In January 2018

News bulletin: Stock forecasting is a crapshoot: Bobby Edgerton, who has picked lots of winners over the years for Business North Carolina readers, last year called Charlotte-based retailer Cato Corp. “one of the cheapest stocks in the world.” Since then, shares have declined about 45%. But there’s always next year: Edgerton and five investment pros are sharing their favorite stock picks for 2018, plus one company to avoid, continuing a long BNC tradition. Eligible stocks must be based in the state or have significant employment and investment here. This year’s picks range from international giants to two small-cap stocks. Oh, and Edgerton says Cato is really cheap now.

Ann Benjamin Zuraw

President, Zuraw Financial Advisors LLC, Greensboro

Laboratory Corp. of  America (LH)

Market Cap: $16 billion
LabCorp, the second-largest independent U.S. clinical laboratory, benefits from an aging population and increased preventative care. Its contract-research organization, Covance, is achieving fast growth.

Albemarle Corp. (ALB)

Market Cap: $14.4 billion
Charlotte-based Albemarle is a leading producer of lithium, one of the fastest-growing markets in specialty chemicals. Lithium’s use in electric vehicles and utility-scale storage should hasten growth.

First Bancorp (FBNC)

Market Cap: $1.1 billion
The Southern Pines-based regional bank has strong management that has overseen acquisitions in Greensboro and Asheville. It now has almost $6 billion in assets. Cost savings from the deals should aid profit.

Avoid: Sonic Automotive (SAH)
The fourth-largest U.S. auto dealership has been hurt by declining sales of BMWs, which have made up 30% of profits. Spending to expand its EchoPark used-car business will lower near-term profits.

Patrick Rush

Chief executive officer, Triad Financial Advisors, Greensboro

American Airlines Group Inc. (AAL)

Market Cap: $24.4 billion
American Airlines, which relies on Charlotte as it second-largest hub, benefits from rising disposable income and added revenue from convenience charges. Tax reform could crimp foreign competitors

Lowe’s Cos. (LOW)

Market Cap:  $71.2 billion
Mooresville-based Lowe’s should benefit from a strong economy and increasing consumer spending for home-improvement projects.

BB&T Corp. (BBT)

Market Cap: $39.4 billion
The Winston-Salem-based bank is a more conservative underwriter than its peers, while strategic acquisitions make it a solid stock to own.

Avoid: Wells Fargo & Co. (WFC)
The San Francisco-based bank is struggling to rebuild its reputation with longstanding clients after various scandals. Rising interest rates and deregulation should soften the blow.

Christy Phillips

Director of research and senior portfolio manager, Franklin Street Partners, Chapel Hill


Market Cap: $21.3 billion
Quintiles’ merger with IMS Health has led to a growing backlog, cost synergies and stock buybacks. The company, renamed IQVIA, has a competitive advantage in the contract-research organization industry.

Bank of America Corp. (BAC)

Market Cap: $303.4 billion
The bank’s simplification, efficiency and risk-reduction strategies are slowly paying off. It is much stronger than it was 10 years ago and is poised to repurchase up to $17 billion in stock by June.

SPX Flow Inc. (FLOW)

Market Cap: $2 billion
Margins should improve as the industrial-parts manufacturer changes from a holding company to an operating entity. Investor confidence is relatively low but should improve as earnings growth accelerates.

Avoid: Sonic automotive (SAH)
Higher interest rates and strong competition from CarMax may pressure earnings. Car sales appear to be peaking, so there’s little reason to assign a higher valuation.

Don Olmstead

Managing director, Novare Capital Management, Charlotte

Martin Marietta Materials Inc. (MLM)

Market Cap: $13.4 billion
Greater infrastructure spending for highways, bridges and airport runways and an improving economy should aid the Raleigh-based aggregates company.

Live Oak Bancshares (LOB)

Market Cap: $1.1 billion
Shares have pulled back due to investor concerns about the growth prospects of some retail apparel areas, but its markets appear to be stabilizing, and the company has been supplementing organic sales growth with acquisitions. The stock is attractively valued at current levels, especially considering its profile of double-digit earnings growth, significant free cash flow and annual dividend increases.

Lowe’s Cos. (LOW)

Market Cap: $71.2 billion
Home-improvement industry is poised for expansion, and Lowe’s can narrow its valuation gap with rival The Home Depot. The P/E ratio of 16 is attractive given its growth prospects.

Avoid: LendingTree Inc. (TREE)
A 200% gain in the last year and 58 times price-earnings ratio make a significant decline more likely.

Frank Jolley

President, Jolley Asset Management, Rocky Mount

Potash Corp. (POT)

Market Cap: $16.3 billion
Potash is the world’s biggest fertilizer company, with a huge site in eastern North Carolina. It is buying rival Agrium, creating $500 million in synergies, while spinning off its stake in a Chilean producer.

Ingles Markets Inc. (IMKTA)

Market Cap: $681 million
Amazon’s purchase of Whole Foods Market scared investors, sending shares down 40%. The Black Mountain-based grocery chain is inexpensive at about 1.1 times book value and a P/E ratio of 12.

Nucor Corp.(NUE)

Market Cap: $19.4 billion
The Charlotte-based steel producer’s earnings should accelerate 18% to $4.40 a share this year. A dividend yield of 2.7% should give excellent total return potential.

Avoid: LendingTree Inc. (TREE)
While LendingTree has excellent growth prospects, the shares appear ahead of themselves, trading at 58 times the estimated 2018 earnings.

Bobby Edgerton

Co-founder, Capital Investment Co., Raleigh

Target Corp. (TGT)

Market Cap: $33.7 billion
Millennials love this retailer. Market value is the same as its property, plants and equipment at cost. With average annual cash flow of $5 billion, shares are very inexpensive.

Bank of America Corp. (BAC)

Market Cap: $303.4 billion
CEO Brian Moynihan has improved this company too much for this stock to be lagging. Reduced pressure on regulation and capital requirements will boost the bank’s earnings and share price.

Cato Corp. (CATO)

Market Cap:  $389.3 million
Debt-free retailer pays a fat 8.5% dividend that looks sustainable. A great private-label women’s apparel company. Sales totaled more than $850 million in the last four quarters.

Avoid: Red Hat Inc. (RHT)
Great company that has had a massive run but is due for a correction. Stock price trades at 30 times cash flow, which is too much.

Greensboro money manager Ann Zuraw dominated last year’s stock-selection competition, registering a 22% average gain for her four picks. Frank Jolley of Rocky Mount followed at 13%, while Christy Phillips’ choices increased 9%. Phillips and Patrick Rush would have done much better except their suggestions for stocks to short — Qorvo and Old Dominion Freight Line, respectively — each advanced more than 35%. Zuraw had the best pick, BNC Bancorp, which was acquired by Pinnacle Financial Partners and gained 122%. Another winner was Jolley’s Tyson Foods, which gained 51%. Less successful was Don Olmstead’s Argos Therapeutics, which lost 96%. Bobby Edgerton was slammed by declines at Cato and Cempra. Percentage change is based on share prices between Dec. 1, 2016, and Dec. 8, 2017.

Click here to see a PDF of Hot Stocks


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