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Tuesday, January 3, 2017

Best Investing Ideas For 2017


Best Investing Ideas For 2017
Forbes

Donald Trump’s stunning electoral upset of Hillary Clinton quickly went from pre-market panic to a no-holds-barred bull run. The big question of course is can the euphoria last in 2017? So far, much of the market reaction has more to do with the anticipation of less regulation, higher inflation and lower taxes than it does with material economic or policy changes. Many remain anxious about what the coming year will bring.

Will health care stocks take a beating given Trump’s campaign pledge to overturn the Affordable Care Act? Will there be a windfall for energy and infrastructure stocks? No matter which sector you think might win or lose as the changing of the guard in Washington takes hold, most experts are betting that volatility will take center stage in 2017.

I reached out to some of Forbes’ money and investing experts to find out what their top recommendations are for 2017. Here are 16 great ideas from eight top advisors.

Glendale, Calif.-based DineEquity (DIN) owns the Applebee’s and IHOP restaurant chains. Revenue next year is forecast to tick higher by 2.5% to $655 million, with profits up 5%. Dividends have grown 9% a year since 2013, with the payout currently good for a yield of 4.5%. At 13.7 times earnings, DIN trades 10% below its five-year average P/E ratio, and it sports a 13% discount to its average price-to-free cash flow ratio. The reason for the cheapness has been Applebee’s, where sales declines have been a drag. “The positive side of the story is IHOP, a very healthy brand with lots of consumer loyalty,” says Chris O’Cull, analyst at KeyBanc Capital Markets. “Turning things around at Applebee’s would be very positive.”

If the company is able turn things around at Applebee’s, potential tax cuts under a Trump administration could be an additional tonic. “Tax cuts geared towards middle America should support increased disposable spending power for this core consumer group,” says Raymond James Analyst Brian Vaccaro. “The company’s 100% franchise model generates stable and significant free cash flow, which covers its annual dividend payment a nearly two-to-one margin.”

Smaller banks have been big post-election winners, with the S&P Regional Banks ETF up 21% since Election Day. Even after a gain of 20%, shares of Beverly Hills-based PacWest Bancorp (PACW) still look undervalued and offer a dividend yield of 3.6%. The California bank operates 80 branches and its stock trades at a 10% discount to its five-year average price-to-book value multiple and 15% below its average P/E. Rising rates help fatten banks’ profit margins. “With its large base of low-cost commercial deposits and fairly rapid repricing of its loan portfolio, PacWest is among the best positioned banks to benefit from higher interest rates,” says Aaron Deer, an analyst at Sandler O’Neill.

Even better for income investors, PacWest has extra cash to spend on higher dividends. “PacWest has a sizeable amount of excess capital that can be deployed to drive earnings higher,” says Tyler Stafford, analyst at Stephens Inc. “The company announced a $400 million share repurchase program, and while we don’t expect buybacks to be overly active at current valuations, we do think the door is now open for a potential special dividend or M&A announcement if they can find the right partner.”

HanesBrands (HBI) is a leading global maker and marketer of everyday basic apparel and the largest seller of intimate apparel, men’s underwear and children’s underwear by volume in the U.S. These products are sold under some of the most recognizable apparel brands, including Hanes, Champion, Maidenform and Wonderbra. Yet despite this dominant market position and strong brand portfolio, HBI’s stock has been a huge disappointment in 2016, falling more than 25% so far this year. This has largely been driven by a recent dip in organic sales, which has investors concerned over the health of the company’s growth going forward.

But I hold a more optimistic view. In particular, two of the biggest reasons for the soft organic sales performance were the unanticipated bankruptcies of several sporting goods retail customers and HBI’s planned exit of its slow-growth legacy catalog business. With the impact from these headwinds anticipated to ease in the coming quarters, synergies from key recent acquisitions expected to become more significant, and the launch of the company’s first significant product innovation in over a decade likely to gain further traction, I think 2017 will represent a much better year for both HBI’s operations and its stock.

Cott (COT) is a leading global beverage company, specializing in the direct delivery of water and coffee products in North America and Europe, and the production of beverages on behalf of retailers, brand owners and distributors. With its bread and butter soft drink business suffering from the consumer shift towards healthier alternatives such as water, COT made the bold decision to significantly diversify its operations by expanding into the home and office beverage delivery market in 2014. As this move quickly began paying off, its stock nearly tripled in less than two years. However, weaker-than-expected performance from this business and rising pressure from the depreciating British pound on its U.K. operations in recent periods have COT’s shares down 33% since mid-August.

Yet I believe that the primary factors driving these headwinds, such as product shortages resulting from a change in an external co-packer and elevated costs to service the substantial spike in new customer additions, will prove temporary. When combined with the increasing contributions projected from recent acquisitions, I expect COT’s ongoing business transformation to yield higher profit margins and much better free cash flow in the year ahead. This should help the stock return to outperforming once again.

When oil was trading at $26 back in February, the U.S. shale industry was getting hurt badly. But within months, the price of oil had nearly doubled from the lows. Still, one of the big natural gas producers, SandRidge Energy (SD), chose to pursue bankruptcy.

In a Chapter 11 bankruptcy, SandRidge was able to continue operating its business as normal throughout the bankruptcy. It cancelled its existing stock and swapped new stock for debt. The company was freed of the noose of debt, and the debt holders exchanged a piece of paper that was once worth pennies on the dollar, for common stock in a super–charged debt–free company.

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