Dick Davis Investment Digest Jan. 18, 2012

“Paychex, Inc. (PAYX 31.20 Nasdaq) is a leading provider of payroll, human resource and benefi ts outsourcing solutions for small and medium-sized businesses. With a strong brand, Paychex has more than 100 offi ces 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 reaffi rmed its guidance for fi scal 2012 with revenues growing in the range of 7%-9% and earnings growing in the range of 5%-7%. Despite diffi cult business conditions, Paychex’s operations remain highly profi table. Excellent net profi t margins have averaged more than 26% over the last fi ve 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 fl ows. 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, profi table operations and a generous dividend yield. Buy.”

Ingrid R. Hendershot, CFA, Hendershot Investments, www.hendershotinvestments.com, 703-361-6130

Thirty-one years in publicationIssue 711 January 18, 2012

Welcome to the Dick Davis Investment Digest’s special beginning-of-the-year issue, Top Picks for 2012!

Every December, the Digest invites our contributing editors to pick their single favorite stock for the coming year, to be included in our January Top Picks issue. This year we received over 50 recommendations—we had to add a couple extra pages to hold them all! Some are story-based recommendations of revolutionary companies, like OncoGenex Pharmaceuticals on page 7 and Tesla Motors on page 6. Others hinge on macro-scale market predictions, like most of the fund recommendations on page 12. At the extreme end of that 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 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 gold and silver bulls on page 11 are also pessimistic about the market, the economy and national currencies.

Of course there are plenty of optimists out there too, like Ingrid Hendershot, 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. – Chloe Lutts, Editor

Contents

TOP PICKS 2012

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.

For information about our

contributing experts and

more, visit our website:

www.dickdavis.com

Top Picks 2012

Top Picks: Undervalued Stocks

Top Picks: Communi-cations Technology

Top Picks: Gold and Silver

Top Picks: Funds

Selected Top Picks 2011 Follow-Ups In This Issue

1-7

8-9

10

11

12

13

14

“McDonald’s Corp. (MCD 100.55 NYSE) this iconic restaurant chain now operates 32,943 restaurants in 117 different countries. The company recently reported same-store sales growth of 7.4% and third quarter earnings per share of $1.45, which is 12% higher than the same period a year ago. These are excellent numbers given the current tough economic conditions that exist across the globe. The company has a very rare A++ fi nancial strength rating. Not only is McDonald’s fi nancially strong, its technical picture is bright. The stock has trounced the S&P 500 this year, gaining 31%. The stock is not only trading at a 52-week high, it is close to an all-time high. The company also sports a very attractive yield of 2.90%. We would expect the stock to be a star performer again in 2012.”

Dan Sullivan, The Chartist, www.thechartist.com, 800-942-4278

“Alcoa, Inc. (AA 9.76 NYSE) is the world’s leading producer of primary and fabricated aluminum, as well as the world’s largest miner of bauxite and refi ner of alumina. In addition to inventing the modern-day aluminum industry, Alcoa innovation has been behind major milestones in the aerospace, automotive, packaging, building and construction, commercial transportation, consumer electronics and industrial markets over the past 120 years. Among the solutions Alcoa markets are fl at-rolled products, hard alloy extrusions and forgings, as well as Alcoa wheels, fastening systems, castings and building systems, in addition to its expertise in other light metals such as titanium and nickel-based super alloys. Alcoa employs approximately 61,000 people in 31 countries across the world. Institutions have been dumping the stock recently, the same as they did in March 2009 when the stock price plunged to $5.00. After the selling stopped in 2009, the stock price ran up to $18.47. The difference between Alcoa in 2009 and today is that the company was having huge losses and other problems in 2009. Today, the company has restructured, re-opened three facilities and has seen their nine-month revenues increase to $19 billion, up from $15 billion, and net income of $0.71 a share, up from a loss of $0.01 a share a year ago. Alcoa also pays a 1.5% dividend. If you analyze the turnaround we think you will agree with us that AA has the potential to move signifi cantly higher over the next couple years.”

Bill Mathews, The CHEAP Investor, www.thecheapinvestor.com, 847-697-5666

TOP PICKS 2012

Page 2 Dick Davis Investment Digest 711 January 18, 2012

Dick Davis Investment DigestP.O. Box 2049Salem, MA 01970

Chloe Lutts, Editor

We appreciate your feedback: Email us at [email protected] or complete our brief survey at www.surveymonkey.com/dddsurvey.

Dick Davis Investment Digest is published 24 times a year. Issue 712 will be published on February 1, 2012.

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“TeamStaff, Inc. (TSTF 2.19 Nasdaq)—This outfi t that provides staffi ng services to the government is in the midst of a strong recovery after being in dire straits. That helped the company do better than a stock price triple in 2011 and it looks like there is lots more ahead. A new management team has refocused the enterprise and revenues have stabilized and though still not quite at break-even, the much larger losses have been stemmed. Though still cash poor, the company has pared down its debt to less than $1.5 million and cash fl ow from operating activities has turned positive. Insiders, who were buying lots of shares in the fi rst three months of 2011, now own more than 50% of the company. Perhaps it is the backlog in contracts, which is around $160 million, that is warming the cockles of their hearts. The company only has about six million shares outstanding, so if a suitor decides to come calling, they can likely buy this enterprise with annual revenues north of $40 million for about $20 million. It would not be surprising to see a fi rm on the acquisition trail make a run at this small player.”

Benj Gallander, Contra the Heard, www.contratheheard.com, 416-410-4431

“Though we admit to feeling slightly torn about the idea of repeating our Top Stock Pick from last year again this year, based on a number of factors, Affymetrix, Inc. (AFFX 4.61 Nasdaq) is once again one of our Top Stock Picks for the coming year. As last year’s readers will recall, the stock came close to doubling for us over the fi rst half of 2011—but then collapsed in the second half of the year in response to both deteriorating conditions in the market in which the company competes (high-throughput genetic analysis), as well as the general slide that hit the market as a whole. However, with the stock back under $5, we believe there is once again far more upside potential than downside risk in the stock, especially in light of the fact that 2012 may prove to be a surprisingly good year for biotech stocks. In addition to this being a situation where all the bad news has probably already been ‘baked into the cake,’ we believe the company’s market capitalization of right around $300 million makes it an extremely attractive takeover candidate. AFFX is considered a strong buy under $4 and a buy under $6.”

Nate Pile, Nate’s Notes, www.notwallstreet.com, 707-433-7903

TOP PICKS 2012


“Insperity, Inc. (NSP 26.68 NYSE)—In 2008 CEO-cofounder Paul Sarvadi’s 20-year-old Administaff, Inc. encountered serious growing pains. It provided staff outsourcing to small- and medium-sized companies like itself. With the economy and hiring beset by recession, revenues stopped growing at $1.6 billion and its earnings and stock price nose-dived. But Sarvadi had lots of cash and no debt. So he started shaking things up. First, he expanded to become a full-service human resources department for clients in 24 major U.S. markets, everything from recruiting to performance management. To refl ect the transformation, he changed its name last March to Insperity. ‘It’s not in the dictionary,’ he says. ‘It means to inspire prosperity’—both its own and that of its up-and-coming clients. Today it’s paying off. Insperity has scored eye-catching earnings surprises in seven consecutive quarters. Analysts look for a 2011 jump from $0.86 to $1.27 per share, then to $1.69 in 2012 and $2.00-plus in 2013—rising at a 34% annual clip. NSP shares, up from 19 to 25 since September, still trade at just 14.8 times 2012 earnings and a forward PEG ratio of 0.43—with a 2.4% dividend yield to boot. The consensus price target is 36—and more when hiring resumes and the P/E reverts toward its 20x norm.”

Stephen W. Quickel, US Investment Report, www.usinvestmentreport.com, 215-862-1313

“The USDA predicts U.S. farmers’ net income will rise to $100.9 billion in 2011, up nearly 30% from year-earlier levels, reaffi rming the bright spot agriculture represents in an otherwise gloomy global economy. … The U.S. farm equipment market has expanded for 21 months in a row, a very positive sales environment. Iowa-based Art’s Way Manufacturing Co. Inc. (ARTW 8.18 Nasdaq) produces numerous lines of farm equipment including grinder/mixers, forage wagons, spreaders, bailers, augers and other equipment. This quarter, the company shifted their production to focus on higher margin products, to take advantage of pent-up demand for new equipment. With the new West Union, Iowa, plant up and running, the company has benefi ted from operational effi ciencies in the agricultural equipment manufacturing division. Art’s Way also produces specialty buildings that can be used for agricultural-related laboratory and research projects. They expect orders in this division to increase substantially over year-ago levels. A very small company, they can focus on small market niches with robust margins, and the fundamental valuations are well below market averages. We think the company is well positioned in a rapidly expanding sector—and rising profi ts should push the share price much higher over the coming year.”

Joseph Dancy, LSGI Technology Market Letter, www.lsgifund.com, 972-780-1805

“Zhongpin, Inc. (HOGS 10.93 Nasdaq)—The price of this Chinese pork producer has been beaten down by fears of accounting irregularities at all Chinese ‘reverse merger’ fi rms. Some of these fi rms may indeed be fraudulent. Yet there is no evidence that any of Zhongpin’s numbers are questionable. Management has taken great pains to show their honesty. Sales and earnings continue to grow steadily, as the Chinese population continues to increase its consumption of pork. As the growing Chinese economy becomes more consumption-oriented and incomes continue to rise, pork demand will be driven much higher. The Chinese yuan will also slowly appreciate against the dollar, which will make the company’s earnings in yuan even stronger in U.S. dollars. Earnings for 2011 could be $2 a share, while earnings in 2012 could reach $2.50 a share, for 25% growth. At $10, Zhongpin is selling for four times forward earnings, and only a little above tangible book value ($8). It is rare to fi nd such strong growth coupled with such a reasonable price. Another bonus is that the chart is fi nally very positive: a move above 11 would complete a beautiful head-and-shoulders bottom.”

Daniel A. Seiver, The PAD System Report, www.padsystemreport.com, 619-594-6887

“HollyFrontier Corp. (HFC 27.75 NYSE) is an independent petroleum refi ner producing gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modifi ed asphalt. Their operations cover the mid-continent, southwest and Rocky Mountain regions. The company is the recent combination of a $7 billion merger with Frontier Oil. They operate fi ve refi neries and can produce 443,000 bbl/day. They are likely the lowest cost and most profi table refi ner (per barrel of oil) in the U.S. They also own a 34% interest in Holly Energy Partners and a 75% interest in the UNEV pipeline. Holly Energy owns and operates 2,500 miles of pipelines along with terminals and tankage in Texas, New Mexico, Oklahoma and Utah. The UNEV pipeline [stretches] from Salt Lake City to Las Vegas with associated terminal facilities. Their refi neries are up-to-date and can refi ne discounted, heavy and sour crude as well as lighter sweet crude. Their market area is one of fastest growing areas in the country and it is also a high margin market. HFC has done an excellent job of increasing earnings. In the 3Q, the company increased year-over-year revenues by 142% and net income by 786%, yet the stock is trading close to its 52-week low, dropping more than 40% since October. I expect earnings of $4.35 per share in 2012 and $4.75 in 2013. Applying a low P/E ratio of 7x provides my 12-18 month target price of $33.00 per share.”

Eric Dany, Stock Prospector, www.prospectornewsletters.com, 866-541-5299

TOP PICKS 2012

“Tata Motors Ltd. (TTM 20.70 NYSE) is India’s dominant producer of commercial vehicles and controls 60% of the market. The company is also a leading manufacturer of passenger cars in India and owns the Jaguar Land Rover (JLR) brand of luxury cars and sport utility vehicles. Tata Motors acquired JLR from Ford Motor in 2008. Although Tata Motors was criticized at the time for overpaying, JLR has proved to be a good acquisition, as the company was coming out with new models that were received well by consumers. Tata Motors also benefi ted from a recovery in emerging markets that began in 2008, and a strong 2009-10. As a result, JLR now accounts for about 55% of Tata Motors’ revenues and more than 60% of earnings before interest, tax, depreciation and amortization (EBITDA). Currently Europe accounts for 42% of JLR’s sales volumes, the U.S. for 22% and China about 11% of sales by volume. China currently contributes about 17% to JLR’s revenues, up from just 5% in 2009. Profi t margins are higher in China than they are in Europe or the U.S. because there are fewer buyer incentives for mainland consumers. Buy up to USD20.”

Yiannis G. Mostrous, Global Investment Strategist, www.globalinvestmentstrategist.com, 800-832-2330

“Berkshire Hathaway, Inc. (BRK-B 77.97 NYSE) is Warren Buffett’s investment vehicle. Despite its sizable stakes in Coca-Cola (KO), Wells Fargo (WFC) and Procter & Gamble (PG), Berkshire remains primarily an insurance-oriented holding company. It wholly owns insurers (e.g., General Re, GEICO), as well as operating companies (Burlington Northern Santa Fe, MidAmerican Energy, Lubrizol, Helzberg Diamond, etc.). Despite recently paying $10.7 billion for 5% of IBM, Berkshire still has $64 billion in cash and bonds to invest if/when opportunities arise. In September, the fi rm announced its fi rst-ever stock repurchase program, which allows management to buy back shares when they trade at less than a 10% premium to book value. We believe the stock is unlikely to trade much below that level. At the recent price of $75, Berkshire shares represented a 13% premium to book value. The company’s annual performance fl uctuates substantially, largely depending on the results of its insurance subsidiaries and derivatives contracts. Its reinsurance operations in particular typically post losses if there are catastrophes, such as major hurricanes. Over time, however, all of Berkshire’s insurance operations have proven very profi table. Thus, the stock is often more volatile than the underlying businesses, which tend to grow each year.”

Steven Check, The Blue Chip Investor, www.checkcapital.com, 800-710-5777

“My Top Stock Pick for 2012 is Quantum Rare Earth Developments Corp. (QRE 0.20 Toronto-V or QREDF on the Pink Sheets). Quantum aims to have its premier Niobium and rare earth project at its 9,400-acre Elk Creek, Nebraska, property be the solution for America’s strategic and critical Niobium needs for the domestic steel and aviation industry by developing one of the richest Niobium deposits in the world. Niobium is crucial in producing high-strength low-alloy steel for jet thrusters, bridges, buildings, car bodies, oil and gas pipelines, rail tracks, ship hulls, electric hybrid engines, MRI machines, TV screens and computer monitors and wind turbines. The U.S. must now import 100% of its Niobium, so creating a world-class Niobium U.S. source is a fantastic accomplishment. Quantum announced December 20 it closed a private placement of 5,185,667 units at $0.15 per unit for total gross proceeds of $777,850, to be used to advance the Elk Creek project and for general working capital. This is one of the highest potential mining situations I have investigated during the last 25 years—it’s one that will, in my opinion, do well even in a bad economic environment.”

Lawrence C. Oakley, Conservative Speculator, www.wallstreetcorner.com, 843-645-2729

“New Oriental Education & Technology Group (EDU 22.36 NYSE) is the leader in the private education sector in China. The company specializes in language teaching, especially English, and test preparation courses, but offers a varied curriculum that includes primary and secondary education. With more than 11,300 teachers conducting classes for about 1.8 million enrollments in 2010, this is a substantial business. The company’s string of schools has topped 50, and there are also 400 other learning centers, nearly 30 bookstores and over 5,000 third-party bookstores in the New Oriental system. Revenue is driven, in part, by China’s one-child policy, which means that each child will have two parents and four grandparents who are solely devoted to helping pay tuition (and six people providing the pressure to do well). There is also a general tendency in China to value educational credentials as a route to success. And that attitude makes a strong base for New Oriental to build on. Revenue grew by 44% in fi scal 2011, and earnings in the three previous quarters (calendar fourth quarters are always very slow) were up 42% in Q1, 100% in Q2 and 44% in Q3. The stock has been correcting since September, dipping back to October 2010 levels, which provides a low-risk entry point. The company has no debt and controls cash reserves of a hair over $706 million, which augurs well for a buildout in both bricks and mortar and online activities.”

Paul Goodwin, Cabot China & Emerging Markets Report, www.cabot.net, 978-745-5532



TOP PICKS 2012

In Short...“Chesapeake Energy Corp. (CHK 20.81 NYSE) is the second-largest producer of natural gas, a Top 15 producer of oil and natural gas liquids and the most active driller of new wells in the U.S. The stock is selling at a 9.5 P/E Ratio based on 2012 earnings estimates of $2.41 per share. The stock traded as high as $35 per share in August of this year, and we think it is a bargain at this price. We believe the stock has bottomed and will soon begin moving up.”

Joseph Cotton, Cotton’s Technically Speaking, www.cottonstocks.net, 727-289-4436

“My only pick is the Rydex Dyn Inverse Nasdaq-100 2X Strategy (RYVNX), which is the Rydex double-short Nasdaq fund. I own it personally. I am expecting another market crash in the last half 2012.”

Arch Crawford, Crawford Perspectives, www.crawfordperspectives.com, 520-577-1158

“We are staying with Murphy Oil Corp. (MUR 59.01 NYSE) for our Top Pick for 2012. The stock has moved between $40 and $70 in the past two months on takeover rumors and market crashes. At any price under $50 we add and add; with oil at $100, MUR is worth at least $90. We have margined MUR at $42 and we are 200% in. It is a better buy now than in 2008, with oil at $78 or so and Murphy selling off a lot of assets, a sale is near. The P/E of 6 is super cheap—there’s almost no downside risk. Even if oil goes to $40, MUR would be a buy now. There’s the 2.5% cash dividend also. MUR would be worth $77 in a deal today.”

Douglas Hughes, Hughes Investment Management, www.banknewsletter.com, 888-814-7575

“Hologic, Inc. (HOLX 19.09 Nasdaq) is a developer of imaging (mammography) and gynecological surgical products. Recent quarterly earnings of 34 cents/share were up 13% on revenue of $467 million, up 9%, better than consensus. Booking of net income of $157.2 million. Free Cash Flow (FCF) of $400.4 million. An impressive margin of 22.4%. Rebounding with heavy volume through primary resistance at 15.80-16.50. Signaling to challenge secondary resistance at 18.10-19.20. Buying Range: 16-18, Near-Term Objective: 21, Intermediate-Term Objective: 25, Stop Loss: 15.50.”

Joseph Parnes, Shortex Market Letter, www.shortex.com, 800-877-6555

TOP PICKS: IN BRIEF

“Baidu.com, Inc. (BIDU 128.85 Nasdaq) was fi rst purchased for our clients in August of 2005 at $94.00, and we have continued buying right up to and including the present. Prior to year end, BIDU closed at $117.81. Since its inception in 2005, with earnings of 2 cents per share, earnings growth continues, with 2011 estimated at $2.95 and another 50% increase projected for 2012 to $4.39. Last year, BIDU declared a 10 for 1 split, so anyone purchasing 100 shares in August of 2005 at $9,400 would have 1000 shares with a value in excess of $117,000 today. Although growth may slow because of world issues, we believe growth and performance will continue to outperform others by comparison. Within the United States, Internet usage is 74%, while China has an equivalent of 34%. We believe their ongoing growth is sustainable and will continue for years to come. Baidu’s very impressive revenue growth greatly exceeded the industry average of 32.8%. Since the same quarter one year ago, revenues have leaped by 94.0%. Growth in the company’s revenue continues to boost the earnings per share. Baidu is a Chinese-language Internet search provider.”

Donald E. Pearson, Pearson Investment Letter, www.pearsoncapitalinc.com, 800-510-0329

“Acacia Research Corporation (ACTG 40.03 Nasdaq) acquires, develops, licenses and enforces patented technologies. The company’s operating subsidiaries generate license fee revenues and related cash fl ows from the granting of licenses for the use of patented technologies that are owned or controlled. Acacia’s operating subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, if necessary, with the enforcement against unauthorized users of their patented technologies. The company is a leader in licensing patented technologies and currently owns or controls, on a consolidated basis, the rights to over 190 patent portfolios covering technologies used in a wide variety of industries. The languishing economy has increased Acacia’s value proposition within the technology industry as technology companies are increasingly interested in monetizing their intellectual property. Over the last year, Acacia grew revenue nearly 20% versus the prior 12-month period as the company struck large licensing deals with the likes of Samsung and Research in Motion. We believe the company could earn more than $2.00 per share in the next 12 months, representing a robust 70% EPS growth.”

Jim Oberweis, The Oberweis Report, www.oberweisreport.com, 800-323-6166

TOP PICKS 2012

“Appliance Recycling Centers of America (ARCI 5.21 Nasdaq) is fi nally hitting its stride. After years of struggling to convince the appliance industry that there is an intelligent and responsible way to dispose of appliances rather than dumping them into landfi lls, CEO and founder Jack Cameron is now engaged in a venture with General Electric and Home Depot to collect and shred old refrigerators when a customer buys a new one. The fi rst site is at a Philadelphia plant where the energy-guzzling old appliances from 12 northeastern states are collected and torn into recyclable parts to be sold for scrap, including the insulation and chemicals. … The appliance industry is beginning to recognize that selling new appliances is going to require that provision be made for getting rid of the old appliances, both for energy and landfi ll reasons. Other retailers have become interested in the concept. ARCI is at the core of this trend. Besides the recycling fees and the scrap sales, the company also retains the carbon credits created. They earned 77 cents for the fi rst nine months of 2011, including a one-time tax credit, and should beat this performance in 2012. There are only six million shares outstanding.”

John Gay, The Quiet Investor, 32 Kyle Ct., Willowbrook, IL 60527, 630-654-1254

“While Toyota has blanketed the U.S. with milquetoast hybrid Priuses, following the standard old automakers’ game plan, and the Chevy Volt and Nissan Leaf are uninspiring ‘appliances,’ Tesla Motors, Inc. (TSLA 26.60 Nasdaq) has done something different. It has built electric cars that are thrilling to drive. … Its fi rst step was to build and sell two-seat electric sports cars costing $109,000. It’s sold more than 2,000 of these Roadsters (in 30 countries) and will stop after 2,500. The revenues from that effort are driving work on the company’s next car, the Model S, a sedan that sells for $57,400. … And the profi ts from those cars will fund development of a mass-market car, priced around $30,000, which will compete with the likes of the Toyota Camry, Honda Accord and Ford Taurus. This strategy mimics the way successful Silicon Valley companies launch products; hit the rich early adopters fi rst, then drive costs down to serve the mass market. Furthermore, Tesla has boosted its cash fl ow by inking major deals with Daimler and Toyota for its proprietary powertrain systems—which tells me these components are the best! Not only does Tesla have revolutionary technology, it also (unlike most car companies) has little debt and a young, bright work force, and no retirees with costly pensions! … Long-term, I rate Tesla as one of the stars of the present-day automotive revolution and a high-potential long-term investment.”

Timothy Lutts, Cabot Stock of the Month, www.cabot.net, 978-745-5532

“Walgreen Company (WAG 33.20 NYSE)—The largest piece of fundamental news regarding Walgreen is its ongoing dispute with Express Scripts (ESRX). Most of the news stories in the past year have centered on this dispute. We expect that during 2012, the dispute will be resolved—for ESRX needs Walgreen a lot more than the other way around. Meanwhile, WAG continues to report decent earnings and pay a dividend large enough to attract money from investors concerned with yield. From an options standpoint, WAG options have increased in expensiveness (i.e., implied volatility) over the past six months. This makes them attractive for the types of strategies we like to use—particularly the selling of puts with striking prices below the current stock price. By selling such a put, one is collecting the premium (which you keep if the stock remains above the striking price). Or, if the stock falls below the striking price, the stock can then be bought at an attractive price.”

Lawrence G. McMillan, The Option Strategist, www.optionstrategist.com, 800-724-1817

“Our Top Pick for 2012 is Accelrys, Inc. (ACCL 7.39 Nasdaq), which creates databases that are used by research labs to study the effi cacy of potential products. Accelrys also sells model and simulation software that allows the end user to create the ‘perfect product’ without having to create hundreds of physical prototypes. … For the fi rst nine months of 2011, free cash fl ow was $25.3 million, up from $9.8 million a year ago. ACCL’s ability to generate strong cash fl ows gives it a fair value of $28, or four times higher than its current stock price of $6.85. Accelrys also has $212 million in cash, versus a market cap of $380 million, thus 55% of the stock is in cash. The company used some of this cash to buy back 273,000 shares in the last quarter and there is still $8 million left on the buyback program. Backing out this war chest of cash, the stock is trading for just seven times our 2012 earnings estimate of $0.45 per share, making ACCL the cheapest stock in our portfolio. In the 3Q ended September 2011, Accelrys posted a net profi t of $0.10 per share, which beat the one estimate made for the quarter by two cents. It was the fi fth quarter in a row Accelrys has posted a net profi t, after making a big acquisition of Symyx last year that doubled the size of the company. With a ton of cash, more acquisitions (and there are several under review) could double the size of Accelrys again within three years. … We think ACCL has the potential to be a huge winner on two fronts: either the stock will increase on its own to reach its fair value of $28 or it will be acquired by one of the larger players such as Thermo Fisher Scientifi c (TMO) or Perkin-Elmer (PKI).”

Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Helena, MT 59602, 732-320-0718



“A decade ago, The AES Corporation (AES 12.88 NYSE) stood on the brink of bankruptcy. Two decades of undisciplined growth had left the company with some of the most valuable electricity assets in the world in very attractive markets. But the company’s fi nances were disorganized and a global slump threatened to derail the entire enterprise. That’s when ownership stepped back and handed over the reins to Paul Hanrahan, who engineered a massive turnaround over the next decade, refocusing assets, paying off debt and building cash. Then three months ago, the company entered a new era, as Andres Gluski became CEO. His goal: Unlock long-hidden shareholder value at the long-undervalued 27-country power generator and distributor, including a fi rst-ever dividend of $120 million (1.3%) to begin fourth quarter of 2012 and ratchet up thereafter. The cornerstone of the strategy is capitalizing on scale AES enjoys in targeted countries, while exiting others. … Management’s 2012 target is earnings per share of $1.32 excluding items, up from $1 in 2011. It also expects $1.69 per share in free cash fl ow—up from $1.10—for cutting debt, buying back stock and making acquisitions. … Buy up to 15.”

Roger S. Conrad, Utility Forecaster, www.utilityforecaster.com, 800-832-2330

“Royal Bank of Scotland Preferred ‘Q’ (RBS-Q 15.54 NYSE) On December 12 last year the full story of how Royal Bank of Scotland (RBS) lost all the money in its sporran, stabbed itself with its own dirk and tripped all over its kilt was revealed in the U.K. Financial Service Authority report. This has pushed down the shares of RBS preferred stock for no good reason. The intervention by the European Central Bank offering cheap three-year funding to commercial banks in the common currency zone now vitiates the logic of the E.U. monopoly commission ban on preferred stock dividends by RBS because it is 83%-controlled by the U.K. government. [So] the RBS P and Q preferreds are not paying dividends until April 2012 under the Article 85 E.U. rule about competition. … These are ‘non-cumulative’ preferreds, so they do not make up missed dividends later. [However,] I would buy and expect to collect when April arrives, but others are not that long-term minded. I assume the stock price will go up when the dividend is resumed. And it will be resumed. [Also keeping the price down,] some U.S. funds and institutions are barred from buying preferred shares with dividends suspended, even by an Act of State. … BUY RBS-Q under $12 for a double-digit payout level starting in June 2012.”

Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480

“OncoGenex Pharmaceuticals, Inc. (OGXI 12.90 Nasdaq) is The Medical Technology Stock Letter’s top stock selection for 2012. OncoGenex is an undervalued biotech company that is in Phase III development for a very exciting cancer drug. The company’s lead cancer drug candidate is OGX-011, which has been designed with a unique mechanism of action that stops the production of clusterin, a protein that helps cancers become resistant to current drugs. [The company’s] second drug development candidate is OGX-027, which is currently in a 180-patient placebo-controlled Phase II trial to treat bladder cancer. … Data from these trials in 2012 has the potential to attract signifi cant investor interest. OGXI is valued at just over $110 million, which is a signifi cant discount to other biotech companies with cancer drug candidates in Phase III development. The company’s partner, Teva, has provided signifi cant validation for OGX-011 by partnering the cancer drug candidate on very lucrative terms for OncoGenex. … We believe that 2012 will be the year that Wall Street discovers OGXI and its cutting edge portfolio of cancer drug development candidates. Any signifi cant sponsorship from Wall Street could easily help the stock double this year. OGXI is a buy under $20.”

John McCamant, Medical Technology Stock Letter, www.bioinvest.com, 510-843-1857

“InVivo Therapeutics Holdings Corp. (NVIV 2.45 OTC) is a medical device company focused on utilizing biodegradable polymers as a platform technology to develop treatments to improve function in individuals paralyzed as a result of traumatic spinal cord injury [SCI]. The current standard of treatment for acute SCI is to go in and stabilize the backbone, though not touch the spinal cord itself. … InVivo’s ‘scaffold’ is a biopolymer material already approved by the FDA for other uses, such as sutures, that ultimately dissolves into CO2 and water. While the doctor is in there already doing the mandatory stabilization of the spine, a piece of this material is cut to fi t into the torn area of the spinal cord and the patient is closed back up. It takes a couple extra minutes. Long story short, 100% of paralyzed monkeys treated like this were walking again in three-to-fi ve weeks. Paralyzed monkeys that were only stabilized could not. … But this is not even InVivo’s best technology. Shortly, it will be working with the FDA on its second product, a drug-releasing hydrogel, also for acute spinal cord injuries. And this technology works even better than using scaffolding alone. And a third technology involving the use of scaffold polymer material laced with human neural stem cells works best of all.”

Tom Bishop, BI Research, www.biresearch.com

TOP PICKS 2012

“Every once in a while an outstanding company falls from grace. And that’s exactly what has happened to Netfl ix, Inc. (NFLX 94.72 Nasdaq) over the last fi ve months. Through a series of self-infl ected wounds, Netfl ix stock fell a remarkable 77% from its 52-week high of $304. Shares now trade at around $70. But I believe the stock could double in the coming months. Netfl ix is a pioneer in the video rental business. The company invented the DVD-by-mail business and has now expanded into video-on-demand. In many ways, Netfl ix is the cable company of the 21st century. At the end of the company’s third quarter, Netfl ix served 23.8 million subscribers—more than any other U.S. cable or satellite company. So what went wrong? Founder Reed Hastings made a series of poor decisions that puzzled and infuriated subscribers, increased cancelations, and damaged the good brand image that the company had built since its 1997 founding. But at $65-$75, there are plenty of reasons to buy such an undervalued stock. I expect that 12 months from now, shares of Netfl ix will be valued at over $100. Longer term, I think $150 a share is quite reasonable.”

Ian Wyatt, Ian Wyatt’s $100k Portfolio, www.100kportfolio.com, 866-447-8625

“I believe in 2012 the good banks will shine and be stronger than the market. First Citizens BancShares, Inc. (FCNCA 181.09 Nasdaq) is the anti-Bank of America (BAC). They did not get stupid like some of the others. They did not cut the dividend, or have to. They did not sell oodles and oodles of new stock (or preferreds). Insiders own a huge stake here and have for decades—they’re good operators and we like that. … The Holding family now starts the third generation of being FCNCA shareholders—they held on. First Citizens did open new offi ces—not close them down or sell them (four different banks bought from FDIC and Aunt Sheila’s garage sale). They did keep the balance sheet classy. They did keep their old management—because they do a good job. First Citizens is known as a tight lender, they have a well-balanced loan book. … Eighty percent of the bank’s profi ts are in North Carolina or Virginia, and in both cases we expect above-average growth for the future in First Citizens markets. In many places it is going to be maudlin-to-muted times ahead for the U.S. economy and true organic growth is going to be hard to fi nd—we think FCNCA fi ts the bill. I believe this is a good buy/hold stock for at least the next fi ve years as the good banks gain on the dogs and pigs who did it wrong and the good banks are rewarded for doing it right. These guys are tanned, rested and ready—that is FCNCA—a bargain up to $200.”

Robert B. Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486

“One of the advantages of the current downward trend in the stock market is that you can fi nd values that would not exist in an upward market. One of these companies is our latest recommendation, DeVry University, Inc. (DVY 41.64 NYSE). They have over 90 locations throughout the United States. Their degree programs match what is needed for the current job market. In fact, 96 of the Fortune 100 companies employ DeVry graduates. As I see it, DeVry is providing a very necessary service to remedy our current work force’s defi ciencies, whose skills are increasingly mismatched with what is now required. … DeVry is currently trading in the [$40] range, which is way below its high of almost $75 a share in 2010, even though earnings have been up every year for the last eight years. It is a defi nite value with a P/E ratio that is one-third of its average and is not far above its book value. This indicator is rare for a service company. DeVry’s balance sheet is strong with $450 million in cash and zero long-term debt. This gives the company the ability to make strategic acquisitions. Growth is also evident with a 23.8% return on equity. One important variable that I always look for is how much stock management owns. In DeVry’s case, their management owns 4.4% of company stock. This gives them the kind of positive long-term outlook that is essential for a company’s long term.”

Russ Kaplan, Heartland Adviser, 5002 Dodge Street, Suite 302, Omaha, NE 68132, 402-991-1017

“Lennar Corp. (LEN 22.03 NYSE)—Throughout market history, three-quarters of all big winners have been growth stocks, those with big sales and earnings, huge profi t margins and a unique and potentially revolutionary new product and service. But the other quarter of big winners have been turnaround stories, as earnings rocket higher following a tough year or two or three. Today, I think homebuilding (and other housing-related) stocks are in the midst of a big turnaround, and Lennar could ride that wave to big gains in 2012. The company, of course, has been a terrible performer for fi ve years as the housing bust dragged on. But, impressively, Lennar has notched fi ve straight profi table quarters despite the horrid conditions, has recently been topping estimates and has cut costs to the bone—analysts see earnings leaping 59% next year. We’re already seeing some pickup in broad industry statistics like housing starts, which are literally coming off 50-year lows. That’s a key point—no one (including me) is calling for a new housing boom, but if activity simply moves up to average levels, it would imply a near-doubling in demand! With all the weak hands out and major signs of accumulation since the stock’s October low, I think Lennar should do very well in the year ahead.”

Michael Cintolo, Cabot Market Letter, www.cabot.net, 978-745-5532


TOP PICKS: UNDERVALUED STOCKS


TOP PICKS: UNDERVALUED STOCKS

“One of our favorite stocks for 2012 is Offi ceMax, Inc. (OMX 4.65 NYSE), a leading seller of offi ce products in both the business-to-business and retail channels. The stock declined steadily through much of 2011 as investors fretted about the possibility of a new recession in the U.S. While Offi ceMax is sensitive to economic activity, we believe that investors have signifi cantly overreacted in dumping the stock. It now looks as though the economy isn’t doing so badly after all. Moreover, even if there is some weakness in business spending, Offi ceMax is now much more effi cient than it was in past downturns. The company is focusing on several areas for new growth, including overseas expansion, increased online presence and new ‘integrated solutions’ for offi ces. By most measures, the stock looks very cheap, with a price-to-earnings ratio of less than nine and a price-to-sales ratio of 0.05 (both based on trailing 12-month numbers). Even without renewed growth, a slight change in investor perceptions about Offi ceMax could send the stock up sharply.”

George Putnam, III, The Turnaround Letter, www.turnaroundletter.com, 617-573-9550

“Transocean LTD (RIG 41.81 NYSE) had an ugly 2011. … Energy prices and energy service shares fell as investors worried that the U.S. recovery was stalling out. As the year comes to an end, the U.S. economy is regaining momentum, oil is around $100 a barrel and some energy service shares have recovered, but not Transocean. Investors did not like a deal to acquire Akers, a small Norwegian driller with equipment and expertise for harsh environment drilling, because RIG overpaid. The last quarter was worse than expected due primarily to higher costs for upgrading the fl eet and longer stays in dry dock. Then Transocean surprised investors with both a secondary offering priced at $40.25, about six dollars below where the shares had been trading, and a debt offering. Both issues were designed to reinforce the balance sheet, which suggests that the $3.16 annual dividend might be trimmed or eliminated. Finally, Chevron and Transocean are being sued by the State of Rio de Janeiro for a modest oil spill off the Brazilian coast. Chevron has taken full legal and fi nancial liability for the damage, but neither company is being allowed to operate in Rio’s waters. We do not view this as a long-lasting problem for RIG. … The tangible book value stands around $62. Day rates for deepwater platforms are rising to historical highs. Transocean is upgrading its fl eet. The dividend is nice, but this is not an income story. It is a recovery and growth story. We prefer to buy shares that are trading at a pessimism discount. RIG qualifi es.”

Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com, 800-825-7007

“The solar photovoltaic industry has been going through serious growing pains, with shrinking demand in the world’s largest market, Europe, the elimination of Federal cash grants in the U.S. and global overcapacity driving module prices to record lows. The sector has been ravaged in 2011 and solar stock indexes are down over 60% for the year. Several solar companies have fi led for bankruptcy and many more are now operating in the red. We expect demand/supply imbalances to be resolved during 2012 and as the sector regains footing and returns to growth, Wall Street will once again reward the winners with the valuations they deserve. During the worst year on record for the solar industry, one company has managed to grow its sales year over year by 35% and grow its earnings by 52%! It is The Green Investor’s Top Pick for 2012: Power-One, Inc. (PWER 4.57 Nasdaq). They do not manufacture solar cells or modules but the power conversion and management electronics solar modules require. The company’s share price got slashed with the rest of the sector, which now places it at an extreme low valuation, and a screaming buy.”

Andreas Schreyer, The Green Investor, www.sustainablebusiness.com, 631-423-3277

“Asia Pacifi c Wire & Cable (APWC 3.17 Nasdaq) [makes] telecommunication and power cable and enameled wire products in the Asia Pacifi c region, primarily in Thailand, Australia, China and Singapore. The company is based in Taiwan [and its] auditor is Ernst & Young, a top three auditor in the world. APWC is consistently growing by over 20% a year and will surpass $500 million during 2011 and most likely reach $600 during 2012. The balance sheet contains $80 million in cash and sports a book value of $16.20 (including non-controlling interest), or $11.20 based upon stated book. There are presently 13.8 million fully diluted shares outstanding. The reasons for the weakness in the stock during 2011 resulted from world events, not corporate decisions. 1) Nuclear meltdown in Japan. 2) Collapse of commodity prices because of European debt crisis. 3) The fl ight to the dollar caused currency losses in the third quarter. 4) The once-in-100-years fl ood in Thailand has disrupted APWC’s sub Charoong. 5) All Asian stocks were lumped together because of China’s accounting scandals. All of the above caused a weakness in profi ts during 2011 for APWC and hurt the share price. We believe that APWC will be back on track during 2012. [ It now] trades at half of cash and 20% of total book, is still growing by over 20%, is profi table, has a business model taking advantage of one of the fastest-growing areas of the world and sports a PSR of 0.1. … Target price for 2012: $6-$9.”

William Velmer, S.A. Advisory, www.saadvisory.com, 801-272-4761

“Alcatel-Lucent (ALU 1.78 NYSE)—[The cell towers now lining our highways] are a sore sight. Now envision all of those towers disappearing and being replaced with a little box the size of a Big Mac hamburger box. Bell Labs, a wholly-owned subsidiary of Alcatel-Lucent, has developed such a product. It is known as LTE radio. They can be placed on the top of a light post or the top of any building (or on the side.) These little boxes are able to relay cell phone signals with less interference than the ugly 200-foot towers [where] cell providers are sharing the tower and creating inteference and loss of signal. None of that is present in the Alcatel-Lucent light radio. Production of LTE radio is expected to commence shortly, and the product should be available in the early part of 2012. Alcatel-Lucent is a leader in mobile, fi xed, IP and optics technologies, and a pioneer in applications and services. Alcatel-Lucent includes Bell Labs, one of the world’s foremost centers for research and innovation in communications technology. An investment in Bell Labs would be worth more than all of ALU. They have thousands of viable patents related to the telecom fi eld, and more each day. I rate Alcatel-Lucent a Strong Buy with a conservative target of $4 to $5 a share.”

Leo E. Rishty, Unique Situations Inc., 2563 Jardin Lane, Weston, FL 33327, 954-389-2202

“Clearfi eld, Inc. (CLFD 6.53 Nasdaq) designs, manufactures and distributes fi ber optic management products for the communications networks of leading ILECS, CLECs, MSO/cable TV companies and mobile broadband providers. The company helps service providers solve the ‘fi ber puzzle,’ which is how to reduce high costs associated with deploying, managing, protecting and scaling a fi ber optic network to deliver the mobile, residential and business services customers want. Based on the patented Clearview Cassette, the company deploys a unique single-architecture, modular fi ber management platform that is designed to lower the cost of broadband deployment and maintenance by consolidating, protecting and distributing incoming and outgoing fi ber circuits. These end-to-end solutions enable CLFD’s customers to scale their operations as their subscriber revenues increase. Fiscal year 2011 has been a break-out year for Clearfi eld. Although the industry was plagued with macro-economic challenges, the company aggressively grew revenues and converted an increasing amount of net income into shareholder value. Key to this success has been its mobile marketing initiatives in which its product line was brought directly to customer sites. I expect that CLFD will continue its high, profi table growth rate and also expect a big increase in shareholder value during 2012.”

Geoffrey Eiten, OTC Growth Stock Watch, www.otcgsw.com, 888-268-2479


TOP PICKS: COMMUNICATIONS TECHNOLOGY

“Mobile—the mobile device and its burgeoning array of uses—is a trillion-dollar industry revolutionizing the way information is disseminated and integrated. As a marketing tool it has no peer, and it’s the fastest growing sector of the advertising world. CommerceTel Corp. (MFON 1.45 OTC) has over 1,500 major brands licensing their proprietary technology for connecting and engaging consumers’ mobile phones regardless of phone type, method (SMS, IVR, MMS) or wireless network. It allows for delivery of HD-quality graphics and animation to screens—whether broadcast, stadium board or digital signage screens—connecting the advertised company or brand to the consumer. The software is called C-4 and it won the Sybase Innovator of the Year Award. CommerceTel’s customers include McDonald’s, Pepsi, CNN, Disney, Sony Pictures, NFL, AT&T and NBC. Taken as a whole, MFON is an unknown mini tiger with multi-bag potential. I am looking for more of the excellent quarter-over-quarter growth it has had going forward, and I believe that we’ll see them acquired at a fat multiple. It’s only a matter of time.”

Dr. John Faessel, On The Market, 7685 Caminito Coromandel, La Jolla, CA 92037, 858-587-8590

“AirTouch Communications, Inc. (ATCH 2.48 OTC) — With over 87% of mobile data and over 70% of mobile voice initiated at home or at the offi ce, there is no reason wireless phones need to be mobile phones. AirTouch’s HomeConneX X1500 wireless phone is certifi ed for use on the Verizon Wireless 3G networks. The product allows customers and small businesses to ‘cut the cord’ to their landline service providers for both voice and data, while retaining excellent phone sound quality and full data services. In addition, AirTouch has signed a multi-year wholesale agreement with LightSquared. Using their network, AirTouch will offer its own branded wireless connectivity. [AirTouch has also entered a] joint venture with one of the largest Chinese distributors of Epson products in China, establishing AirTouch China, a wholly-owned subsidiary of ATCH with aggressive plans to grow sales of its wireless devices. [The stock] could easily surge to the 9-10 area as ATCH continues to position itself as a home/offi ce-centered wireless service provider, offering its proprietary unique hardware. … The World Health Organization estimates over two billion people in the BRIC nations and N-11 (Next-11 countries expected to develop leading economies) will move into higher income brackets over the next fi ve years and will be demanding wireless voice, Internet and entertainment services, but have scarce landline-based infrastructure—an enormous market opportunity! Ultimate target low to mid-teens.”

Konrad Kuhn, The KonLin Letter, www.konlin.com, 631-744-8536


“iShares Silver Trust (SLV 29.19 NYSE)—With all of the debt being accumulated throughout the world which can never realistically be paid off, governments will eventually have to print money and devalue their currencies. This will create even more economic and fi nancial instability in 2012, resulting in a fl ight to safety into precious metals. As the poor man’s gold, silver should increase in price from its current level of [$30] back to the $40.00 level.”

Donald L. Sazdanoff, The Sovereign Advisor, 1237 Hunters Ridge, Mansfi eld, OH 44904, 419-884-8309

“My favorite way to play the Fed’s fi scal policy merry-go-round is to purchase emerging gold and silver producers. For 2012, the one I like most is Fortuna Silver Mines, Inc. (FSM 5.71 NYSE). The catalyst is the opening of a second mine called San Jose in Mexico. The company’s fi rst fl agship mine, Caylloma, is located in Peru. Combined 2011 Q3 silver production was up by 40% to 660,750 ounces compared to 2010 Q3. Most came from Caylloma. Average selling price was $35.16 per ounce, and revenues rose by 80% year-over-year. Production guidance shows silver ounces doubling in Q4 2011, with San Jose adding 600,000 ounces to Caylloma’s 560,000. In 2012, Fortuna plans to produce 2.75 million ounces from San Jose. Revenues could more than double in the next year based on current production plans and stable silver prices. Accordingly, Fortuna should enjoy robust earnings growth even if silver prices stay fl at. Near-term price target is $7.40, with the potential to double as forecasted production comes on line.”

Tyler Laundon, SmallCapInvestor PRO, www.smallcapinvestor.com, 866-447-8625

“There was a study done in the 1970s that discovered that gold stocks tended to bottom in the fourth quarter and rally strongly into the end of the fi rst quarter of the next year. … I am confi dent that we will see gold signifi cantly higher in 2012, and perhaps we will see new highs by March. Another advantage is that the average gold stock is cheaper, as we [begin] the New Year, than it was during the great crash of 2008. Now is the time to do a little gold mining and buy IAMGOLD Corp. (IAG 16.24 NYSE). Iamgold operates fi ve mines and has some very interesting development projects in the works. And, most important, they are producing a million ounces a year. Gold mining is a capital intensive enterprise; and these days, money is harder to fi nd than gold. You need to have production, cash fl ow and growth projects you can afford to exploit from internal cash. Iamgold has all three, and even pays a 1% dividend.”

Curtis Hesler, Professional Timing Service, www.protiming.com, 406-543-4131

TOP PICKS: GOLD & SILVER

“NovaGold Resources, Inc. (NG 8.81 Amex)—Our analysis suggests that gold’s 34-month cycle low is forming in late 2011, early 2012, and gold will advance to new record highs through 2014 or even later. The danger is that we could be early, and instead of a 34-month cycle low, gold could continue falling to a 4.25-year cycle trough due in late 2012, early 2013. [However,] the even greater 25-year cycle in gold is pointed higher into 2018-2022. Thus this current decline … represents one of the favorable times for investing in your favorite gold mining stock.”

Raymond A. Merriman, MMA Cycles Report, www.mmacycles.com, 248-626-3034

“Gold royalty companies avoid the rising costs and operational problems that plague mining companies. They offer low risk and upside both to the price of gold and to exploration on royalty lands. Franco Nevada Corp. (FNV 40.11 NYSE) … has a broad portfolio of royalties, over 300, though only 39 are currently producing. Nearly 70% of revenue derives from gold, another 20% from platinum. … Franco has exposure to several world-class mines, but also has a strong growth profi le, with three major new royalties, including on Canada’s Detour Lake Mine, to start producing in the next three years. In all, 24 of the company’s existing revenues ‘have a reasonable potential’ to start producing over the next fi ve years. At the same time, capital approaching $1 billion gives the company the necessary fi repower to make acquisitions. Franco offers a low-risk way to gain exposure to the gold market with plenty of upside and a growing dividend.”

Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885

“SPDR Gold Trust (GLD 160.50 NYSE)—Fundamentals are positive for gold, with ongoing fi nancial strain in Europe and the likelihood of a slowing U.S. economy, which could encourage Dr. Bernanke and company to fi re up the printing presses yet again in 2012. Furthermore, a recession in Europe is virtually assured and a marked slowdown in China will most likely ripple onto our shores with slower domestic growth, both of which would be a boost to gold. Finally, central banks around the world have gone on a gold buying binge that is forecast to continue in 2012, which will also likely support gold prices. SPDR Gold Trust is currently the second-largest ETF by assets, with more than $63 billion under management, and is highly liquid, with more than 13 million shares per day average volume. For now, the bear growls in the gold market, but 2012 could tell a very different story.”

John Nyaradi, Wall Street Sector Selector, www.wallstreetsectorselector.com, 541-480-8584


“Fidelity Blue Chip Growth (FBGRX) is a diversifi ed bet on the large-cap growth corner of the stylebox. America’s global leaders are gaining market share worldwide, so their future is bright. The European sovereign debt crisis has made them unusually cheap, but even in a worse case scenario they won’t suffer like they did in 2008-2009. And they’ve got plenty of cash to scoop up any foreign targets that look attractive.”

Jack Bowers, Fidelity Monitor, www.fi delitymonitor.com, 800-397-3094

“Many investors are looking for a way to add commodities to a traditional portfolio without going all the way to the ETFs for such items as oil, natural gas, coal, water, etc. A good balanced approach to this is the T. Rowe Price New Era Fund (PRNEX). Like many commodities, this has not been a good year for this fund, but it has a good long-term record. It has outperformed the S&P500 in nine of the last 11 years, trailing only in 2008 and this year. It has a heavy energy orientation, with its largest holdings including 57% energy, 27% basic materials and 9% industrials. It has a reasonable expense ratio of just 0.67. If you are looking for a way to broaden your portfolio, consider this fund.”

Leonard Goodall, PhD. & Wm J. Corney, PhD., No-Load Portfolios, 8635 W. Sahara, Suite 420, The Lakes, NV 89117, 800-743-9346

“BBH Core Select (BBTEX)—The BBH Core Select team employs a risk-averse investment strategy predicated on the belief that one of the best ways to outperform the market over time is through the compounding of reasonable gains and the avoidance of major losses. In attempting to achieve their objective, the team employs a bottom-up approach, resulting in a relatively concentrated portfolio (25-30 holdings) of well-managed, established, high-quality businesses selling at a discount to the team’s estimate of intrinsic value. We are confi dent that the BBH Core Select team has a sustainable investment edge derived from its discipline, strength of the investment team, focus and philosophy. During our discussions with the investment team, we found them to be extremely disciplined when it comes to sticking to the investment criterion. In our opinion, the investment team is very strong, and strikes us as thorough, cautious and intellectually honest. The majority of the team is very experienced, and one member has experience as an operator of a business within their industry coverage. Our performance expectations are that the fund will outperform in down markets, perform in-line or outperform in modestly rising markets, and lag in strong up markets, which has been the case over the fund’s history.”

Stephen Savage, No-Load Fund Analyst, www.nlfa.com, 800-776-9555

TOP PICKS: FUNDS

“The coming rally in the U.S. dollar is going to further depress food and commodity prices. … Because so much food is allowed into the U.S., the forecast stronger dollar will make it pricier, depressing domestic prices further, temporarily. Expiring ethanol subsidies are priced into the market, so that’s not a factor. Later in 2012, we will contemplate taking positions (and this will be our ‘conservative’ investment selection) in the PowerShares DB Agriculture Fund (DBA 28.68 NYSE). Review the components of this ETF if you like. For more aggressive trading types, an additional variation exists. Similar composition, but leveraged: it’s the PowerShares DB Double Long Agriculture ETN (DAG 10.29 NYSE). Too early to determine entry points.”

Gene Inger, The Inger Letter Daily Briefi ng, www.ingerletter.com, 954-681-4711

“Large-cap growth funds led in 2011 and one of the easiest and lowest-cost ways to participate in this area is through PowerShares QQQ Trust (QQQ 58.71 Nasdaq), an exchange traded fund (ETF) that tracks the Nasdaq 100 index. The Nasdaq is often considered to be a technology index, but although technology is a big part of the index, it’s more diversifi ed than many people think, covering 100 large domestic and international companies. QQQ has 66% in information technology, 16% in consumer discretionary and 11% in healthcare. The Nasdaq also tends to avoid fi nancial fi rms and this has helped performance lately as fi nancials were one of the worst-performing areas in 2011. While there are many Nasdaq index funds, QQQ is very liquid and one of the most actively traded ETFs available.”

Janet Brown, NoLoad Fund*X, www.fundx.com, 800-763-8639

“How much longer can [treasury] rates stay at record lows? The reward is to the downside. Parabolic moves always move back to the mean, but many traders have lost their shirts attempting to call a bottom or a top. Knowing that we are no smarter than any other investor out there, we want to choose a strategy or approach that allows us plenty of duration because it could be years before bonds revert back to the mean. There are several ways to short bonds. My favorite way is to buy ProShares UltraShort 20+ Year Treasury (TBT 17.96 NYSE) LEAPS calls. I like TBT because it is a more aggressive, highly-liquid ultra-short for 20+ year Treasuries that offers LEAPS that go out until January 2014. Because of my conviction that the bond bubble will eventually burst wide open, I want to have some exposure to an aggressive ETF.”

Andy Crowder, Options Advantage, optionsadvantage.wyattresearch.com, 802-434-6900

SELECTED TOP PICKS 2011 FOLLOW-UPS

IAC/Interactive Corp. (IACI), recommended by The Buyback Letter at $29.41, gained 42% this year and also began paying a dividend.

Mobile Telesystems OJSC (MBT) was recommended by Global Investment Strategist (then Silk Road Investor) at $20.70. Despite a loss to date, editor Yiannis Mostrous still recommends MBT, writing in December, “The company’s latest quarterly results were solid, indicating that Mobile TeleSystems remains the leader in the Russian mobile market. Revenue increased by close to 11% year-over-year mainly due to strong growth in voice and data services. Sales of new handsets and modems were also strong. Monthly ARPU increased by 7% on a yearly basis to more than USD9. The company grew faster than its competitors in the wireless data segment, which remains the fastest-growing segment in the market. The capital expenditure-to-sales ratio remains relatively low, making future growth even more reliable.”

Vivian Lewis, editor of Global Investing, still recommends Seadrill (SDRL), up about 4% to date from its recommended price of $33.92. In early December she wrote, “Seadrill boosted its dividend by only a penny, but therein lies a tale indicating that its outlook is good. The new quarterly dividend is $0.76. Until now, the quarterly divvie was $0.70 plus an additional special dividend of a nickel per share. But now, that fi ve cents is in the offi cial long-term regular dividend and will not be removed.”

Adrian Day, editor of Adrian Day’s Global Analyst, still recommends Sprott Resource Corp. (SCP), writing in late October, “Best buys include ... Sprott Resource Corp., which fell well-below its previous annual lows—from $5.25 to as low as $3.60—following a misunderstood, and essentially an operationally-neutral but tax-benefi cial, corporate reorganization.”

Wal-Mart Stores (WMT), recommended by The Blue Chip Investor at $55.14, has gained 9% to date.

Zhongpin (HOGS) is recommended by PAD System Report again, on page 3.

Energy Select Sector SPDR (XLE) is up 3% from $68.11, where it was recommended by Investor’s ETF Report.

The Sovereign Advisor recommends iShares Silver Trust (SLV), which broke even last year, again this year, on page 11.

Wall Street Sector Selector recommends SPDR Gold Trust ETF (GLD) again this year, building on a 20% gain to date (see page 11).

AboveNet, Inc. (ABVT) was recommended by 2 for 1 Stock Split Newsletter at $60.89. ABVT is now trading at $66.25 and 2 for 1 is still holding.

Nate’s Notes selected Affymetrix, Inc. (AFFX) as their Top Pick again this year (see page 2).

Allot Communications Ltd. (ALLT), recommended by Small Cap Investor PRO at $10.88, is the second-best performing Top Pick to date, having gained 46%. Small Cap Investor PRO is still holding half its original position with a target price of $17.50.

Altria Group (MO), recommended at $24.33 by IQ Trends, has gained approximately 20% to date and paid $1.58 in dividends for a yield of 6.5%.

Apple, Inc. (AAPL), recommended by US Investment Report at $340.65, has gained 25% to date. USIR still rates AAPL a buy with a target price of $500.

Arrow Electronics, Inc. (ARW) was recommended by Cabot Benjamin Graham Value Letter at $34.30 and is now trading around $38. Editor Roy Ward still ranks ARW as a buy below $37.52, with a minimum sell price of $55.58.

Art’s Way Manufacturing (ARTW) is recommended by the LSGI Advisory again this year, on page 3.

Asia Pacifi c Wire & Cable (APWC) was moved to the Nasdaq this year and is recommended by S.A. Advisory again, on page 9.

Bank of Marin Bancorp (BMRC) was recommended by Positive Patterns at $34.97. Editor Bob Howard still recommends the stock, now trading at $38.39.

Ingrid Hendershot, editor of Hendershot Investments, still rates Cisco Systems (CSCO) a buy.

John Gay, editor of The Quiet Investor, writes, “Cover-All Technologies (COVR), our pick for 2011, had a small rise, but fell back to the recommended price when a few of the contracts were delayed into the fourth quarter and early 2012. Reward will come this year.”

Elephant Talk Communications (ETAK), recommended by The KonLin Letter at $2.29, is now trading at $2.93, up 27%.

Global Defense Technology and Systems, Inc. (GTEC), recommended by OTC Growth Stock Watch at $16.42, was acquired in March 2011 for 48% above the recommended price, the largest gain among the Top Picks.

Goldcorp, Inc. (GG), recommended at $40.86 by Professional Timing Service, currently trades at $45.85 and increased its monthly dividend from three cents to fi ve cents this year.


Prices 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 profi table 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. Offi cers, 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.

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Investor Relations

Dick Davis Investment Digest Jan. 18, 2012