My 10 Top Value Stocks for 2017, Part Two

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Yesterday, I published the first five of my 10 Top Value Stocks for the new year. To review my first five choices or if you missed my report, click here. Today, I present the remaining stocks poised to perform very well in 2017.

I expect the Trump effect to favor value stocks at the detriment of growth stocks in 2017. If stocks continue to rise next year, albeit at a slower pace, the advance will certainly spread to other sectors. Technology stocks, except those with sky-high valuations, should perform well, and I include Alliance Data Systems and Facebook among my 10 Top Value Stocks.

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Healthcare stocks face some problems. Changes to the Affordable Care Act and the attack on companies with overpriced drugs will cause disappointments. My healthcare pick, Celgene, is growing sales and earnings very rapidly and should perform well despite some hazards. Consumer Discretionary stocks will likely tag along for the ride, too. Toll Brothers and Starbucks are undervalued and should shine.

All of my stock selections are selling at bargain prices, and all have the potential to easily beat the stock market indexes in 2017! The current stock prices below are the closing prices on December 22.

Groups to avoid include most stocks in the Utility, Real Estate and Consumer Staples sectors, which are quite over-valued, on average.

You can read more about my 10 Top Value Stocks and receive complete coverage of more than 60 stocks in my Cabot Benjamin Graham Value Investor advisory. There you’ll not only find buy and sell advice for my Top 10 Companies, you’ll also discover additional companies in hot sectors of the economy selling at bargain prices. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for 275 stocks plus my up-to-date predictions for the Dow Jones Industrial Average. Click here to get started!

Top Value Stocks for 2017

Top Value Stock #6: Alliance Data Systems (ADS: Current Price 231.66) provides data-driven and loyalty transaction-based marketing services to businesses in a variety of industries. Recent acquisitions and new loyalty program initiatives are boosting sales and earnings growth. The company increased sales in 14 of the past 15 years, and improved EPS (earnings per share) by at least 10% every year during the past 15 years.

Alliance Data Systems initiated a quarterly dividend recently, which provides a yield of 0.9%. Sales and earnings increased 12% during the past 12 months, and will likely rise more than 12% during the next 12 months. Second- and third-quarter revenue and earnings beat estimates by a wide margin. Management expects sales and earnings growth to continue to accelerate during the next several quarters. Recent acquisitions and strength across all segments aided the better than expected results.

ADS shares are undervalued at 14.1 times 2016 EPS. The company’s balance sheet is strong with almost $1 billion in cash, and my risk rating for ADS is low risk. ADS will likely climb 53% and reach my 355.00 sell target within two years. Buy ADS at the current price.

Top Value Stock #7: Celgene (CELG: Current Price 117.87) is a biopharmaceutical company focusing on the discovery, development and commercialization of treatments for cancer and other severe conditions. The company concentrates on various cancers including multiple myeloma, leukemia and non-Hodgkin’s lymphoma, and ovarian, pancreatic and prostate cancers.

Revlimid is Celgene’s leading drug, comprising 60% of the company’s total sales. Revlimid is an oral cancer drug used to treat multiple myeloma. Celgene’s pipeline is quite promising with several drugs in late-stage development. Two recently approved drugs with blockbuster potential will accelerate sales and earnings growth during the next several years. Also, the recent purchase of Receptos will add substantial sales and earnings in future years.

Total sales are expected to advance 22% in 2016 and 17%, in 2017. Revlimid sales will climb 15% to 20% in 2016 and 2017. Earnings per share will explode, rising from $1.94 in 2015 to $4.92 in 2016 and $7.00 in 2017.

Celgene is among the fastest growing companies in the biotech sector. The company does not pay a dividend, but the balance sheet is strong with $6.4 billion in cash and manageable debt. I expect CELG to climb 44% to reach my Min Sell Price of 169.91 within two years. Buy CELG at the current price.

Top Value Stock #8: Facebook (FB: Current Price 117.40) is the world’s largest social media company. The company enables people to connect, share, discover and communicate with each other on mobile devices, personal computers and other electronic gadgets worldwide. Facebook is led by Mark Zuckerberg, the 32-year-old founder, chairman and CEO.

Facebook recently introduced Marketplace, a place for Facebook users to buy and sell items. Marketplace has launched in four countries and will expand rapidly during the next few months. Marketplace apps are now available on iPhone and Android devices, but a desktop version will be introduced soon.

Facebook’s third-quarter sales soared 56% and EPS skyrocketed 165% after increases of 59% and 184% in the second quarter. Revenue will likely advance 31% and EPS will jump 40% in 2017. The company’s current P/E is a hefty 39.4, but the forward P/E based on next 12 months’ EPS is a more reasonable 28.2. The company is expected to grow earnings at a 32% pace during the next three to five years with more rapid growth expected during the next couple of years.

Facebook is a great company with a proven track record and exceptional management. I expect FB will rise 54% and reach my Min Sell Price of 181.03 within 12 to 18 months. Buy FB at the current price.

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Top Value Stock #9: Starbucks (SBUX: Current Price 57.11) is the leading roaster and retailer of specialty coffee in the world. The company operates 25,085 stores across 74 countries. In addition to fresh-brewed coffee, the company also offers complementary food items and a selection of premium teas and other beverages.

Starbucks sells packaged coffee and tea products as well as a variety of beverages and single-serve coffee and tea products to grocery, warehouse and specialty retail stores. Starbucks also sells goods under the Teavana, Seattle’s Best Coffee and La Boulange brand names.

Starbucks’ mobile app is one of the most widely used mobile payment apps in the U.S. The company recently launched its Mobile Order & Pay service nationally and currently processes more than eight million mobile orders every month. Starbucks recently introduced nitro cold brew coffee in stores to capitalize on the explosive growth in iced coffee drinks.

At 30.1 times current EPS and a dividend yield of 1.8%, SBUX shares are not cheap, but sales and earnings growth will likely continue to advance at a steady, rapid pace. I expect the  stock price to climb 26% to reach my Min Sell Price of 71.95 before the end of 2017. Buy SBUX at the current price.

Top Value Stock #10: Toll Brothers (TOL: Current Price 31.32) designs, builds, markets and arranges financing for single-family and condominium homes in luxury residential communities. The company also develops, owns and operates golf courses and country clubs associated with its master-planned communities; develops and sells land to other builders; and develops, builds, operates and rents apartments.

Toll’s high concentration of communities in the luxury market segment and its valuable land holdings provide a solid base for future growth. Toll Brothers, unlike its competitors, sells each home before beginning construction. Toll is gaining market share because of superior construction and marketing.

Toll’s sales will likely advance 20% in 2017, while EPS could jump 35% to 3.10. Toll’s backlog of orders climbed 14% from a year ago, which bodes well for 2017 sales growth. TOL shares sell at 13.6 times current EPS, and the company maintains a very strong balance sheet with lots of cash to fund future operations. Management introduced a new line of homes at lower prices geared toward first-time buyers who have delayed buying a home.

I expect TOL’s stock price to rise 36% to my Min Sell Price of 42.71 within one to two years. Buy TOL at the current price.

You can read more about my 10 Top Value Stocks and receive complete coverage of more than 60 stocks in my Cabot Benjamin Graham Value Investor advisory. There you’ll not only find buy and sell advice for my Top 10 Companies, you’ll also discover additional companies in hot sectors of the economy selling at bargain prices. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for 275 stocks plus my up-to-date predictions for the Dow Jones Industrial Average. Click here to get started!

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