Top Stocks Paying Dividends In 2011: Medtronic
by Jim Stack, editor InvesTech Market Analyst
For over 50 years, Medtronic (MDT) has been the premier medical device manufacturer in the marketplace.
With the invention of the battery-powered pacemaker in the mid 1950s, Medtronic began a long string of technological innovations. Over time, that one breakthrough was transformed into a company that now holds over 21,000 filed patents and employs over 9,000 scientists and engineers.
Success has allowed Medtronic to develop a very healthy financial position. Without jumping into too many details, the company's Free Cash Flow Margin - the percentage of sales that end up as actual "free cash" - has averaged a remarkably consistent 22% over the past 10 years.
Not only is this an impressive amount of cash generation, but the consistency with which the firm generates cash is even more amazing - it hardly deviates more than a percent or two from the mean.
There are very few businesses that have such a strong track record. To put this cash back in shareholder's hands, management pays out a healthy 2.5% dividend. Even better, they have been aggressively increasing the dividend an average 20% per year for the past 5 years.
Today, Medtronic is bringing its knowledge of treating chronic ailments to a rapidly expanding worldwide middle-class.
Currently, international sales account for 41% of total revenue. In the most recent quarter, sales in China increased 24% year-over-year, while Latin America sales and Middle East & Africa sales each grew 19%.
Market share potential in emerging markets has many analysts forecasting double-digit earnings growth well into the future. For investors, Medtronic is being o"ered at valuation levels rarely seen and, in our opinion, levels that won't last long.
This "discount" valuation is being driven by concerns over long-term growth potential in key areas - including the core cardiac rhythm segment. For reasons noted above, we think these concerns are overdone. Instead, we feel the current market gives us an opportunity to buy shares of a world class company at 11X earnings.
Compare the current valuation to Medtronic's 10 year median P/E ratio of 27.8X and you get a sense of the value we see in this company.
As an added bonus, shares have come under pressure in recent weeks from year-end tax loss sellers. For new buyers, this provides a terrific entry point. Bottom line, Medtronic certainly fits our mold of finding good companies at attractive prices. It has the technical expertise, financial strength, growth potential, and valuation of a great investment.
Top Stocks Paying Dividends In 2011:ChemTrade Logistics (CGIFF)
By Roger Conrad
Roger Conrad, editor of The Canadian Edge, is a leading specialist in the niche investment area of high-income Canada-based trusts.
For his top investment idea for the company year, he turns to chemical company, ChemTrade Logistics (TSX: CHE-U, OTC: CGIFF).
"ChemTrade Logistics is a major producer of specialty chemicals, particularly sulphuric acid. It's also a Canadian income trust yielding over 12% with most of its operations overseas. That adds up to a unique triple play for investors in 2011.
"First, is the high yield, paid monthly. Even with the market for specialty chemicals chronically weak in 2011, Chemtrade was able to generate cash flow to cover its distribution by a healthy margin.
":Second, cash flow is set to surge as demand from industry rebounds for sulphuric acid. Second half results already show improvement and that trend is set to continue into the new year.
"Third, Chemtrade management expects to pay the same level of distribution in 2012, when Canada's trust tax kicks in. If it succeeds, investors will receive a windfall capital gain, since a big cut is already priced in.
"At a recent conference call, CEO Mark Davis stated 'the e?ect of the new tax would not be significant' since 'Chemtrade receives a large portion of its earnings from non- Canadian sources.
"Accordingly, in 2012 we believe that the new SIFT tax will apply to less than one-third of the Fund's income, resulting in an e?ective tax rate of less than 10 percent.' Buy ChemTrade up to $11."
Top Stocks Paying Dividends In 2011:Scientific Games
by Jason Shade, editor Texting Trader
As is the case with most of my trades and recommendations, my stock prediction for 2011 is a company that many of my peers are not giving much attention.
Scientific Games (SGMS) is a turnaround story that intrigues me and I select owning it as my top stock idea of 2011.
SGMS is an $882 million global leader in providing customized, end-to-end gaming solutions to lottery and gaming organizations worldwide.
Scientific Games' integrated array of products and services include instant lottery games, lottery gaming systems, terminals and services, and internet applications, as well as server-based interactive gaming machines. Scientific Games serves customers in approximately 50 countries.
After peaking at a high of $40 in 2007, this legalized gaming services provider has seen its shares collapse during the recent economic crisis.
The stock bottomed out earlier this year at $6.58 following a weak quarterly earnings report in which the company reported a .04 a share miss with revenues that also were on the light side.
Whether it was this earnings report or the prior three years of underperformance, the board and investors decided to reinstate SGMS's Chairman and former CEO Lorne Weil as CEO of the company.
Weil was at the helm during the stock's last major run from 2000 to 2005 and his returning to lead the firm is a positive catalyst for the success of SGMS and its potential return to prosperity.
Investors also can take heart in the recent binge of insider buying that accompanied Weil's return to the C-suite.
In December, management and insiders accumulated more than 4 million shares of company stock between the prices of $7.89 and $9.75 a share. One buyer of particular interest is long-time Wall Street investor Ron Perelman. Perelman now owns more than 30 million shares of the company stock. Most of his ownership is at much higher prices, including a large purchase of 400,000 shares at $14.26 a share last March.
Finally, you can't have a good corporate turnaround story without improving business fundamentals. Herein lies the challenge to management, the company and its stock. The last earnings report was anemic, but there are encouraging signs demonstrating that SGMS is committed into cleaning up its balance sheet and positioning the firm for sustainable growth in the coming years.
At the end of November, the company retired nearly $80 million in short term debt by issuing Senior Subordinated Notes due in 2018.
SGMS already boasts an 80% market share in the U.S. lottery market. Thus, the real growth engine for the firm will come from emerging markets.
SGMS is already focusing on growing these markets by working on gaining a larger footprint in the China market where its instant ticket retail sales have posted an impressive 28% gain in the latest quarter.
Following this success is a recent agreement signed between SGMS and China Sports Lottery Printing which o"ers great growth opportunities for this fast-expanding market. I find this even more intriguing as we have seen gaming stocks such as Wynn Resorts and Las Vegas Sands provide investors with huge gains based on their sales growth in Macau.
At some point, I expect analysts and investors alike to begin waking up to the Asian growth story happening at SGMS.
Like all companies, SGMS does face competitive pressures in all markets. In fact, last year the firm reported operating margins of 23%, a 5 year low for the company. This will need to be monitored over the next couple of quarters along with EPS and revenue growth.
Nevertheless, I see the recent management shakeup, swell of insider buying and market expansion in Asia to o"er investors a compelling turnaround story worth gambling on. I have a 12-month price target of $17 on SGMS.
Top Stocks Paying Dividends In 2011:Emerson Radio (MSN)
By Bill Matthews
"Emerson Radio (NYSE: MSN) is an atttractive, low-priced stock," says Bill Matthews, a specialist in lower-priced issues.
The advisor, who has been publishing The Cheap Investor for nearly 3 decades, suggests, "The stock has the potential for significant appreciation in 2011."
"In this market, we wanted to recommend a quality low priced stock that is relatively safe, has good increasing revenues and outstanding earnings. We are also looking for a stock that is selling at an attractive low price, and has the potential for significant growth and stock appreciation in 2011. Emerson Radio fits these criteria.
"Emerson Radio is a household name. Together with its subsidiaries, it engages in designing, marketing, selling, and licensing various consumer appliance, electronic and house ware products.
"It products are sold in the United States and internationally. Emerson Radio Corp. markets its products under the Emerson and HH Scott brands.
"The company distributes its products primarily through mass merchandisers, discount retailers, toy retailers, and distributors and specialty catalogers in the United States.
"Emerson has an excellent balance sheet with $29 million or $1.06 per share in cash, a book value of $2.25 per share and less than $6 million in debt. Insiders own 65% of the 27 million total shares outstanding and 22 institutions own 17% of the float.
"Emerson has excellent financials for the six-month period ended September 30. Revenues are $107 million up from $97 million a year ago. Net income is $4.3 million or $0.16 a share up from a loss of ($242,000) or (.01) a share verses a year ago.
"If you look at Emerson’s stock chart between June 2002 and June 2003, you’ll see that the price soared from $1.50 to $7.50 because of excellent revenue and earnings increases. We believe, that if Emerson continues its earnings growth, the price could skyrocket again."
Top Stocks Paying Dividends In 2011:Timberline Resources
by Gene Arensberg, editor Got Gold Report
Timberline Resources (TLR) is a soon-to-be gold producer that we believe has been overlooked by the market. However, we doubt it will remain overlooked for much longer.
Overall, I consider this a strongly undervalued stock that is highly likely to have a string of excellent news in 2011.
Not exactly a household name, Timberline's management teamed up with the premier underground mining and development company in North America, Small Mine Development (SMD), to develop the Butte Highlands gold deposit just south of Butte, Montana.
Timberline provided the project; SMD provides the development funding and knowhow to bring the gold ore out from under Nevin Hill.
When we visited the future mine in June of 2010, the 16-foot tall and 14-foot wide development ramp had already been excavated nearly 1,000 feet down. Timberline shareholders benefit from the SMD partnership because the company did not have to heavily dilute the share structure in order to raise the development capital
to get the gold ore out of the ground.
In addition, the company will spare investors the cost of building an expensive processing mill because the ore can be hauled to nearby existing third-party processing facilities already permitted and operational in Montana. Once the development capital has been recovered through production, the partners will share the net proceeds of the gold mined at Butte on a 50/50 basis.
Timberline estimated in 2010 that the cost of production for the gold would be less than U.S. $500 the ounce given the richness (high grade) of the deposit. With gold above $1,300 the ounce that means that the Butte Highlands project should enjoy significant positive cash ?ow once production, estimated to be about 50,000 to 70,000 ounces per year, begins.
The mine could be operational for approximately ten years at that production level, perhaps longer if there are additional resources discovered just ahead.
Top Stocks Paying Dividends In 2011:FPL (FPL)
By Vita Nelson
Vita Nelson is well-known as a leading expert on dividend reinvestment plans.
With the caveat that she always recommends portfolio diversification, the editor of The MoneyPaper looks to utility stock FPL (NYSE: FPL) as a top selection for 2011.
"We make a point of recommending that people don't pin their hopes on just one stock (which might underachieve in the short-run).
"Nevertheless, as a top pick for the comin year, I like FPL Group is the parent of Florida Power & Light, a utility that engages in the generation, transmission, and distribution of electricity to 4.5 million customers in a 27,650 square mile area of eastern and southern Florida.
"Its NextEra Energy Resources subsidiary is a non-regulated power generator that produces electricity from nuclear, natural gas, solar, and wind generation.
"It owns 48 wind farms in 15 states producing 4,100 megawatts and could double that output within the next four years.
"The company is expected to earn about $4.15 per share this year and $4.57 in 2011, compared with $3.84 in 2008.
"The dividend has been increased for 15 consecutive years and the annual payout now stands at $1.90 per share, for a yield of about 3.4%."
Top Stocks Paying Dividends In 2011:Allot Communications
by Ian Wyatt, editor Small Cap Investor PRO
The smartphone revolution -- with web-browsing, video-watching, music-streaming mobile devices -- has made bandwidth a scarce resource.
That's where Allot Communications (ALLT) comes in. Allot is an Israeli company that develops deep packet inspection (DPI) technology specifically designed to manage bandwidth use Consumers want phones that let them listen to music, surf the web, watch video, and access a wide array of applications. Maybe even occasionally make a call or two. Allot's solutions are critical for Internet Service Providers (ISP), cable companies, landline operators, mobile phone companies, businesses and governments.
The company has consistently grown overseas in Europe, Asia, and South America. The U.S. still represents a huge growth market, if and when regulations permit carriers to implement Allot's technology. Allot's third quarter was a good one. The company increased revenue by 36 percent to $14.7 million year-over-year.
Quarter-over-quarter revenue also increased, by 8 percent, marking the sixth consecutive quarter of sequential revenue growth. On a GAAP basis, Allot earned $0.03 per share, a nice improvement over a $0.10 loss in the third quarter of 2009.
But what I really like here is that the company ended the quarter with $56.2 million in cash and essentially zero debt. Allot is a play on the future growth of smartphones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior.
What's more, this tiny company is a potential takeout candidate and management has shown an ability to orchestrate acquisitions in the past.
Top Stocks Paying Dividends In 2011:PepsiCo (PEP)
By Jim Stack
"PepsiCo (NYSE: PEP), my top pick for 2011, remains underrated by the market," says Jim Stack.
The money manager and editor of InvesTech Market Analyst suggests, "All too often, it’s viewed as a stodgy soft drink company, fully reliant on its namesake soda line. That's a misconception." Here, the sets the record straight.
"In reality, PepsiCo owns some of the most sought after brands in the world, including Gatorade, Tropicana, Frito-Lay, and Doritos. It does business in more than 200 countries worldwide, including key emerging market economies like China and India.
"Perhaps most important of all, it’s a growth company with analysts expecting long-term future earnings growth of 10-12% per year.
"In recent months, PepsiCo has taken another major step forward with the pending acquisition of its two primary bottlers – Pepsi Bottling Group and PepsiAmericas.
"The acquisition provides the potential to eliminate an estimated $500 million to $1 billion in redundant costs. If those cost savings are transferred directly to the bottom line, shareholders could see a significant increase in net income of 10% to 20%.
"Of perhaps even greater benefit, the purchase brings 80% of North American beverage distribution 'in-house.' This move will bring management one step closer to its final customers – injecting a level of flexibility into operations not often seen with a company of PepsiCo’s size.
"The acquisition further ties together the Pepsi story – a well run company with market leading growth positions and an attractive valuation.
"The executive suite neatly combines the beverage 'megabrands' such as Pepsi, Gatorade, Tropicana, and Mountain Dew with the world’s largest snack food company, Frito-Lay.
"Management then leverages these brands into international growth markets such as Latin America and Asia where sales volume increased more than 20% in 2008, and despite the most challenging world economy in decades, has seen high single-digit growth so far in 2011.
" On top of all this, Pepsi is currently trading at valuation levels not seen in 15 years. And although it’s a growth company, Pepsi still o?ers the dividend yield (3.0%) of a stalwart.
"Bottom line, Pepsi remains underrated by the market in general, and the bottler acquisition only enhances the company’s outlook."
Top Stocks Paying Dividends In 2011:United States Oil Fund
by John Nyaradi, editor Wall Street Selector
Oil prices have been on a roller coaster ride during 2010, and as we look ahead to 2011, "black gold" looms as one of the potentially most lucrative markets for investors around the world.
For bullish investors wanting to participate in this market, my top pick for 2011 is United States Oil Fund (USO).
Oil is a confusing market because the bulls argue that as the recovery in the United States and around the world gathers force, there will be growing demand for oil and energy.
On the other side of the argument, bears say that demand is still weak, global supply is high and unemployment will be an inevitable drag on the price of oil going forward. United States Oil Fund is an Exchange Traded Fund that tracks the price of West Texas Intermediate Crude Oil, "light, sweet crude."
It's a widely traded ETF with daily volume in the millions and widely used by both institutions and retail investors.
USO gives retail investors the opportunity to participate in the commodities markets without actually buying futures contracts directly.
The fund buys oil futures contracts, forwards and swaps and is organized as a limited partnership and so has some tricky tax implications that you need to understand before investing.
Almost everyone agrees that the long term outlook for energy prices is higher as the emerging markets build out and their demand for oil increase.
Short term trends are more challenging; commodity trading isn't for the faint of heart or unprepared and the same holds true for exchange traded funds that track commodities and commodity indexes.
However, oil is one of the largest and most important markets as energy makes the world go 'round; in 2011 oil could be a place to look for fast paced profits. Learn more about this financial newsletter at John Nyaradi's Wall Street Selector.
Top Stocks Paying Dividends In 2011:ImmunoGen (IMGN)
By John McCamant
"Out top stock pick for 2011 is ImmunoGen (NASDAQ: IMGN)," says biotech specialist John McCamant.
In his The Medical Technology Stock Letter, he explains, "The company’s potent cancer-cell killing antibodies were developed for targeted delivery to tumor cells.
"Specifically, IMGN’s TAP technology uses antibodies to deliver one of the company's proprietary cancer-cell killing agents specifically to tumors. These agents are 1,000 –10,000-fold more potent than standard chemotherapeutics and are designed to be attached to antibodies using one of the Company’s engineered linkers "IMGN’s lead drug candidate is T-DM1 which is Genentech’s Herceptin with the addition of IMGN’s powerful TAP technology.
"The company recently delivered positive Phase 2b data for TDM-1 in breast cancer patients that have failed all previous treatments. This positive data should allow the drug candidate to be filed for FDA approval in the first half of 2011.
"Adding to our enthusiasm is that Roche is also starting a single agent T-DM1 trial in adjuvant mBC, the biggest and most lucrative breast cancer market.
"This exceeds the expectations for most of Wall Street as they only expect sales for late-stage breast cancer, a much smaller market. We believe that Roche's ultimate goal is to gain approval of T-DM1 for all lines of HER2+ mBC, similar to Herceptin.
"In addition to T-DM1, five other compounds that make use of ImmunoGen’s TAP technology are in clinical testing.
"In addition to the company’s product pipeline, compounds utilizing the TAP technology are in clinical testing through IMGN’s collaborations with Genentech (a wholly owned member of the Roche Group), sanofi-aventis, Biogen Idec and Biotest.
"IMGN’s powerful platform technology is in itself a significant asset. In the past few years, there have been numerous premium buy-outs of companies that also have monoclonal antibody platforms.
"These buyouts have been sparked by the huge growth of anticancer antibodies such as Avastin, Rituxan, and Herceptin, all multi-billion dollar drugs.
"We believe there is a strong chance that someone steps up and buys IMGN at a premium in 2011 as they have what we believe to be the most attractive antibody platform available.
" T-DM1 is the cornerstone of IMGN’s value and is likely be approved by the end of next year.Additionally, the market for T-DM1 appears larger than expected and the most recent data represents a major transformative and de-risking event for IMGN.
"IMGN is poised to create significant shareholder value in 2011 which will either drive the stock price higher or result in a premium buyout."
Top Stocks Paying Dividends In 2011:Range Resources
by Geoffrey Seiler, editor Bullmarket.com
We have selected Range Resources (RRC), which is on our recommended buy list, as our top investment idea for 2011.
The natural gas producer recently posted a loss of 5 cents per share, versus a loss of 19 cents, a year ago. Adjusted EPS was 12 cents, topping the 10-cent consensus.
Cash ?ow from operating activities totaled $138.4 million, while cash how from operations before changes in working capital fell -18% to $140.8 million. Revenues rose 11% to $227.0 million. Natural gas, NGL and oil sales climbed 9% to $219.6 million, while natural gas, NGL and oil sales including all cash-settled derivatives declined -4% to $245.4 million.
As previously announced prior to earnings, Q3 production volumes rose 15%, and 7% sequentially, to an average of 503 Mmcfe net per day. Production was 77% natural gas and 23% natural gas liquids (NGLs) and oil.
The company said the growth came from its e"orts in the liquids-rich portion of the Marcellus Shale play in Pennsylvania, as well as the Midcontinent and Permian Basin regions.
The company drilled 78 net wells and 5 net recompletions in the quarter with a 99% success rate.
Realized oil, gas and NGL prices, after adjusting for realized cash-settled hedges and cash-settled derivatives, averaged $4.97 per mcfe for the third quarter.
This was generally below analyst estimates, and lower than the $6.35 per mcfe last year and $5.07 per mcfe for Q2.
On the hedging front, the company has 335,000 Mmbtu per day of natural gas production hedged at an average ?oor price of $5.56 and an average cap of $7.20. Meanwhile, it increased its hedge position for both 2011 and 2012. For 2011, Range has now hedged its natural gas position to 408,200 Mmbtu per day at an average ?oor price of $5.56 and an average cap of $6.48.
For 2012, Range has increased its natural gas hedges to 119,641 Mmbtu per day at an average ?oor of $5.50 and an average cap of $6.25.
In conjunction with its earnings announcement, Range also announced that it was putting up its Barnett Shale assets for sales. The assets include 53,000 acres with 360 producing wells that average approximately 120-130 Mmcfe per day. "Divesting of our Barnett Shale properties re?ects Range's strategy of focusing on per-share growth," CEO John Pinkerton said in statement. While a sale of our Barnett Shale properties will provide substantial capital, it will not inhibit our per-share production and reserve growth outlook. We currently anticipate that we can grow production and reserves in 2011 on both an absolute and per-share basis, despite losing the production and reserves associated with the planned sale."
BMO Capital analyst Dan McSpirit believes a sale could gross around $1.6 billion based on recent asset sales in the area.
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