The 5 Best Stocks to Buy in 2019

A company’s share price rises and falls everyday as the forces of supply and demand shift continuously. When investing in a company, the intent is to see a significant and sustained rise in the price of the stock. In this case, the stock is purchased because of a continued imbalance by those demanding the stock. A stock’s valuation and growth outlook are two fundamental factors that create an environment for a stock to double its share price in a year.

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  • The valuation of a company is generally determined through the use of ratios and discounted earnings and cash flow models. When a company is considered a value, it is another way of saying that the company is trading at a price that is less than what the company is worth. The potential of a value investment isn’t dependent on improved earnings expectations, but rather a return to its perceived value.

    When the price of a stock changes on news, it’s because the news is shaping the outlook for a company’s future potential earnings. At least once a quarter a company announces its earnings. In that report, the company provides information about current conditions and guides future expected earnings. Also, sell-side analysts provide their estimates about the future growth prospects of a company and will issue buy and sell recommendations. A growth investment is considered when the historical earnings growth and the future expected earnings growth are above a certain threshold. Also, considerations for the effectiveness of management at using a company’s assets and generating a return on the shareholder’s investment is important.

    As this report introduces the following five stocks, the outlook is based on a combination of a company’s valuation and growth prospects. Significant changes in economic conditions, interest rates, inflation and the value of the U.S. dollar are all potential outside factors that may affect a company’s performance. However, these factors are not necessarily known ahead of time and to the degree they are already known will be reflected in the current valuation of a company and its projected earnings.

    1: IPG Photonics Corp (IPGP)

    SBUX monthly chart

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  • SBUX monthly chart

    Price: $107.71
    Dividend Yield: N/A
    Market Cap: $5.75 billion
    Enterprise Value: $5.03 billion

    Business Summary

    IPG Photonics Corporation is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company’s manufacturing facilities are located in the United States, Germany and Russia. IPG Photonics Corporation was founded in 1990 and is headquartered in Oxford, Massachusetts.

    Valuation

    Price-to-Earnings (P/E): 15.52
    PEG Ratio: 0.79
    Price-to-Book (P/B): 2.65
    Enterprise Value to EBITDA (EV/EBITDA): 7.19
    Price-to-Sales Ratio (P/S): 3.97

    The median historical value for the P/E of IPGP without non-recurring items is 22.74. With a current P/E of 15.52, the company is trading well below that value. If the P/E were to move back to its median level, the share price of IPGP would be trading at $170.42. That implies that the company is trading at a 36.7% discount to its median P/E.

    During the past five years, IPGP has an average Book Value Per Share Growth rate of 20.2% per year and a median growth rate of 16.25% over the past 13 years. Its current P/B of 2.65 is trading at a 5-year low for the company. With a current Book Value per Share of $40.59, a return to its P/B from the beginning of September or 4.34 would indicate a price $176.16. That implies a 38.8% discount to that P/B value. IPGP P/B has been as a high as 6.83 in 2018 and its historical high was 9.61 in 2011.

    During the past five years, IPGP has an average Revenue per Share Growth Rate of 17.60% per year and a median growth rate of 18.35% over the past 13 years. The current P/S ratio of 3.97 is the lowest it’s been since mid-2012. The current projected P/S ratio based on a growth rate of 5.4% per year would be 6.95. That indicates that the price of IPGP is trading at a 42.8% discount to that projected value.

    Looking at the company’s valuation ratios, a return to even the middle of last year’s valuation would lead to a 50% to 70% gain in the price of the stock.

    Profitability and Growth

    Return on Equity (ROE): 18.15%
    Return on Assets (ROA): 15.63%
    Return on Invested Capital (ROIC): 17.9%
    3-year Revenue Growth Rate: 20.9%
    3-year EBITDA Growth Rate: 24.8%

    IPGP has missed its earnings estimates in its previous two quarters by 2.2% and 0.5% respectively. Its earnings growth is expected to slow in the next two quarters but has a 5-year projected earnings growth rate of 6.5%. Over the past five years, IPGP has grown their earnings at 22.94% per year. Some of the recent earnings uncertainty has led to some of the recent weakness. The question is whether much of the negative news is priced into the stock price.

    Despite the recent earnings misses, IPGP’s operating margins are still very strong at 35.23%, which is higher than 98% of the companies in its industry. They have posted a 5-year average operating margin growth rate of 1.8% per year.

    IPGP continues to show strong operating margins and top-line revenue growth. The high margins and historical growth suggest that the 5-year projected earnings growth rate may be more pessimistic and is somewhat reflective of current uncertainty in the market. The effectiveness of management in using their assets and with little leverage through debt is impressive.

    Price Performance

    The 52-week change for IPGP is -49.47% with the 52-week high of $264.11 and its 52- week low of $106.76. The 200-dow simple moving average is currently at $191.33, which is 77.6% higher than the current price. The price is currently approaching a historical support level near $100 that is based on the 2015 to 1016 highs.

    2. Lumentum Holdings Inc (LITE)

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    SBUX monthly chart

    Price: $37.98
    Dividend Yield: N/A
    Market Cap: $2.82 billion
    Enterprise Value: $2.29 billion

    Business Summary

    Lumentum Holdings Inc. manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. The company operates through two segments, Optical Communications and Commercial Lasers.
    Lumentum Holdings Inc. was incorporated in 2015 and is headquartered in Milpitas, California.

    Valuation

    Price-to-Earnings (P/E): 8.55
    PEG Ratio: 2.15
    Price-to-Book (P/B): 2.45
    Enterprise Value to EBITDA (EV/EBITDA): 9.12
    Price-to-Sales Ratio (P/S): 1.79

    The median historical value for the P/E of LITE without non-recurring items is 28.29. The current P/E of 8.55 is near a 3-year low for the company, which is considerably lower than its median. If the P/E were to move back to its median level, the share price of LITE would be trading at $125.60. That implies that the company is trading at a 69.8% discount to its median P/E.

    During the past five years, LITE has an average Book Value Per Share Growth rate of 23.8% per year and a median growth rate of 20.05% over the past 7 years. Its current P/B of 2.45 is trading at a 3-year low for the company. With a current Book Value per Share of $15.53, a return to its P/B from the beginning of September or 4.89 would indicate a price $75.94. That implies a 50% discount to that P/B value. LITE P/B has been as a high as 5.28 in 2018 and its historical high was 7.63 in 2017.

    During the past five years, LITE has an average Revenue per Share Growth Rate of 7.5% per year and a median growth rate of 5.1% over the past 7 years. The current P/S ratio of 1.79 near a two-year low. The current projected P/S ratio based on a growth rate of 32.4% per year would be 3.86. That indicates that the price of LITE is trading at a 53.6% discount to that projected value.

    Looking at the company’s valuation ratios, a return to even the middle of last year’s valuation would lead to over a 100% gain in the price of the stock.

    Profitability and Growth

    Return on Equity (ROE): 34.98%
    Return on Assets (ROA): 19.42%
    Return on Invested Capital (ROIC): 25.04%
    3-year Revenue Growth Rate: 11.2%
    3-year EBITDA Growth Rate: 96.8%

    LITE has significantly beaten earnings estimates in its previous four quarters. Its earnings growth is expected to slow in the next quarter but has a 5-year projected earnings growth rate of 14%. Over the past five years, LITE has grown their earnings at 63.75% per year.

    From a management effectiveness perspective, LITE has been very effective at generating ROA and ROIC. The very high ROE is a function of high ROA and using leverage through debt.

    Its revenue growth rate is strong and his consistently improved their margins to generate such a high growth in EBITDA and EPS.

    Price Performance

    The 52-week change for LITE is -23.16% with the 52-week high of $74.40 and its 52- week low of $37.00. The 200-dow simple moving average is currently at $57.42, which is 50.7% higher than the current price.

    3. Constellium N.V. (CSTM)

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    Price: $6.49
    Dividend Yield: N/A
    Market Cap: $873 million
    Enterprise Value: $3.07 billion

    Business Summary

    Constellium N.V. engages in the design, manufacture, and sale of specialty rolled and extruded aluminum products for the aerospace, packaging, and automotive end- markets. The company operates in three segments: Packaging & Automotive Rolled Products, Aerospace & Transportation, and Automotive Structures & Industry. The company sells its products directly or through distributors in France, Germany, the Czech Republic, the United Kingdom, Switzerland, Italy, and the United States, as well as Tokyo, Shanghai, Seoul, and Singapore. Constellium N.V. was incorporated in 2010 and is headquartered in Schiphol-Rijk, the Netherlands.

    Valuation

    Price-to-Earnings (P/E): 5.74
    PEG Ratio: 0.02
    Price-to-Book (P/B): N/A
    Enterprise Value to EBITDA (EV/EBITDA): 4.37
    Price-to-Sales Ratio (P/S): 0.14

    The median historical value for the P/E of LITE without non-recurring items is 18.27. The current P/E of 5.74 is near a 10-year low for the company, which is considerably lower than its median. If the P/E were to move back to its median level, the share price of CSTM would be trading at $20.64. That implies that the company is trading at a 68.5% discount to its median P/E.

    During the past five years, CSTM has an average Revenue per Share Growth Rate of 1.4% per year and a median growth rate of -0.15% over the past 7 years. The current P/S ratio of 0.14 is near a multi-year low that it traded in 2016 and the first half of 2017. A value for P/S of less than 2 is generally considered a value candidate. Its difficulty achieving consistent revenue growth is a contributor for why it is trading at this level.

    CSTM has had some large nonrecurring items that has hurt their earnings and currently has negative book value. When those non-recurring items are backed out, the valuation of CSTM is quite attractive and as the company starts to post better earnings, it will have a chance to return to historical valuations.

    Profitability and Growth

    Return on Equity (ROE): N/A
    Return on Assets (ROA): 4.23%
    Return on Invested Capital (ROIC): 27.52%
    3-year Revenue Growth Rate: 9.4%
    3-year EBITDA Growth Rate: 25.6%

    CSTM has had very divergent earnings over the past four quarters. It had large negative surprises with negative earnings in the first two quarters and large positive surprises with positive earnings in the last two quarters. Its earnings growth in the next quarter is 116% from the prior year and has a 5-year projected earnings growth rate of 245.62%. Over the past five years, CSTM has had negative earnings growth of 3.78%.

    From a management effectiveness perspective, CSTM has been very effective at generating high ROIC but its ROA is fairly low. Because of the negative book value, there isn’t any equity in the company to calculate ROE.

    While the earnings picture has been pretty inconsistent in the past year, the expectations by analysts have ramped up after the past two earnings reports. As the earnings picture improves and the valuations normalize, the potential movement in the share price can be significant.

    Price Performance

    The 52-week change for CSTM is -40.46% with the 52-week high of $14.10 and its 52- week low of $6.47. The 200-dow simple moving average is currently at $10.86, which is 67.3% higher than the current price.

    4. Skyworks Solutions, Inc. (SWKS)

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    SBUX monthly chart

    Price: $62.78
    Dividend Yield: 2.23%
    Market Cap: $11.15 billion
    Enterprise Value: $10.63 billion

    Business Summary

    Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide.

    The company provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable markets. It sells its products through direct sales force, electronic component distributors, and independent sales representatives. The company was founded in 1962 and is headquartered in Woburn, Massachusetts.

    Valuation

    Price-to-Earnings (P/E): 12.51
    PEG Ratio: 0.42
    Price-to-Book (P/B): 2.74
    Enterprise Value to EBITDA (EV/EBITDA): 6.25
    Price-to-Sales Ratio (P/S): 2.97

    The median historical value for the P/E of SWKS without non-recurring items is 20.17. With a current P/E of 12.51, the company is trading well below that value. If the P/E were to move back to its median level, the share price of SWKS would be trading at $101.25. That implies that the company is trading at a 38% discount to its median P/E.

    During the past five years, SWKS has an average Book Value Per Share Growth rate of 16.2% per year and a median growth rate of 11.3% over the past 13 years. Its current P/B of 2.74 is trading at a 3-year low for the company. With a current Book Value per Share of $22.89, a return to its P/B from the beginning of September of 4.02 would indicate a price $92.01. That implies a 31.8% discount to that P/B value. SWKS P/B has been as a high as 5.31 in 2018 and its historical high was 13.71 in 2000.

    During the past five years, SWKS has an average Revenue per Share Growth Rate of 17.40% per year and a median growth rate of 8.4% over the past 13 years. The current P/S ratio of 2.97 is near its 5-year low of 2.88. With a current Revenue per Share of $21.12, a return to its 13-year median P/S of 3.58 would indicate a price $75.60. That implies a 17% discount to that P/S value.

    Looking at the company’s valuation ratios, a return to even the middle of last year’s valuation would lead to at least a 50% gain in the price of the stock.

    Profitability and Growth

    Return on Equity (ROE): 22.71%
    Return on Assets (ROA): 19.52%
    Return on Invested Capital (ROIC): 27.50%
    3-year Revenue Growth Rate: 8.1%
    3-year EBITDA Growth Rate: 12.1%

    SWKS has beaten its earnings estimates in all four of its last earnings announcements. Its 5-year projected earnings growth rate of 10.9%. Over the past five years, IPGP has grown their earnings at 21.98% per year.

    SWKS is currently achieving 33.82% operating margins and 23.74% net profit margins. That type of growth is characteristic of a growth-oriented company.

    In the trailing 12 months, SWKS is generating significant ROE, ROA and ROIC. The 19.52% ROA is a result of high net profit margin and strong asset turnover. The reason for ROE only being a little over three percent higher than ROA is a result of the low level of debt. The low debt level might end up being significant given the rising costs of borrowing in the corporate credit market.

    The recent uncertainty surrounding iPhone sales has caused the price to come under pressure. While close to 40% of their revenue comes from the iPhone, the utilization of SWKS chips in the iPhone has increased. That places this company in a position to capitalize on any upgrade cycle in Apple’s premier products.

    Price Performance

    The 52-week change for SWKS is -34.05% with the 52-week high of $115.98 and its 52-week low of $62.71. The 200-dow simple moving average is currently at $91.06, which is 45% higher than the current price.

    5. Corcept Therapeutics Incorporated (CORT)

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    SBUX monthly chart

    Price: $12.20
    Dividend Yield: N/A
    Market Cap: $1.41 billion
    Enterprise Value: $1.31 billion

    Business Summary

    Corcept Therapeutics Incorporated, a pharmaceutical company, discovers, develops, and commercializes drugs for the treatment of severe metabolic, oncologic, and psychiatric disorders in the United States. Corcept Therapeutics Incorporated was founded in 1998 and is headquartered in Menlo Park, California.

    Valuation

    Price-to-Earnings (P/E): 10.08
    PEG Ratio: N/A
    Price-to-Book (P/B): 5.46
    Enterprise Value to EBITDA (EV/EBITDA): 14.04
    Price-to-Sales Ratio (P/S): 6.54

    The highest P/E for CORT in the last year without non-recurring items is 24.52. With a current P/E of 10.08, the company is trading well below that value. If the P/E were to move back to that level, the share price of CORT would be trading at $25.5. That implies that the company is trading at a 52.2% discount to that value.

    During the past year, CORT has generated an average Book Value Per Share Growth rate of 195.4% per year. Its current P/B of 5.46 is trading at a 5-year low for the company. With a current Book Value per Share of $2.24, a return to its P/B from the beginning of the year at 10.81 would indicate a price $24.21. That implies a 49.6% discount to that P/B value.

    During the past five years, CORT has an average Revenue per Share Growth Rate of 99.4% per year and increased 76.7% in the trailing twelve months. The current P/S ratio of 6.53 near its 10-year low of 6.23.

    While CORT doesn’t post traditionally low valuation metrics for many of these ratios, they are historically low when compared to itself. Any multiple expansion coupled with a continued growth in earnings could yield significant movement in the share price of this company.

    Profitability and Growth

    Return on Equity (ROE): 95.42%
    Return on Assets (ROA): 81.87%
    Return on Invested Capital (ROIC): 95.42%
    3-year Revenue Growth Rate: 69.4%
    3-year EBITDA Growth Rate: N/A

    CORT has missed its earnings estimates by a fairly wide margin in all four of its last earnings announcements. Its 5-year projected earnings growth rate of -11.9%. Over the past five years, CORT has grown their earnings at 247.12% per year. The analyst following is fairly small for this stock and so it does make the potential for estimates to be less accurate. What is significant about CORT is the trend in its earnings. In the last three years, they have been able to post a profit and that significant growth has been manifest in the last year as well.

    CORT boasts a net profit margin of 63.83% and an operating margin of 36.31%. The high margins have led to extraordinarily high ROA, ROE and ROIC. Any expansion in the sales of the company will end up significantly impacting the profitability of this company. Also, the company carries a low level of debt, which is indicated by the slight difference in the ROA and ROE values.

    As is characteristic with many drug companies, there can be a certain amount of volatility to its share price and earnings. That volatility can often times be demonstrated with significant upward movement in its share price.

    Price Performance

    The 52-week change for CORT is -35.07% with the 52-week high of $25.96 and its 52- week low of $11.21. The 200-dow simple moving average is currently at $15.08, which is 23.6% higher than the current price.

    5 Super Trends Every Investor
    Needs To Know And
    THE STOCKS TO BUY NOW

    Super trends.

    It’s how some of the world’s most successful investors have become millionaires – and even billionaires.

    Thing is, some of these trends are playing out under the radar.

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    LEARN MORE

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