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Dick Davis Investment Digest Jan. 18, 2012
 

Dick Davis Investment Digest Jan. 18, 2012

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CommerceTel Corporation ($MFON) was listed in the "Top Picks" for communications technology in the January 18, 2012 issue of Dick Davis Investment Digest.

CommerceTel Corporation ($MFON) was listed in the "Top Picks" for communications technology in the January 18, 2012 issue of Dick Davis Investment Digest.

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    Dick Davis Investment Digest Jan. 18, 2012 Dick Davis Investment Digest Jan. 18, 2012 Document Transcript

    • Issue 711 Thirty-one years in publication January 18, 2012 Contents Welcome to the Dick Davis Investment Digest’s special beginning-of-the-year issue, Top Picks for 2012! Top Picks 2012 1-7 Every December, the Digest invites our contributing editors to pick their single Top Picks: 8-9 favorite stock for the coming year, to be included in our January Top Picks Undervalued Stocks issue. This year we received over 50 recommendations—we had to add a Top Picks: Communi- 10 couple extra pages to hold them all! Some are story-based recommendations cations Technology of revolutionary companies, like OncoGenex Pharmaceuticals on page 7 and Top Picks: Gold 11 Tesla Motors on page 6. Others hinge on macro-scale market predictions, like and Silver most of the fund recommendations on page 12. At the extreme end of that Top Picks: Funds 12 range is Robert R. Prechter, Jr., editor of The Elliott Wave Theorist, who wrote in with an admonition rather than a stock selection: “Short the S&P. Short the Selected Top Picks 13 2011 Follow-Ups Nasdaq. Short commodities. Do not own any junk bonds, muni bonds or risky sovereign debt. Do not buy real estate yet. Be long the dollar. Hold cash.” The In This Issue 14 gold and silver bulls on page 11 are also pessimistic about the market, the For information about our economy and national currencies. contributing experts and Of course there are plenty of optimists out there too, like Ingrid Hendershot, more, visit our website: who recommends a stock, below, that would soar in an economic recovery. I, for one, hope it’s a year for the optimists and contrarians. www.dickdavis.com – Chloe Lutts, Editor TOP PICKS 2012 “Paychex, Inc. (PAYX 31.20 Nasdaq) is a leading provider of payroll, human resource and benefits outsourcing solutions for small and medium-sized businesses. With a strong brand, Paychex has more than 100 offices nationwide and serves more than 564,000 payroll clients. The company’s average client has 17 employees. Payroll processing is the bedrock of the company’s business and will continue to be so in the future. There are over 11 million businesses in the markets Paychex serves, with only a 15% penetration rate by the industry—providing plenty of future growth opportunities. The company also is focusing on selling complimentary services to its payroll clients in all markets, with growth rates in human resource services outpacing payroll growth. Turbulent economic times and high unemployment have proven challenging for Paychex’s operations in recent years as many small businesses have struggled, although business trends are now improving. Management reaffirmed its guidance for fiscal 2012 with revenues growing in the range of 7%-9% and earnings growing in the range of 5%-7%. Despite difficult business conditions, Paychex’s operations remain highly profitable. Excellent net profit margins have averaged more than 26% over the last five years, which have contributed to the company’s outstanding 35% average return on shareholders’ equity over the same period. These high returns are even more impressive when one considers that the company operates with a cash-rich and debt-free balance sheet. With minimal capital expenditure needs, the company generates bountiful free cash flows. Paychex has returned most of this cash to shareholders through share repurchases and dividends. The stock dividend currently yields a generous 4.3%, and management remains intent on maintaining its strong dividend policy with a target of paying out 80% of earnings. Long-term investors should consider picking up a paycheck from Paychex, a HI- quality company with a strong brand, profitable operations and a generous dividend yield. Buy.” Ingrid R. Hendershot, CFA, Hendershot Investments, www.hendershotinvestments.com, 703-361-6130 Dick Davis Investment Digest brings you the best investing ideas from the world’s most successful experts, hand-selected by our editors using our impartial time-tested system.
    • TOP PICKS 2012“McDonald’s Corp. (MCD 100.55 NYSE) this iconic “TeamStaff, Inc. (TSTF 2.19 Nasdaq)—This outfit thatrestaurant chain now operates 32,943 restaurants in 117 provides staffing services to the government is in thedifferent countries. The company recently reported same- midst of a strong recovery after being in dire straits.store sales growth of 7.4% and third quarter earnings That helped the company do better than a stock priceper share of $1.45, which is 12% higher than the same triple in 2011 and it looks like there is lots more ahead.period a year ago. These are excellent numbers given A new management team has refocused the enterprisethe current tough economic conditions that exist across and revenues have stabilized and though still not quite atthe globe. The company has a very rare A++ financial break-even, the much larger losses have been stemmed.strength rating. Not only is McDonald’s financially Though still cash poor, the company has pared downstrong, its technical picture is bright. The stock has its debt to less than $1.5 million and cash flow fromtrounced the S&P 500 this year, gaining 31%. The stock operating activities has turned positive. Insiders, whois not only trading at a 52-week high, it is close to an were buying lots of shares in the first three months ofall-time high. The company also sports a very attractive 2011, now own more than 50% of the company. Perhapsyield of 2.90%. We would expect the stock to be a star it is the backlog in contracts, which is around $160performer again in 2012.” million, that is warming the cockles of their hearts. TheDan Sullivan, The Chartist, www.thechartist.com, 800-942-4278 company only has about six million shares outstanding, so if a suitor decides to come calling, they can likely“Alcoa, Inc. (AA 9.76 NYSE) is the world’s leading buy this enterprise with annual revenues north of $40producer of primary and fabricated aluminum, as well as million for about $20 million. It would not be surprisingthe world’s largest miner of bauxite and refiner of alumina. to see a firm on the acquisition trail make a run at thisIn addition to inventing the modern-day aluminum small player.”industry, Alcoa innovation has been behind major Benj Gallander, Contra the Heard, www.contratheheard.com,milestones in the aerospace, automotive, packaging, 416-410-4431building and construction, commercial transportation,consumer electronics and industrial markets over the “Though we admit to feeling slightly torn about the ideapast 120 years. Among the solutions Alcoa markets are of repeating our Top Stock Pick from last year again thisflat-rolled products, hard alloy extrusions and forgings, year, based on a number of factors, Affymetrix, Inc.as well as Alcoa wheels, fastening systems, castings and (AFFX 4.61 Nasdaq) is once again one of our Top Stockbuilding systems, in addition to its expertise in other Picks for the coming year. As last year’s readers willlight metals such as titanium and nickel-based super recall, the stock came close to doubling for us over thealloys. Alcoa employs approximately 61,000 people in first half of 2011—but then collapsed in the second half31 countries across the world. Institutions have been of the year in response to both deteriorating conditionsdumping the stock recently, the same as they did in in the market in which the company competes (high-March 2009 when the stock price plunged to $5.00. After throughput genetic analysis), as well as the generalthe selling stopped in 2009, the stock price ran up to slide that hit the market as a whole. However, with the$18.47. The difference between Alcoa in 2009 and today stock back under $5, we believe there is once again faris that the company was having huge losses and other more upside potential than downside risk in the stock,problems in 2009. Today, the company has restructured, especially in light of the fact that 2012 may prove to bere-opened three facilities and has seen their nine-month a surprisingly good year for biotech stocks. In additionrevenues increase to $19 billion, up from $15 billion, to this being a situation where all the bad news hasand net income of $0.71 a share, up from a loss of $0.01 probably already been ‘baked into the cake,’ we believea share a year ago. Alcoa also pays a 1.5% dividend. If the company’s market capitalization of right aroundyou analyze the turnaround we think you will agree with $300 million makes it an extremely attractive takeoverus that AA has the potential to move significantly higher candidate. AFFX is considered a strong buy under $4over the next couple years.” and a buy under $6.”Bill Mathews, The CHEAP Investor, www.thecheapinvestor.com, Nate Pile, Nate’s Notes, www.notwallstreet.com, 707-433-7903847-697-5666 Dick Davis Investment Contact us: We appreciate your feedback: Email us at Digest chloe@dickdavis.com or comments@dickdavis.com or complete our brief P.O. Box 2049 978-745-5532 survey at www.surveymonkey.com/dddsurvey. Salem, MA 01970 Subscriptions: Dick Davis Investment Digest is published 24 times a Chloe Lutts, Editor subs@dickdavis.com year. Issue 712 will be published on February 1, 2012.Page 2 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS 2012“Zhongpin, Inc. (HOGS 10.93 Nasdaq)—The price “Insperity, Inc. (NSP 26.68 NYSE)—In 2008 CEO-of this Chinese pork producer has been beaten down cofounder Paul Sarvadi’s 20-year-old Administaff, Inc.by fears of accounting irregularities at all Chinese encountered serious growing pains. It provided staff‘reverse merger’ firms. Some of these firms may indeed outsourcing to small- and medium-sized companies likebe fraudulent. Yet there is no evidence that any of itself. With the economy and hiring beset by recession,Zhongpin’s numbers are questionable. Management revenues stopped growing at $1.6 billion and its earningshas taken great pains to show their honesty. Sales and and stock price nose-dived. But Sarvadi had lots of cashearnings continue to grow steadily, as the Chinese and no debt. So he started shaking things up. First, hepopulation continues to increase its consumption of expanded to become a full-service human resourcespork. As the growing Chinese economy becomes more department for clients in 24 major U.S. markets,consumption-oriented and incomes continue to rise, everything from recruiting to performance management.pork demand will be driven much higher. The Chinese To reflect the transformation, he changed its name lastyuan will also slowly appreciate against the dollar, which March to Insperity. ‘It’s not in the dictionary,’ he says.will make the company’s earnings in yuan even stronger ‘It means to inspire prosperity’—both its own and thatin U.S. dollars. Earnings for 2011 could be $2 a share, of its up-and-coming clients. Today it’s paying off.while earnings in 2012 could reach $2.50 a share, for Insperity has scored eye-catching earnings surprises in25% growth. At $10, Zhongpin is selling for four times seven consecutive quarters. Analysts look for a 2011forward earnings, and only a little above tangible book jump from $0.86 to $1.27 per share, then to $1.69 invalue ($8). It is rare to find such strong growth coupled 2012 and $2.00-plus in 2013—rising at a 34% annualwith such a reasonable price. Another bonus is that the clip. NSP shares, up from 19 to 25 since September,chart is finally very positive: a move above 11 would still trade at just 14.8 times 2012 earnings and a forwardcomplete a beautiful head-and-shoulders bottom.” PEG ratio of 0.43—with a 2.4% dividend yield to boot.Daniel A. Seiver, The PAD System Report, The consensus price target is 36—and more when hiringwww.padsystemreport.com, 619-594-6887 resumes and the P/E reverts toward its 20x norm.” Stephen W. Quickel, US Investment Report,“HollyFrontier Corp. (HFC 27.75 NYSE) is an www.usinvestmentreport.com, 215-862-1313independent petroleum refiner producing gasoline,diesel fuel, jet fuel, specialty lubricant products and “The USDA predicts U.S. farmers’ net income will rise tospecialty and modified asphalt. Their operations cover $100.9 billion in 2011, up nearly 30% from year-earlierthe mid-continent, southwest and Rocky Mountain levels, reaffirming the bright spot agriculture representsregions. The company is the recent combination of a in an otherwise gloomy global economy. … The U.S.$7 billion merger with Frontier Oil. They operate five farm equipment market has expanded for 21 months inrefineries and can produce 443,000 bbl/day. They are a row, a very positive sales environment. Iowa-basedlikely the lowest cost and most profitable refiner (per Art’s Way Manufacturing Co. Inc. (ARTW 8.18barrel of oil) in the U.S. They also own a 34% interest Nasdaq) produces numerous lines of farm equipmentin Holly Energy Partners and a 75% interest in the including grinder/mixers, forage wagons, spreaders,UNEV pipeline. Holly Energy owns and operates 2,500 bailers, augers and other equipment. This quarter, themiles of pipelines along with terminals and tankage in company shifted their production to focus on higherTexas, New Mexico, Oklahoma and Utah. The UNEV margin products, to take advantage of pent-up demandpipeline [stretches] from Salt Lake City to Las Vegas for new equipment. With the new West Union, Iowa,with associated terminal facilities. Their refineries are plant up and running, the company has benefited fromup-to-date and can refine discounted, heavy and sour operational efficiencies in the agricultural equipmentcrude as well as lighter sweet crude. Their market area manufacturing division. Art’s Way also producesis one of fastest growing areas in the country and it is specialty buildings that can be used for agricultural-also a high margin market. HFC has done an excellent related laboratory and research projects. They expectjob of increasing earnings. In the 3Q, the company orders in this division to increase substantially overincreased year-over-year revenues by 142% and net year-ago levels. A very small company, they can focusincome by 786%, yet the stock is trading close to its on small market niches with robust margins, and the52-week low, dropping more than 40% since October. I fundamental valuations are well below market averages.expect earnings of $4.35 per share in 2012 and $4.75 in We think the company is well positioned in a rapidly2013. Applying a low P/E ratio of 7x provides my 12-18 expanding sector—and rising profits should push themonth target price of $33.00 per share.” share price much higher over the coming year.”Eric Dany, Stock Prospector, www.prospectornewsletters.com, Joseph Dancy, LSGI Technology Market Letter, www.lsgifund.com,866-541-5299 972-780-1805Page 3 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS 2012“My Top Stock Pick for 2012 is Quantum Rare “Tata Motors Ltd. (TTM 20.70 NYSE) is India’sEarth Developments Corp. (QRE 0.20 Toronto-V or dominant producer of commercial vehicles and controlsQREDF on the Pink Sheets). Quantum aims to have 60% of the market. The company is also a leadingits premier Niobium and rare earth project at its 9,400- manufacturer of passenger cars in India and owns theacre Elk Creek, Nebraska, property be the solution for Jaguar Land Rover (JLR) brand of luxury cars and sportAmerica’s strategic and critical Niobium needs for the utility vehicles. Tata Motors acquired JLR from Forddomestic steel and aviation industry by developing one Motor in 2008. Although Tata Motors was criticized atof the richest Niobium deposits in the world. Niobium the time for overpaying, JLR has proved to be a goodis crucial in producing high-strength low-alloy steel for acquisition, as the company was coming out with newjet thrusters, bridges, buildings, car bodies, oil and gas models that were received well by consumers. Tatapipelines, rail tracks, ship hulls, electric hybrid engines, Motors also benefited from a recovery in emergingMRI machines, TV screens and computer monitors markets that began in 2008, and a strong 2009-10.and wind turbines. The U.S. must now import 100% As a result, JLR now accounts for about 55% of Tataof its Niobium, so creating a world-class Niobium Motors’ revenues and more than 60% of earnings beforeU.S. source is a fantastic accomplishment. Quantum interest, tax, depreciation and amortization (EBITDA).announced December 20 it closed a private placement of Currently Europe accounts for 42% of JLR’s sales5,185,667 units at $0.15 per unit for total gross proceeds volumes, the U.S. for 22% and China about 11% of salesof $777,850, to be used to advance the Elk Creek project by volume. China currently contributes about 17% toand for general working capital. This is one of the highest JLR’s revenues, up from just 5% in 2009. Profit marginspotential mining situations I have investigated during are higher in China than they are in Europe or the U.S.the last 25 years—it’s one that will, in my opinion, do because there are fewer buyer incentives for mainlandwell even in a bad economic environment.” consumers. Buy up to USD20.”Lawrence C. Oakley, Conservative Speculator, Yiannis G. Mostrous, Global Investment Strategist,www.wallstreetcorner.com, 843-645-2729 www.globalinvestmentstrategist.com, 800-832-2330“New Oriental Education & Technology Group (EDU “Berkshire Hathaway, Inc. (BRK-B 77.97 NYSE) is22.36 NYSE) is the leader in the private education sector Warren Buffett’s investment vehicle. Despite its sizablein China. The company specializes in language teaching, stakes in Coca-Cola (KO), Wells Fargo (WFC) andespecially English, and test preparation courses, but Procter & Gamble (PG), Berkshire remains primarilyoffers a varied curriculum that includes primary and an insurance-oriented holding company. It whollysecondary education. With more than 11,300 teachers owns insurers (e.g., General Re, GEICO), as well asconducting classes for about 1.8 million enrollments operating companies (Burlington Northern Santa Fe,in 2010, this is a substantial business. The company’s MidAmerican Energy, Lubrizol, Helzberg Diamond,string of schools has topped 50, and there are also 400 etc.). Despite recently paying $10.7 billion for 5% ofother learning centers, nearly 30 bookstores and over IBM, Berkshire still has $64 billion in cash and bonds5,000 third-party bookstores in the New Oriental system. to invest if/when opportunities arise. In September,Revenue is driven, in part, by China’s one-child policy, the firm announced its first-ever stock repurchasewhich means that each child will have two parents and program, which allows management to buy back sharesfour grandparents who are solely devoted to helping when they trade at less than a 10% premium to bookpay tuition (and six people providing the pressure to do value. We believe the stock is unlikely to trade muchwell). There is also a general tendency in China to value below that level. At the recent price of $75, Berkshireeducational credentials as a route to success. And that shares represented a 13% premium to book value. Theattitude makes a strong base for New Oriental to build company’s annual performance fluctuates substantially,on. Revenue grew by 44% in fiscal 2011, and earnings largely depending on the results of its insurancein the three previous quarters (calendar fourth quarters subsidiaries and derivatives contracts. Its reinsuranceare always very slow) were up 42% in Q1, 100% in Q2 operations in particular typically post losses if thereand 44% in Q3. The stock has been correcting since are catastrophes, such as major hurricanes. Over time,September, dipping back to October 2010 levels, which however, all of Berkshire’s insurance operations haveprovides a low-risk entry point. The company has no proven very profitable. Thus, the stock is often moredebt and controls cash reserves of a hair over $706 volatile than the underlying businesses, which tend tomillion, which augurs well for a buildout in both bricks grow each year.”and mortar and online activities.” Steven Check, The Blue Chip Investor, www.checkcapital.com,Paul Goodwin, Cabot China & Emerging Markets Report, 800-710-5777www.cabot.net, 978-745-5532Page 4 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS 2012 TOP PICKS: IN BRIEF“Baidu.com, Inc. (BIDU 128.85 Nasdaq) was first “Chesapeake Short... In Energy Corp. (CHK 20.81purchased for our clients in August of 2005 at $94.00, NYSE) is the second-largest producer of naturaland we have continued buying right up to and including gas, a Top 15 producer of oil and natural gasthe present. Prior to year end, BIDU closed at $117.81. liquids and the most active driller of new wellsSince its inception in 2005, with earnings of 2 cents per in the U.S. The stock is selling at a 9.5 P/E Ratioshare, earnings growth continues, with 2011 estimated based on 2012 earnings estimates of $2.41 perat $2.95 and another 50% increase projected for 2012 share. The stock traded as high as $35 per shareto $4.39. Last year, BIDU declared a 10 for 1 split, so in August of this year, and we think it is a bargainanyone purchasing 100 shares in August of 2005 at at this price. We believe the stock has bottomed$9,400 would have 1000 shares with a value in excess of and will soon begin moving up.”$117,000 today. Although growth may slow because of Joseph Cotton, Cotton’s Technically Speaking,world issues, we believe growth and performance will www.cottonstocks.net, 727-289-4436continue to outperform others by comparison. Withinthe United States, Internet usage is 74%, while China “My only pick is the Rydex Dyn Inversehas an equivalent of 34%. We believe their ongoing Nasdaq-100 2X Strategy (RYVNX), which isgrowth is sustainable and will continue for years to the Rydex double-short Nasdaq fund. I own itcome. Baidu’s very impressive revenue growth greatly personally. I am expecting another market crashexceeded the industry average of 32.8%. Since the same in the last half 2012.”quarter one year ago, revenues have leaped by 94.0%. Arch Crawford, Crawford Perspectives,Growth in the company’s revenue continues to boost the www.crawfordperspectives.com, 520-577-1158earnings per share. Baidu is a Chinese-language Internetsearch provider.” “We are staying with Murphy Oil Corp. (MURDonald E. Pearson, Pearson Investment Letter, 59.01 NYSE) for our Top Pick for 2012. Thewww.pearsoncapitalinc.com, 800-510-0329 stock has moved between $40 and $70 in the past two months on takeover rumors and market“Acacia Research Corporation (ACTG 40.03 crashes. At any price under $50 we add and add;Nasdaq) acquires, develops, licenses and enforces with oil at $100, MUR is worth at least $90. Wepatented technologies. The company’s operating have margined MUR at $42 and we are 200% in.subsidiaries generate license fee revenues and related It is a better buy now than in 2008, with oil atcash flows from the granting of licenses for the use $78 or so and Murphy selling off a lot of assets, aof patented technologies that are owned or controlled. sale is near. The P/E of 6 is super cheap—there’sAcacia’s operating subsidiaries assist patent owners almost no downside risk. Even if oil goes to $40,with the prosecution and development of their patent MUR would be a buy now. There’s the 2.5%portfolios, the protection of their patented inventions cash dividend also. MUR would be worth $77from unauthorized use, the generation of licensing in a deal today.”revenue from users of their patented technologies and, Douglas Hughes, Hughes Investment Management,if necessary, with the enforcement against unauthorized www.banknewsletter.com, 888-814-7575users of their patented technologies. The company is aleader in licensing patented technologies and currently “Hologic, Inc. (HOLX 19.09 Nasdaq) is aowns or controls, on a consolidated basis, the rights to developer of imaging (mammography) andover 190 patent portfolios covering technologies used in gynecological surgical products. Recenta wide variety of industries. The languishing economy quarterly earnings of 34 cents/share were uphas increased Acacia’s value proposition within the 13% on revenue of $467 million, up 9%, bettertechnology industry as technology companies are than consensus. Booking of net income of $157.2increasingly interested in monetizing their intellectual million. Free Cash Flow (FCF) of $400.4 million.property. Over the last year, Acacia grew revenue nearly An impressive margin of 22.4%. Rebounding20% versus the prior 12-month period as the company with heavy volume through primary resistancestruck large licensing deals with the likes of Samsung at 15.80-16.50. Signaling to challenge secondaryand Research in Motion. We believe the company could resistance at 18.10-19.20. Buying Range: 16-18,earn more than $2.00 per share in the next 12 months, Near-Term Objective: 21, Intermediate-Termrepresenting a robust 70% EPS growth.” Objective: 25, Stop Loss: 15.50.”Jim Oberweis, The Oberweis Report, www.oberweisreport.com, Joseph Parnes, Shortex Market Letter, www.shortex.com,800-323-6166 800-877-6555Page 5 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS 2012“Walgreen Company (WAG 33.20 NYSE)—The “Appliance Recycling Centers of America (ARCIlargest piece of fundamental news regarding Walgreen is 5.21 Nasdaq) is finally hitting its stride. After yearsits ongoing dispute with Express Scripts (ESRX). Most of struggling to convince the appliance industry thatof the news stories in the past year have centered on this there is an intelligent and responsible way to dispose ofdispute. We expect that during 2012, the dispute will be appliances rather than dumping them into landfills, CEOresolved—for ESRX needs Walgreen a lot more than the and founder Jack Cameron is now engaged in a ventureother way around. Meanwhile, WAG continues to report with General Electric and Home Depot to collect anddecent earnings and pay a dividend large enough to shred old refrigerators when a customer buys a new one.attract money from investors concerned with yield. From The first site is at a Philadelphia plant where the energy-an options standpoint, WAG options have increased guzzling old appliances from 12 northeastern states arein expensiveness (i.e., implied volatility) over the past collected and torn into recyclable parts to be sold forsix months. This makes them attractive for the types of scrap, including the insulation and chemicals. … Thestrategies we like to use—particularly the selling of puts appliance industry is beginning to recognize that sellingwith striking prices below the current stock price. By new appliances is going to require that provision be madeselling such a put, one is collecting the premium (which for getting rid of the old appliances, both for energy andyou keep if the stock remains above the striking price). landfill reasons. Other retailers have become interestedOr, if the stock falls below the striking price, the stock in the concept. ARCI is at the core of this trend. Besidescan then be bought at an attractive price.” the recycling fees and the scrap sales, the company alsoLawrence G. McMillan, The Option Strategist, retains the carbon credits created. They earned 77 centswww.optionstrategist.com, 800-724-1817 for the first nine months of 2011, including a one-time tax credit, and should beat this performance in 2012.“Our Top Pick for 2012 is Accelrys, Inc. (ACCL 7.39 There are only six million shares outstanding.”Nasdaq), which creates databases that are used by John Gay, The Quiet Investor, 32 Kyle Ct., Willowbrook, IL 60527,research labs to study the efficacy of potential products. 630-654-1254Accelrys also sells model and simulation software thatallows the end user to create the ‘perfect product’ without “While Toyota has blanketed the U.S. with milquetoasthaving to create hundreds of physical prototypes. … For hybrid Priuses, following the standard old automakers’the first nine months of 2011, free cash flow was $25.3 game plan, and the Chevy Volt and Nissan Leaf aremillion, up from $9.8 million a year ago. ACCL’s ability uninspiring ‘appliances,’ Tesla Motors, Inc. (TSLAto generate strong cash flows gives it a fair value of 26.60 Nasdaq) has done something different. It has built$28, or four times higher than its current stock price of electric cars that are thrilling to drive. … Its first step$6.85. Accelrys also has $212 million in cash, versus a was to build and sell two-seat electric sports cars costingmarket cap of $380 million, thus 55% of the stock is in $109,000. It’s sold more than 2,000 of these Roadsterscash. The company used some of this cash to buy back (in 30 countries) and will stop after 2,500. The revenues273,000 shares in the last quarter and there is still $8 from that effort are driving work on the company’s nextmillion left on the buyback program. Backing out this car, the Model S, a sedan that sells for $57,400. … Andwar chest of cash, the stock is trading for just seven the profits from those cars will fund development of atimes our 2012 earnings estimate of $0.45 per share, mass-market car, priced around $30,000, which willmaking ACCL the cheapest stock in our portfolio. In the compete with the likes of the Toyota Camry, Honda3Q ended September 2011, Accelrys posted a net profit Accord and Ford Taurus. This strategy mimics the wayof $0.10 per share, which beat the one estimate made successful Silicon Valley companies launch products;for the quarter by two cents. It was the fifth quarter in hit the rich early adopters first, then drive costs down toa row Accelrys has posted a net profit, after making a serve the mass market. Furthermore, Tesla has boostedbig acquisition of Symyx last year that doubled the size its cash flow by inking major deals with Daimler andof the company. With a ton of cash, more acquisitions Toyota for its proprietary powertrain systems—which(and there are several under review) could double the tells me these components are the best! Not only doessize of Accelrys again within three years. … We think Tesla have revolutionary technology, it also (unlike mostACCL has the potential to be a huge winner on two car companies) has little debt and a young, bright workfronts: either the stock will increase on its own to reach force, and no retirees with costly pensions! … Long-its fair value of $28 or it will be acquired by one of the term, I rate Tesla as one of the stars of the present-daylarger players such as Thermo Fisher Scientific (TMO) automotive revolution and a high-potential long-termor Perkin-Elmer (PKI).” investment.”Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Timothy Lutts, Cabot Stock of the Month, www.cabot.net,Helena, MT 59602, 732-320-0718 978-745-5532Page 6 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS 2012“OncoGenex Pharmaceuticals, Inc. (OGXI 12.90 “A decade ago, The AES Corporation (AES 12.88Nasdaq) is The Medical Technology Stock Letter’s top NYSE) stood on the brink of bankruptcy. Two decades ofstock selection for 2012. OncoGenex is an undervalued undisciplined growth had left the company with some ofbiotech company that is in Phase III development for a the most valuable electricity assets in the world in veryvery exciting cancer drug. The company’s lead cancer attractive markets. But the company’s finances weredrug candidate is OGX-011, which has been designed disorganized and a global slump threatened to derailwith a unique mechanism of action that stops the the entire enterprise. That’s when ownership steppedproduction of clusterin, a protein that helps cancers back and handed over the reins to Paul Hanrahan, whobecome resistant to current drugs. [The company’s] engineered a massive turnaround over the next decade,second drug development candidate is OGX-027, which refocusing assets, paying off debt and building cash.is currently in a 180-patient placebo-controlled Phase II Then three months ago, the company entered a newtrial to treat bladder cancer. … Data from these trials era, as Andres Gluski became CEO. His goal: Unlockin 2012 has the potential to attract significant investor long-hidden shareholder value at the long-undervaluedinterest. OGXI is valued at just over $110 million, which 27-country power generator and distributor, includingis a significant discount to other biotech companies a first-ever dividend of $120 million (1.3%) to beginwith cancer drug candidates in Phase III development. fourth quarter of 2012 and ratchet up thereafter. TheThe company’s partner, Teva, has provided significant cornerstone of the strategy is capitalizing on scale AESvalidation for OGX-011 by partnering the cancer drug enjoys in targeted countries, while exiting others. …candidate on very lucrative terms for OncoGenex. … Management’s 2012 target is earnings per share of $1.32We believe that 2012 will be the year that Wall Street excluding items, up from $1 in 2011. It also expectsdiscovers OGXI and its cutting edge portfolio of $1.69 per share in free cash flow—up from $1.10—forcancer drug development candidates. Any significant cutting debt, buying back stock and making acquisitions.sponsorship from Wall Street could easily help the stock … Buy up to 15.”double this year. OGXI is a buy under $20.” Roger S. Conrad, Utility Forecaster, www.utilityforecaster.com,John McCamant, Medical Technology Stock Letter, 800-832-2330www.bioinvest.com, 510-843-1857 “Royal Bank of Scotland Preferred ‘Q’ (RBS-Q“InVivo Therapeutics Holdings Corp. (NVIV 2.45 15.54 NYSE) On December 12 last year the full storyOTC) is a medical device company focused on utilizing of how Royal Bank of Scotland (RBS) lost all thebiodegradable polymers as a platform technology to money in its sporran, stabbed itself with its own dirkdevelop treatments to improve function in individuals and tripped all over its kilt was revealed in the U.K.paralyzed as a result of traumatic spinal cord injury Financial Service Authority report. This has pushed[SCI]. The current standard of treatment for acute down the shares of RBS preferred stock for no goodSCI is to go in and stabilize the backbone, though not reason. The intervention by the European Central Banktouch the spinal cord itself. … InVivo’s ‘scaffold’ is a offering cheap three-year funding to commercial banksbiopolymer material already approved by the FDA for in the common currency zone now vitiates the logic ofother uses, such as sutures, that ultimately dissolves the E.U. monopoly commission ban on preferred stockinto CO2 and water. While the doctor is in there already dividends by RBS because it is 83%-controlled by thedoing the mandatory stabilization of the spine, a piece of U.K. government. [So] the RBS P and Q preferreds arethis material is cut to fit into the torn area of the spinal not paying dividends until April 2012 under the Articlecord and the patient is closed back up. It takes a couple 85 E.U. rule about competition. … These are ‘non-extra minutes. Long story short, 100% of paralyzed cumulative’ preferreds, so they do not make up missedmonkeys treated like this were walking again in three- dividends later. [However,] I would buy and expectto-five weeks. Paralyzed monkeys that were only to collect when April arrives, but others are not thatstabilized could not. … But this is not even InVivo’s long-term minded. I assume the stock price will go upbest technology. Shortly, it will be working with the when the dividend is resumed. And it will be resumed.FDA on its second product, a drug-releasing hydrogel, [Also keeping the price down,] some U.S. funds andalso for acute spinal cord injuries. And this technology institutions are barred from buying preferred sharesworks even better than using scaffolding alone. And a with dividends suspended, even by an Act of State. …third technology involving the use of scaffold polymer BUY RBS-Q under $12 for a double-digit payout levelmaterial laced with human neural stem cells works best starting in June 2012.”of all.” Vivian Lewis, Global Investing, www.global-investing.com,Tom Bishop, BI Research, www.biresearch.com 212-758-9480Page 7 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS: UNDERVALUED STOCKS“One of the advantages of the current downward trend “Every once in a while an outstanding company fallsin the stock market is that you can find values that would from grace. And that’s exactly what has happened tonot exist in an upward market. One of these companies Netflix, Inc. (NFLX 94.72 Nasdaq) over the last fiveis our latest recommendation, DeVry University, Inc. months. Through a series of self-inflected wounds,(DVY 41.64 NYSE). They have over 90 locations Netflix stock fell a remarkable 77% from its 52-weekthroughout the United States. Their degree programs high of $304. Shares now trade at around $70. But Imatch what is needed for the current job market. In believe the stock could double in the coming months.fact, 96 of the Fortune 100 companies employ DeVry Netflix is a pioneer in the video rental business. Thegraduates. As I see it, DeVry is providing a very company invented the DVD-by-mail business and hasnecessary service to remedy our current work force’s now expanded into video-on-demand. In many ways,deficiencies, whose skills are increasingly mismatched Netflix is the cable company of the 21st century. At thewith what is now required. … DeVry is currently trading end of the company’s third quarter, Netflix served 23.8in the [$40] range, which is way below its high of almost million subscribers—more than any other U.S. cable or$75 a share in 2010, even though earnings have been up satellite company. So what went wrong? Founder Reedevery year for the last eight years. It is a definite value Hastings made a series of poor decisions that puzzledwith a P/E ratio that is one-third of its average and is and infuriated subscribers, increased cancelations, andnot far above its book value. This indicator is rare for a damaged the good brand image that the company hadservice company. DeVry’s balance sheet is strong with built since its 1997 founding. But at $65-$75, there are$450 million in cash and zero long-term debt. This gives plenty of reasons to buy such an undervalued stock. Ithe company the ability to make strategic acquisitions. expect that 12 months from now, shares of Netflix willGrowth is also evident with a 23.8% return on equity. be valued at over $100. Longer term, I think $150 aOne important variable that I always look for is how share is quite reasonable.”much stock management owns. In DeVry’s case, their Ian Wyatt, Ian Wyatt’s $100k Portfolio, www.100kportfolio.com,management owns 4.4% of company stock. This gives 866-447-8625them the kind of positive long-term outlook that isessential for a company’s long term.” “I believe in 2012 the good banks will shine and beRuss Kaplan, Heartland Adviser, 5002 Dodge Street, Suite 302, stronger than the market. First Citizens BancShares,Omaha, NE 68132, 402-991-1017 Inc. (FCNCA 181.09 Nasdaq) is the anti-Bank of America (BAC). They did not get stupid like some of“Lennar Corp. (LEN 22.03 NYSE)—Throughout the others. They did not cut the dividend, or have to.market history, three-quarters of all big winners have They did not sell oodles and oodles of new stock (orbeen growth stocks, those with big sales and earnings, preferreds). Insiders own a huge stake here and havehuge profit margins and a unique and potentially for decades—they’re good operators and we like that.revolutionary new product and service. But the other … The Holding family now starts the third generationquarter of big winners have been turnaround stories, as of being FCNCA shareholders—they held on. Firstearnings rocket higher following a tough year or two or Citizens did open new offices—not close them down orthree. Today, I think homebuilding (and other housing- sell them (four different banks bought from FDIC andrelated) stocks are in the midst of a big turnaround, and Aunt Sheila’s garage sale). They did keep the balanceLennar could ride that wave to big gains in 2012. The sheet classy. They did keep their old management—company, of course, has been a terrible performer for five because they do a good job. First Citizens is knownyears as the housing bust dragged on. But, impressively, as a tight lender, they have a well-balanced loan book.Lennar has notched five straight profitable quarters … Eighty percent of the bank’s profits are in Northdespite the horrid conditions, has recently been topping Carolina or Virginia, and in both cases we expect above-estimates and has cut costs to the bone—analysts see average growth for the future in First Citizens markets.earnings leaping 59% next year. We’re already seeing In many places it is going to be maudlin-to-muted timessome pickup in broad industry statistics like housing ahead for the U.S. economy and true organic growth isstarts, which are literally coming off 50-year lows. going to be hard to find—we think FCNCA fits the bill. IThat’s a key point—no one (including me) is calling believe this is a good buy/hold stock for at least the nextfor a new housing boom, but if activity simply moves five years as the good banks gain on the dogs and pigsup to average levels, it would imply a near-doubling in who did it wrong and the good banks are rewarded fordemand! With all the weak hands out and major signs doing it right. These guys are tanned, rested and ready—of accumulation since the stock’s October low, I think that is FCNCA—a bargain up to $200.”Lennar should do very well in the year ahead.” Robert B. Howard, Positive Patterns, P.O. Box 310, Turners, MOMichael Cintolo, Cabot Market Letter, www.cabot.net, 978-745-5532 65765, 417-887-4486Page 8 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS: UNDERVALUED STOCKS“One of our favorite stocks for 2012 is OfficeMax, Inc. “The solar photovoltaic industry has been going through(OMX 4.65 NYSE), a leading seller of office products serious growing pains, with shrinking demand in thein both the business-to-business and retail channels. world’s largest market, Europe, the elimination ofThe stock declined steadily through much of 2011 as Federal cash grants in the U.S. and global overcapacityinvestors fretted about the possibility of a new recession driving module prices to record lows. The sector hasin the U.S. While OfficeMax is sensitive to economic been ravaged in 2011 and solar stock indexes are downactivity, we believe that investors have significantly over 60% for the year. Several solar companies haveoverreacted in dumping the stock. It now looks as though filed for bankruptcy and many more are now operatingthe economy isn’t doing so badly after all. Moreover, in the red. We expect demand/supply imbalances to beeven if there is some weakness in business spending, resolved during 2012 and as the sector regains footingOfficeMax is now much more efficient than it was in and returns to growth, Wall Street will once again rewardpast downturns. The company is focusing on several the winners with the valuations they deserve. During theareas for new growth, including overseas expansion, worst year on record for the solar industry, one companyincreased online presence and new ‘integrated solutions’ has managed to grow its sales year over year by 35% andfor offices. By most measures, the stock looks very grow its earnings by 52%! It is The Green Investor’s Topcheap, with a price-to-earnings ratio of less than nine Pick for 2012: Power-One, Inc. (PWER 4.57 Nasdaq).and a price-to-sales ratio of 0.05 (both based on trailing They do not manufacture solar cells or modules but the12-month numbers). Even without renewed growth, a power conversion and management electronics solarslight change in investor perceptions about OfficeMax modules require. The company’s share price got slashedcould send the stock up sharply.” with the rest of the sector, which now places it at anGeorge Putnam, III, The Turnaround Letter, extreme low valuation, and a screaming buy.”www.turnaroundletter.com, 617-573-9550 Andreas Schreyer, The Green Investor, www.sustainablebusiness.com, 631-423-3277“Transocean LTD (RIG 41.81 NYSE) had an ugly2011. … Energy prices and energy service shares fell “Asia Pacific Wire & Cable (APWC 3.17 Nasdaq)as investors worried that the U.S. recovery was stalling [makes] telecommunication and power cable andout. As the year comes to an end, the U.S. economy is enameled wire products in the Asia Pacific region,regaining momentum, oil is around $100 a barrel and primarily in Thailand, Australia, China and Singapore.some energy service shares have recovered, but not The company is based in Taiwan [and its] auditor isTransocean. Investors did not like a deal to acquire Akers, Ernst & Young, a top three auditor in the world. APWCa small Norwegian driller with equipment and expertise is consistently growing by over 20% a year and willfor harsh environment drilling, because RIG overpaid. surpass $500 million during 2011 and most likelyThe last quarter was worse than expected due primarily reach $600 during 2012. The balance sheet containsto higher costs for upgrading the fleet and longer stays $80 million in cash and sports a book value of $16.20in dry dock. Then Transocean surprised investors with (including non-controlling interest), or $11.20 basedboth a secondary offering priced at $40.25, about six upon stated book. There are presently 13.8 million fullydollars below where the shares had been trading, and diluted shares outstanding. The reasons for the weaknessa debt offering. Both issues were designed to reinforce in the stock during 2011 resulted from world events, notthe balance sheet, which suggests that the $3.16 annual corporate decisions. 1) Nuclear meltdown in Japan. 2)dividend might be trimmed or eliminated. Finally, Collapse of commodity prices because of EuropeanChevron and Transocean are being sued by the State of debt crisis. 3) The flight to the dollar caused currencyRio de Janeiro for a modest oil spill off the Brazilian losses in the third quarter. 4) The once-in-100-yearscoast. Chevron has taken full legal and financial liability flood in Thailand has disrupted APWC’s sub Charoong.for the damage, but neither company is being allowed to 5) All Asian stocks were lumped together because ofoperate in Rio’s waters. We do not view this as a long- China’s accounting scandals. All of the above caused alasting problem for RIG. … The tangible book value weakness in profits during 2011 for APWC and hurt thestands around $62. Day rates for deepwater platforms share price. We believe that APWC will be back on trackare rising to historical highs. Transocean is upgrading during 2012. [ It now] trades at half of cash and 20% ofits fleet. The dividend is nice, but this is not an income total book, is still growing by over 20%, is profitable,story. It is a recovery and growth story. We prefer to has a business model taking advantage of one of thebuy shares that are trading at a pessimism discount. RIG fastest-growing areas of the world and sports a PSR ofqualifies.” 0.1. … Target price for 2012: $6-$9.”Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com, William Velmer, S.A. Advisory, www.saadvisory.com, 801-272-4761800-825-7007Page 9 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS: COMMUNICATIONS TECHNOLOGY“Alcatel-Lucent (ALU 1.78 NYSE)—[The cell towers “Mobile—the mobile device and its burgeoning arraynow lining our highways] are a sore sight. Now envision of uses—is a trillion-dollar industry revolutionizingall of those towers disappearing and being replaced with the way information is disseminated and integrated.a little box the size of a Big Mac hamburger box. Bell As a marketing tool it has no peer, and it’s the fastestLabs, a wholly-owned subsidiary of Alcatel-Lucent, has growing sector of the advertising world. CommerceTeldeveloped such a product. It is known as LTE radio. Corp. (MFON 1.45 OTC) has over 1,500 major brandsThey can be placed on the top of a light post or the top licensing their proprietary technology for connectingof any building (or on the side.) These little boxes are and engaging consumers’ mobile phones regardlessable to relay cell phone signals with less interference of phone type, method (SMS, IVR, MMS) or wirelessthan the ugly 200-foot towers [where] cell providers are network. It allows for delivery of HD-quality graphicssharing the tower and creating inteference and loss of and animation to screens—whether broadcast, stadiumsignal. None of that is present in the Alcatel-Lucent light board or digital signage screens—connecting theradio. Production of LTE radio is expected to commence advertised company or brand to the consumer. Theshortly, and the product should be available in the early software is called C-4 and it won the Sybase Innovatorpart of 2012. Alcatel-Lucent is a leader in mobile, fixed, of the Year Award. CommerceTel’s customers includeIP and optics technologies, and a pioneer in applications McDonald’s, Pepsi, CNN, Disney, Sony Pictures,and services. Alcatel-Lucent includes Bell Labs, one of NFL, AT&T and NBC. Taken as a whole, MFON isthe world’s foremost centers for research and innovation an unknown mini tiger with multi-bag potential. I amin communications technology. An investment in Bell looking for more of the excellent quarter-over-quarterLabs would be worth more than all of ALU. They have growth it has had going forward, and I believe that we’llthousands of viable patents related to the telecom field, see them acquired at a fat multiple. It’s only a matter ofand more each day. I rate Alcatel-Lucent a Strong Buy time.”with a conservative target of $4 to $5 a share.” Dr. John Faessel, On The Market, 7685 Caminito Coromandel, LaLeo E. Rishty, Unique Situations Inc., 2563 Jardin Lane, Weston, FL Jolla, CA 92037, 858-587-859033327, 954-389-2202 “AirTouch Communications, Inc. (ATCH 2.48 OTC)“Clearfield, Inc. (CLFD 6.53 Nasdaq) designs, — With over 87% of mobile data and over 70% of mobilemanufactures and distributes fiber optic management voice initiated at home or at the office, there is no reasonproducts for the communications networks of leading wireless phones need to be mobile phones. AirTouch’sILECS, CLECs, MSO/cable TV companies and mobile HomeConneX X1500 wireless phone is certified forbroadband providers. The company helps service use on the Verizon Wireless 3G networks. The productproviders solve the ‘fiber puzzle,’ which is how to allows customers and small businesses to ‘cut the cord’reduce high costs associated with deploying, managing, to their landline service providers for both voice andprotecting and scaling a fiber optic network to deliver data, while retaining excellent phone sound quality andthe mobile, residential and business services customers full data services. In addition, AirTouch has signed awant. Based on the patented Clearview Cassette, the multi-year wholesale agreement with LightSquared.company deploys a unique single-architecture, modular Using their network, AirTouch will offer its own brandedfiber management platform that is designed to lower wireless connectivity. [AirTouch has also entered a] jointthe cost of broadband deployment and maintenance venture with one of the largest Chinese distributors ofby consolidating, protecting and distributing incoming Epson products in China, establishing AirTouch China,and outgoing fiber circuits. These end-to-end solutions a wholly-owned subsidiary of ATCH with aggressiveenable CLFD’s customers to scale their operations as plans to grow sales of its wireless devices. [The stock]their subscriber revenues increase. Fiscal year 2011 could easily surge to the 9-10 area as ATCH continues tohas been a break-out year for Clearfield. Although the position itself as a home/office-centered wireless serviceindustry was plagued with macro-economic challenges, provider, offering its proprietary unique hardware. …the company aggressively grew revenues and converted The World Health Organization estimates over twoan increasing amount of net income into shareholder billion people in the BRIC nations and N-11 (Next-11value. Key to this success has been its mobile marketing countries expected to develop leading economies) willinitiatives in which its product line was brought directly move into higher income brackets over the next fiveto customer sites. I expect that CLFD will continue years and will be demanding wireless voice, Internetits high, profitable growth rate and also expect a big and entertainment services, but have scarce landline-increase in shareholder value during 2012.” based infrastructure—an enormous market opportunity!Geoffrey Eiten, OTC Growth Stock Watch, www.otcgsw.com, Ultimate target low to mid-teens.”888-268-2479 Konrad Kuhn, The KonLin Letter, www.konlin.com, 631-744-8536Page 10 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS: GOLD & SILVER“iShares Silver Trust (SLV 29.19 NYSE)—With all “NovaGold Resources, Inc. (NG 8.81 Amex)—Ourof the debt being accumulated throughout the world analysis suggests that gold’s 34-month cycle low iswhich can never realistically be paid off, governments forming in late 2011, early 2012, and gold will advance towill eventually have to print money and devalue their new record highs through 2014 or even later. The dangercurrencies. This will create even more economic and is that we could be early, and instead of a 34-monthfinancial instability in 2012, resulting in a flight to safety cycle low, gold could continue falling to a 4.25-yearinto precious metals. As the poor man’s gold, silver cycle trough due in late 2012, early 2013. [However,]should increase in price from its current level of [$30] the even greater 25-year cycle in gold is pointed higherback to the $40.00 level.” into 2018-2022. Thus this current decline … representsDonald L. Sazdanoff, The Sovereign Advisor, 1237 Hunters Ridge, one of the favorable times for investing in your favoriteMansfield, OH 44904, 419-884-8309 gold mining stock.” Raymond A. Merriman, MMA Cycles Report, www.mmacycles.com,“My favorite way to play the Fed’s fiscal policy merry- 248-626-3034go-round is to purchase emerging gold and silverproducers. For 2012, the one I like most is Fortuna “Gold royalty companies avoid the rising costs andSilver Mines, Inc. (FSM 5.71 NYSE). The catalyst is operational problems that plague mining companies.the opening of a second mine called San Jose in Mexico. They offer low risk and upside both to the price of goldThe company’s first flagship mine, Caylloma, is located and to exploration on royalty lands. Franco Nevadain Peru. Combined 2011 Q3 silver production was up Corp. (FNV 40.11 NYSE) … has a broad portfolioby 40% to 660,750 ounces compared to 2010 Q3. Most of royalties, over 300, though only 39 are currentlycame from Caylloma. Average selling price was $35.16 producing. Nearly 70% of revenue derives from gold,per ounce, and revenues rose by 80% year-over-year. another 20% from platinum. … Franco has exposure toProduction guidance shows silver ounces doubling several world-class mines, but also has a strong growthin Q4 2011, with San Jose adding 600,000 ounces to profile, with three major new royalties, including onCaylloma’s 560,000. In 2012, Fortuna plans to produce Canada’s Detour Lake Mine, to start producing in the2.75 million ounces from San Jose. Revenues could next three years. In all, 24 of the company’s existingmore than double in the next year based on current revenues ‘have a reasonable potential’ to start producingproduction plans and stable silver prices. Accordingly, over the next five years. At the same time, capitalFortuna should enjoy robust earnings growth even if approaching $1 billion gives the company the necessarysilver prices stay flat. Near-term price target is $7.40, firepower to make acquisitions. Franco offers a low-riskwith the potential to double as forecasted production way to gain exposure to the gold market with plenty ofcomes on line.” upside and a growing dividend.”Tyler Laundon, SmallCapInvestor PRO, www.smallcapinvestor.com, Adrian Day, Adrian Day’s Global Analyst,866-447-8625 www.adriandayglobalanalyst.com, 410-224-8885“There was a study done in the 1970s that discovered “SPDR Gold Trust (GLD 160.50 NYSE)—that gold stocks tended to bottom in the fourth quarter Fundamentals are positive for gold, with ongoingand rally strongly into the end of the first quarter of financial strain in Europe and the likelihood of a slowingthe next year. … I am confident that we will see gold U.S. economy, which could encourage Dr. Bernanke andsignificantly higher in 2012, and perhaps we will see company to fire up the printing presses yet again in 2012.new highs by March. Another advantage is that the Furthermore, a recession in Europe is virtually assuredaverage gold stock is cheaper, as we [begin] the New and a marked slowdown in China will most likely rippleYear, than it was during the great crash of 2008. Now is onto our shores with slower domestic growth, both ofthe time to do a little gold mining and buy IAMGOLD which would be a boost to gold. Finally, central banksCorp. (IAG 16.24 NYSE). Iamgold operates five mines around the world have gone on a gold buying binge thatand has some very interesting development projects in is forecast to continue in 2012, which will also likelythe works. And, most important, they are producing a support gold prices. SPDR Gold Trust is currently themillion ounces a year. Gold mining is a capital intensive second-largest ETF by assets, with more than $63 billionenterprise; and these days, money is harder to find than under management, and is highly liquid, with more thangold. You need to have production, cash flow and growth 13 million shares per day average volume. For now, theprojects you can afford to exploit from internal cash. bear growls in the gold market, but 2012 could tell aIamgold has all three, and even pays a 1% dividend.” very different story.”Curtis Hesler, Professional Timing Service, www.protiming.com, John Nyaradi, Wall Street Sector Selector,406-543-4131 www.wallstreetsectorselector.com, 541-480-8584Page 11 Dick Davis Investment Digest 711 January 18, 2012
    • TOP PICKS: FUNDS“Fidelity Blue Chip Growth (FBGRX) is a diversified “The coming rally in the U.S. dollar is going to furtherbet on the large-cap growth corner of the stylebox. depress food and commodity prices. … Because soAmerica’s global leaders are gaining market share much food is allowed into the U.S., the forecast strongerworldwide, so their future is bright. The European dollar will make it pricier, depressing domestic pricessovereign debt crisis has made them unusually cheap, further, temporarily. Expiring ethanol subsidies arebut even in a worse case scenario they won’t suffer like priced into the market, so that’s not a factor. Later inthey did in 2008-2009. And they’ve got plenty of cash to 2012, we will contemplate taking positions (and thisscoop up any foreign targets that look attractive.” will be our ‘conservative’ investment selection) in theJack Bowers, Fidelity Monitor, www.fidelitymonitor.com, PowerShares DB Agriculture Fund (DBA 28.68800-397-3094 NYSE). Review the components of this ETF if you like. For more aggressive trading types, an additional“Many investors are looking for a way to add variation exists. Similar composition, but leveraged:commodities to a traditional portfolio without going all it’s the PowerShares DB Double Long Agriculturethe way to the ETFs for such items as oil, natural gas, ETN (DAG 10.29 NYSE). Too early to determine entrycoal, water, etc. A good balanced approach to this is the points.”T. Rowe Price New Era Fund (PRNEX). Like many Gene Inger, The Inger Letter Daily Briefing, www.ingerletter.com,commodities, this has not been a good year for this fund, 954-681-4711but it has a good long-term record. It has outperformedthe S&P500 in nine of the last 11 years, trailing only in “Large-cap growth funds led in 2011 and one of the2008 and this year. It has a heavy energy orientation, easiest and lowest-cost ways to participate in this areawith its largest holdings including 57% energy, 27% is through PowerShares QQQ Trust (QQQ 58.71basic materials and 9% industrials. It has a reasonable Nasdaq), an exchange traded fund (ETF) that tracks theexpense ratio of just 0.67. If you are looking for a way Nasdaq 100 index. The Nasdaq is often considered toto broaden your portfolio, consider this fund.” be a technology index, but although technology is a bigLeonard Goodall, PhD. & Wm J. Corney, PhD., No-Load Portfolios, part of the index, it’s more diversified than many people8635 W. Sahara, Suite 420, The Lakes, NV 89117, 800-743-9346 think, covering 100 large domestic and international companies. QQQ has 66% in information technology,“BBH Core Select (BBTEX)—The BBH Core Select 16% in consumer discretionary and 11% in healthcare.team employs a risk-averse investment strategy The Nasdaq also tends to avoid financial firms and thispredicated on the belief that one of the best ways has helped performance lately as financials were oneto outperform the market over time is through the of the worst-performing areas in 2011. While there arecompounding of reasonable gains and the avoidance of many Nasdaq index funds, QQQ is very liquid and onemajor losses. In attempting to achieve their objective, of the most actively traded ETFs available.”the team employs a bottom-up approach, resulting in Janet Brown, NoLoad Fund*X, www.fundx.com, 800-763-8639a relatively concentrated portfolio (25-30 holdings) ofwell-managed, established, high-quality businesses “How much longer can [treasury] rates stay at recordselling at a discount to the team’s estimate of intrinsic lows? The reward is to the downside. Parabolic movesvalue. We are confident that the BBH Core Select team always move back to the mean, but many traders havehas a sustainable investment edge derived from its lost their shirts attempting to call a bottom or a top.discipline, strength of the investment team, focus and Knowing that we are no smarter than any other investorphilosophy. During our discussions with the investment out there, we want to choose a strategy or approachteam, we found them to be extremely disciplined when that allows us plenty of duration because it could beit comes to sticking to the investment criterion. In our years before bonds revert back to the mean. There areopinion, the investment team is very strong, and strikes several ways to short bonds. My favorite way is tous as thorough, cautious and intellectually honest. The buy ProShares UltraShort 20+ Year Treasury (TBTmajority of the team is very experienced, and one member 17.96 NYSE) LEAPS calls. I like TBT because it is ahas experience as an operator of a business within their more aggressive, highly-liquid ultra-short for 20+ yearindustry coverage. Our performance expectations are Treasuries that offers LEAPS that go out until Januarythat the fund will outperform in down markets, perform 2014. Because of my conviction that the bond bubblein-line or outperform in modestly rising markets, and will eventually burst wide open, I want to have somelag in strong up markets, which has been the case over exposure to an aggressive ETF.”the fund’s history.” Andy Crowder, Options Advantage,Stephen Savage, No-Load Fund Analyst, www.nlfa.com, optionsadvantage.wyattresearch.com, 802-434-6900800-776-9555Page 12 Dick Davis Investment Digest 711 January 18, 2012
    • SELECTED TOP PICKS 2011 FOLLOW-UPS AboveNet, Inc. (ABVT) was recommended by 2 IAC/Interactive Corp. (IACI), recommended by for 1 Stock Split Newsletter at $60.89. ABVT is now The Buyback Letter at $29.41, gained 42% this year trading at $66.25 and 2 for 1 is still holding. and also began paying a dividend. Nate’s Notes selected Affymetrix, Inc. (AFFX) as Mobile Telesystems OJSC (MBT) was recommended their Top Pick again this year (see page 2). by Global Investment Strategist (then Silk Road Allot Communications Ltd. (ALLT), recommended Investor) at $20.70. Despite a loss to date, editor by Small Cap Investor PRO at $10.88, is the second- Yiannis Mostrous still recommends MBT, writing in best performing Top Pick to date, having gained December, “The company’s latest quarterly results 46%. Small Cap Investor PRO is still holding half its were solid, indicating that Mobile TeleSystems original position with a target price of $17.50. remains the leader in the Russian mobile market. Revenue increased by close to 11% year-over- Altria Group (MO), recommended at $24.33 by IQ year mainly due to strong growth in voice and data Trends, has gained approximately 20% to date and services. Sales of new handsets and modems were paid $1.58 in dividends for a yield of 6.5%. also strong. Monthly ARPU increased by 7% on Apple, Inc. (AAPL), recommended by US Investment a yearly basis to more than USD9. The company Report at $340.65, has gained 25% to date. USIR still grew faster than its competitors in the wireless data rates AAPL a buy with a target price of $500. segment, which remains the fastest-growing segment Arrow Electronics, Inc. (ARW) was recommended in the market. The capital expenditure-to-sales ratio by Cabot Benjamin Graham Value Letter at $34.30 remains relatively low, making future growth even and is now trading around $38. Editor Roy Ward still more reliable.” ranks ARW as a buy below $37.52, with a minimum Vivian Lewis, editor of Global Investing, still sell price of $55.58. recommends Seadrill (SDRL), up about 4% to date Art’s Way Manufacturing (ARTW) is recommended from its recommended price of $33.92. In early by the LSGI Advisory again this year, on page 3. December she wrote, “Seadrill boosted its dividend by only a penny, but therein lies a tale indicating that Asia Pacific Wire & Cable (APWC) was moved to its outlook is good. The new quarterly dividend is the Nasdaq this year and is recommended by S.A. $0.76. Until now, the quarterly divvie was $0.70 plus Advisory again, on page 9. an additional special dividend of a nickel per share. Bank of Marin Bancorp (BMRC) was recommended But now, that five cents is in the official long-term by Positive Patterns at $34.97. Editor Bob Howard regular dividend and will not be removed.” still recommends the stock, now trading at $38.39. Adrian Day, editor of Adrian Day’s Global Analyst, Ingrid Hendershot, editor of Hendershot Investments, still recommends Sprott Resource Corp. (SCP), still rates Cisco Systems (CSCO) a buy. writing in late October, “Best buys include ... Sprott Resource Corp., which fell well-below its previous John Gay, editor of The Quiet Investor, writes, annual lows—from $5.25 to as low as $3.60— “Cover-All Technologies (COVR), our pick for 2011, following a misunderstood, and essentially an had a small rise, but fell back to the recommended operationally-neutral but tax-beneficial, corporate price when a few of the contracts were delayed into reorganization.” the fourth quarter and early 2012. Reward will come this year.” Wal-Mart Stores (WMT), recommended by The Blue Chip Investor at $55.14, has gained 9% to date. Elephant Talk Communications (ETAK), recommended by The KonLin Letter at $2.29, is now Zhongpin (HOGS) is recommended by PAD System trading at $2.93, up 27%. Report again, on page 3. Global Defense Technology and Systems, Inc. Energy Select Sector SPDR (XLE) is up 3% from (GTEC), recommended by OTC Growth Stock Watch $68.11, where it was recommended by Investor’s ETF at $16.42, was acquired in March 2011 for 48% above Report. the recommended price, the largest gain among the The Sovereign Advisor recommends iShares Silver Top Picks. Trust (SLV), which broke even last year, again this Goldcorp, Inc. (GG), recommended at $40.86 by year, on page 11. Professional Timing Service, currently trades at Wall Street Sector Selector recommends SPDR Gold $45.85 and increased its monthly dividend from Trust ETF (GLD) again this year, building on a 20% three cents to five cents this year. gain to date (see page 11).Page 13 Dick Davis Investment Digest 711 January 18, 2012
    • IN THIS ISSUEPrices are as of January 17, 2012. Estimates for Canadian stocks are in Canadian dollars.*Using forward estimates. When available, the average estimate across all Wall Street analysts. Failing that, we’ve quoted the excerpted editor’s own estimate, if it is available.**Yield will vary as a result of price changes. Dick Davis Investment Digest presents news, information, opinions and recommendations of individuals or organizations whose views are deemed of interest. It should not be assumed that such recommendations, past or future, will be profitable or will equal past performance. The Dick Davis Investment Digest does not itself give investment advice, act as investment advisor or advocate the purchase or sale of any security or investment. All contents are derived from data believed reliable, but accuracy cannot be guaranteed. Excerpted material represents only part of the total information or viewpoint found in the original source and should not necessarily be relied on as a sole source of information and opinion for making investment decisions. The Dick Davis Invest- ment Digest is published by Cabot Heritage Corp. Officers, directors and employees of Cabot Heritage Corp. may own securities of the companies reported on in Dick Davis Investment Digest. All rights reserved. ©Cabot Heritage Corp. 2012. Reproduction of this publication in whole or in part is strictly forbidden.Page 14 Dick Davis Investment Digest 711 January 18, 2012