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6 Nasdaq companies are enticing

About John Dorfman
Picture John Dorfman 617-542-8888
Freelance Columnist
Pittsburgh Tribune-Review

John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. His firm or clients may own or trade securities discussed in this column.

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By John Dorfman

Published: Tuesday, March 12, 2013, 12:01 a.m.

I can't believe it's been so long.

I used to write an annual column recommending a few stocks from the Nasdaq Stock Market. The Nasdaq is an interesting arena for stock pickers because it is home to many smaller companies, and also to such technology giants as Microsoft and Cisco.

To my astonishment, I've let more than six years pass since the last such column. But I'm fixing that oversight today.

While it lasted (2001-2006), this series of recommendations was going well. My Nasdaq picks gained an average of 20.6 percent in the year after publication, including reinvested dividends.

By comparison, the Nasdaq Composite Index averaged 11.1 percent during those six, one-year periods. And the Standard & Poor's 500 Index averaged 9.3 percent.

My recommendations beat the Nasdaq Composite five times out of six and the S&P 500 four times out of six.

Bear in mind that the performance of my column recommendations is hypothetical and ignores trading costs and taxes. It should never be confused with the performance of portfolios I manage for clients. And past performance doesn't predict results.

Another caveat: I am unable to find historical prices for one of the stocks I recommended in 2002, and for two of my picks in 2003. However, I believe the results would have been at least as good had these three stocks been included.

Let's see if I can do as well going forward. Here are six Nasdaq stocks I like for the coming 12 months.

Select Comfort Corp. (SCSS), of Plymouth, Minn., makes mattresses containing air chambers, allowing users to adjust the firmness to their liking. Earnings have grown at a 16 percent clip the past five years.

Select's shares have dropped to about $18 from about $33 since September, based mainly on management's comments that sales have slowed lately. In life and in investing, I pay more attention to what people (or companies) have done than to what they say they are going to do.

The risk for value investors like me, as canny investor Jim Rogers put it, is that we may overuse the rear-view mirror and barely look out the windshield.

Nevertheless, I like Select Comfort at its current multiples, 13 times earnings and 1.1 times revenue. I believe the company has a good product that will continue to sell. It also is debt-free.

I've always been fond of National Beverage Corp., partly because of its stock symbol, FIZZ. It makes that Shasta soda you had at the last church-basement party you went to, and also offers several other brands of drinks, including Big Shot, Faygo, Ritz and St. Nicks.

The stock is virtually ignored on Wall Street, even though the company has more than $600 million in annual sales. Like Select Comfort, it is debt-free and has a 16 percent earnings growth rate for the past five years.

Third, I recommend Remy International Inc. (REMY) of Pendleton, Ind., which makes alternators, starters and hybrid motors. It is a small company (2012 sales of $1.1 billion) and a very cheap stock, selling at only four times earnings.

I believe auto-parts makers are timely. The average car on U.S. roads is now 11 years old, a record. Demand for replacement parts and new cars should be strong.

Fourth, I like Deckers Outdoor Corp., the maker of Ugg boots, a stock I own personally and for almost all of my clients. The company is debt-free, and it has increased its earnings at a 17 percent annual clip the past five years. Investors have become skeptical that Deckers can continue such growth. Maybe they're right, but I think 10 percent is realistic, and at that rate, I believe the stock would do well.

For investors who don't have a moral problem with firearms, I like Smith & Wesson Holding Corp. (SWHC), a leading maker of both handguns and rifles. I am in favor of stricter gun control laws, but I don't believe my view will prevail. Smith & Wesson is highly profitable: It had an astonishing 44 percent return on stockholders' equity last fiscal year.

Lastly, I think American Public Education Inc. (APEI) looks good. The stock has been nearly stagnant since its 2007 initial offering, but earnings have increased substantially – at a 25 percent pace the past five years. Based in Charles Town, W, Va., American Public Education offers online courses.

John Dorfman can be reached at dorfman@thunderstormcapital.com.

 

 
 


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