip from my Wall Street survey was America's biggest cable company, Comcast, which both UBS and JPMorgan's equity honchos like for 2014.
The company had a strong 2013 but both UBS and JPMorgan say its pricing power, advertising spending growth and new digital platforms should see an earnings-per-share growth of 19 per cent.
The main message I got from analysts was that while the US share market has room for gains do not to expect those seen in 2013, which were the largest since 1997. They are all still expecting double-digit potential however despite what the Fed does with its bond buying program. So there are many opportunities to back a winner.
And before we all go drop our hard-earned dollars on the advice of a bunch of people who failed to see America's looming financial crisis before it was too late, let's remember the wise words my grandfather would tell me before going to the race track – "Only spend the money you wouldn't mind losing and always expect that you will lose it."
Mathew Murphy is a Walkley Award winning journalist based in New York.