These stocks have amazing growth prospects and are very cheap right now. I also like these companies because many of them even pay dividends.
With the Fed’s money printing scheme, it has caused the entire stock market to rise. And as long as they are pumping cash into the system, it is likely to continue to rise…until it doesn’t anymore. That also gives you a better chance at finding winners in the stock market.
A Word to Individual Investors
Before we go into the actual stocks, I should stop for a moment and mention something very important. If you are an individual investor reading this, most of your investment capital should be in index funds as the foundation for your portfolio.
Most professional money managers can’t beat the returns of index funds. That’s not to say you can’t beat the market. In fact, there are many of you that are. You should just be aware of the risks. Also, many of you pick stocks because it’s fun and you enjoy it. That’s fine too.
But if you are an individual investor, you should invest in individual stocks with just a small portion of your capital – money that you are willing to risk getting lower returns.
If you haven’t done so yet, check out this article to learn how to invest in stocks before checking out these potential great buys.
Top 10 Best Stocks to Buy Now
Here are the top 10 as I’ve looked for undervalued companies that have great growth prospects. Click on the links to get a deeper analysis.
Big Macs in China and Veggie Burgers in India! They are growing their reach into emerging markets and they are growing earnings here in the US. New products, constant innovation, strong brands and migration into urban areas is going to make this a great company to invest in for years to come.
Its the world’s most recognized brand…that means as the world’s economies grow, so grows Coca-Cola. There is a reason Warren Buffett is one of their biggest shareholders, and it’s not just because he has loved Coke since he was a kid.
Everywhere you want to be, including your smart phone. They just announced a partnership with Intel. Apple just registered iWallet as a trademark. You see where this is going. If you think swiping a credit card made you spend more money, just think about how much more consumers will spend if they can simply wave their smart phone in front of a device.
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High dividend yields with great prospects…what more could you ask for? Just crunch the numbers. There is risk involved because they are an international company, but I think it’s well worth the risk.
Apple iPhones are so popular that pirates are counterfeiting even their retail stores…that’s how you know smart phones are a growth market in China. I like China as a growth consumer market. I also think mobile technology is the future. Put those together and you get China Mobile as a good stock investment.
How $1,000 Turns Into $5.7 Million…In Just 5 Simple Steps
CF Industries Holdings, Inc (CF)
Leverage the growth of world population that is 7 billion and rising…fast. They are one of the leaders in industrializing the agricultural systems around the world.
Information and knowledge will only increase in value as time moves on and as the world advances. Accenture is on the front-end of this revolution. And the great thing about consulting is that, if you know what you are doing, you will apply all of that knowledge to your own business. This is what Accenture is doing, and seems to be doing well.
Microsoft (MSFT)
This stock has been beaten down in recent years, but it is on the verge of another Golden Age. Together with Windows 8 coming out this year, the rise of the Windows Phone platform and other major product launches, I think Microsoft is one of the best companies to invest in.
They just announced their own tablet called the Surface. This should get them back into the game for mobile development, which is going to be a huge, huge market in the next 10-20 years.
Verizon (VZ)
Mobile is the future. As you wait, get a 5% dividend. They are one of only 3 major players in this market. They also happen to have the best network and the best reputation for customer service. AT&T got a leg up by being the first to offer the iPhone. But now the playing field is leveled and there is no reason for people not to migrate toward Verizon.
More Good Stocks to Buy
Exxon Mobil (XOM)
Energy demand will only rise and supply will only fall…guess who profits in the middle?
Cisco (CSCO)
They’re going back to basics, and I think it’s working! This is a contrarian investor’s dream.
MasterCard Inc (MA)
*Please see Visa
Intel Corporation (INTC)
Do you think computers will be more or less important as time goes on?
International Business Machines Corp (IBM)
Strong company, with a strong history and a great future in the clouds. I think tech companies are generally good for growth and this is a tried and true company that I believe has a great future.
Hewlett-Packard (HPQ)
Beginning of the end or a great contrarian play? You decide.
Tata Motors (TTM)
You probably haven’t heard of them, but they are potentially in the largest car market in the world by unit volume. Some of the best investments of the next decade will be companies that cater to the middle class in the emerging markets. Tata Motors is certainly one of those companies.
Applied Materials, Inc (AMAT)
National Grid plc (ADR) (NGG)
Super Hot Stocks – Micro Cap with Huge Upside
These companies tend to be a bit riskier, but there is potential for a huge upside. I would use only what I would consider risk capital for these types of stocks. Let’s start with one that I found just today. These are good only if you have some play money to make some bets with.
Gulf Resources, Inc (GURE) - Micro cap stock with strong financials and a good looking upward trend
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Financial Analysis
I usually use Google Finance and NASDAQ for my data and stock screens. I also use the financial analysis software put out by Sageworks Inc.
For the actual analysis, I use the discounted cash flow (DCF) method for finding the intrinsic value and the earnings per share (EPS) growth rate to determine if the company is growing. There is more info on why these are the best ways to analyze stocks below.
In general, good stocks will be undervalued based on the DCF analysis and growing their EPS more than 10% a year. And from my perspective, dividends are a nice bonus.
Finding Undervalued Companies with Discounted Cash Flow (DCF)
This is a complex analysis method with a very simple idea. The idea behind this method of finding the intrinsic value is that a company is only as valuable as the money it makes.
This valuation approach takes the future free cash flow projections and discounts them to get the present value. If the DCF analysis is significantly more than the market value, than it might be a good buy. If the DCF is lower than the market value, than it might be a good one to sell or short.
Finding Growth with Earnings per Share (EPS)
The earnings-per-share is what matters to you as an investor. That is because this metric tells you how much money your share is making. Growth stocks will generally have a 5 year EPS growth rate of 15% or more.
GARP – Growth at a Reasonable Price
There are money managers and investors out there that have very strict rules for using the GARP method. I’m not as technical. I like to use a mix of intuition and common sense.
That means if I find a stock that is grossing undervalued, say by 30% or more, but has a 5 year EPS growth rate of only 12%, I will still look at it seriously as a buy.
Also, if a firm is undervalued, their EPS growth rate is not all that attractive, but they have great future prospects because of some major development or innovation, than I will consider as well.
The same goes the other way. If there is a stock with great growth history and seems to be undervalued, but they are in a market with super low barrier to entry, then I might not invest in that stock. That is because the best companies will always have some unique competitive advantage that is difficult to replicate.
Where P/E Ratio Fits in
I don’t make a big deal about P/E, probably less than most value investors. That is because I believe that P/E ratios are often deserved and is not an indication that a stock is undervalued. Sometimes, the company does really suck and they deserve a low P/E.
I do use P/E ratios for my initial screen. There are times when I find that the stock is properly valued by the market. There are other times where I find that it is undervalued. That is how P/E ratios fit into how I put companies on my watch list.
