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18 stocks for the bull market's last gasp
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With a few exceptions, most are medium-sized companies -- in the $1 billion to $7.5 billion range -- that fundamentally still have plenty of room for growth. And many are still relatively cheap. Refiners such as Tesoro (TSO, news, msgs) and Premcor (PCO, news, msgs) have had fantastic runs in the past two years, yet still trade for price-earnings multiples of less than 12 because they are perceived as low-margin, highly cyclical plays that will collapse if global economic growth falters by even a smidge.
Some of the other energy-complex stocks, such as construction-services provider McDermott (MDR, news, msgs), are still trading well below their historic highs -- in some cases, as much as 50% lower. McDermott, now trading around $27, is still down from its 1997 high of $43.95, as it has an overhang of asbestos liabilities. Yet it should continue to do well as it helps drillers build new platforms and helps power-generation companies fulfill the new congressional mandate to improve the U.S. electrical grid.
Elsewhere in the energy area, coal miners Consol Energy (CNX, news, msgs) and Alliance Resource Partners (ARLP, news, msgs) have likewise traded up but are still considered cheap. Their product is relatively inexpensive, and demand from emerging countries and U.S. power plants is in a bull market all its own. Consol shares could drop nine points, to the $60 area, and still be considered a good sector-momentum candidate.
In an interview, Desmond pointed out that even if a bear phase ensues five months from now -- and lasts for all of 2006 -- there will still be capitalization and sector groups that will work for alert portfolio managers. In the 1970s, it was energy for almost a decade. Next year, it could well be energy again, perhaps with rebounding large-cap pharmaceutical, telecom or medical-device companies as a complement.
What wont work, he says, is a broadly diversified portfolio. That means home-building and mortgage-related financial-services companies, now under pressure, could be a dead end. If your chickens stop laying eggs, he said on Monday, turn them into fryers.
Fine print
Thanks for all the e-mails on suggestions for stocks that could double. I cant answer each one, but next week's column will highlight some of the most interesting ideas. The nine that I recommended were up 27.5% as a group through Tuesday afternoon. Top performers were Main Street Restaurant (MAIN, news, msgs), up 34%; noodle-maker New Dragon Asia (NWD, news, msgs), up 69%; and Peerless Systems (PRLS, news, msgs), up 28%. Thats a lot for a week, especially during a tough period for the broad market, so you can probably expect some profit-taking. To learn more about Lowry's Reports, visit its Web site. To learn more about Consol Energy, visit its Web site. McDermott is a big player in the nuclear-plant construction business through its Babcock and Wilcox subsidiary.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Greenbook Investment Management. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Markman did not own or control shares of companies mentioned in this column.
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