Our annual stock-picking extravaganza reaches a new high this year, with Bobby Edgerton, co-founder of Raleigh-based Capital Investment Cos., suggesting investing in cannabis could spark lofty gains. He picks Morrisville-based Pyxus International Inc., formerly Alliance One International Inc., which is diversifying from leaf tobacco to faster-growing alternative products. Most of this year’s other selections of stocks based in the state or with significant investment or employment here were more conventional. Both Christy Phillips and Frank Jolley expect a rebound at Dollar Tree Inc., which owns Family Dollar stores. Phillips and Ann Zuraw made the best call in last year’s contest, urging investors to avoid Sonic Automotive — shares declined 31% in the year ended Dec. 7. Edgerton made the worst pick with his “avoid” on Raleigh-based Red Hat Inc. The software company drew an IBM takeover bid and gained 44%. Buoyed by Red Hat, IBM is a favored pick of Phillips this year.
president, Zuraw Financial Advisors LLC,
EnPro Industries Inc.
Market Cap: $1.4 billion
Charlotte-based EnPro has eliminated its exposure to asbestos and uses a strong balance sheet to enter higher growth markets with product innovation and acquisitions. Margins in its sealing, bearing and compressor-parts business run 17%.
Extended Stay America Inc.
Market Cap: $3.2 billion
Charlotte’s Extended Stay America owns or manages 625 hotels that have more than 69,000 rooms. Shares pay a 4.8% dividend and trade more than 20% below the 52-week high.
Market Cap: $9.4 billion
Albemarle, also based in Charlotte, is a global specialty chemicals company that gets a third of its profit from lithium, a key resource for the fast-growing electric-vehicle industry. Shares trade a third lower than the 2017 peak.
Avoid: Cree Inc. (CREE)
Durham-based Cree has negative cash flow and is losing money, which means negative returns on equity, assets and investments. Cash per share went from $6.85 in 2017 to $3.85 in 2018 following an acquisition, according to Reuters.
director of research and head of equity strategies,
Franklin Street Partners,
Market Cap: $110 billion
IBM’s pending purchase of Raleigh-based Red Hat will be a game-changer. Investors will have an attractive opportunity, with shares now trading at about nine times the estimated earnings over the next year. IBM offers a 5% dividend. We project shares to gain about 35% to $163.
Dollar Tree Inc.
Market Cap: $20 billion
Virginia-based Dollar Tree is positioned to return to healthy growth following a year of investment spending and improved execution on the Family Dollar integration, which suppressed the company’s valuation. Recovery of earnings is expected to take longer than initially expected, but we believe this is priced into the shares.
IQVIA Holdings Inc.
Market Cap: $24.2 billion
We see an additional 20% upside to Durham-based IQVIA shares as the market embraces the growth of new types of clinical trials following the Quintiles-IMS Health merger. Look for improved efficiency in the legacy Quintiles business and more share repurchases.
Avoid: Sonic automotive (SAH)
Sonic, which we suggested avoiding last year, declined 30%. Many trends that concerned us in 2018 — higher interest rates, strong competition from CarMax and peaking car sales — are still prevalent in 2019.
co-founder and chief investment officer,
Market Cap: $23.5 billion
Greensboro-based Gilbarco Veeder-Root is a subsidiary of Fortive, a Washington-based industrial products company spun off in 2016 by Danaher Corp. It is well-capitalized and diversified with multiple businesses in growing product sectors.
Martin Marietta Materials Inc.
Market Cap: $11.1 billion
The moat surrounding Martin Marietta’s business is wide, and the lack of competitors coupled with the operating leverage it enjoys makes it attractive. Some of this Raleigh-based company’s largest markets — Texas and North Carolina — seem destined for years of future growth.
Market Cap: $102 billion
Honeywell, which is moving its headquarters to Charlotte next year, has shrewdly bought and sold businesses. It spun off two firms in October, including home-comfort product maker Resideo Technologies Inc. A solid balance sheet will protect HON in a weaker economy.
Avoid: Hanesbrands Inc. (HBI)
Winston-Salem-based Hanesbrands faces rising costs, lower-cost competitors and Amazon’s increased presence. Long-term customer Sears is shrinking, while Target recently ended a partnership. Debt has nearly doubled amid rising interest rates.
president and chief investment officer,
Jolley Asset Management,
Lincoln National Corp.
Market Cap: $11.8 billion
The insurance holding company’s shares are more than 30% below their 52-week high and trade at about seven times earnings estimates for 2019 and at a discount to book value. Radnor, Pa.-based Lincoln should benefit from higher interest rates.
Dollar Tree Inc.
Market Cap: $20 billion
The Virginia-based retailer has struggled since buying Matthews-based Family Dollar Stores Inc. three years ago but is aggressively rebranding and closing underperforming stores. Shares trade about 14 times earnings and about 29% below peak levels.
Market Cap: $29.1 billion
Formed through last year’s merger of PotashCorp and Agrium, earnings at Canada-based Nutrien are expected to rise 15% in 2019. Supply and demand dynamics for the fertilizer industry are favorable for the first time in years.
Avoid: Planet Fitness Inc. (PLNT)
Despite rapid growth of sales and profit, our negativity stems from the company’s $1.7 billion debt load and negative $101 million in equity. PLNT shares are up about 70% over the last year.
co-founder, Capital Investment Cos.,
Pyxus International Inc.
Market Cap: $135 billion
I’m going out on the cannabis limb recommending Morrisville-based Pyxus, formerly Alliance One, which distributes about half of the U.S. tobacco market from farm to manufacturer. Management is pivoting into cannabis and hemp. Debt is substantial, but so is opportunity.
Insteel Industries Inc.
Market Cap: $488 billion
The Mount Airy company manufactures steel wire reinforcing products for concrete construction applications. Demand for bridges and highways is strong. The well-run company is debt-free with cash of $50 million. Cash flow has exceeded $50 million in two of the last four years.
Market Cap: $18.4 billion
Tariffs are protecting this Charlotte-based company from China steel dumping, bolstering revenue and cash flow. Nucor, which consistently pays dividends of about 40% of profit, remains the world’s best-run steel company.
Avoid: Duke Energy Corp. (DUK)
Duke Energy’s shares have increased 20% over the last six months despite rising interest rates. Capital expenditures and dividends total more than $10 billion annually.
REPEAT WINNERS The three investment pros who had the best performance in our Hot Stocks feature two years ago repeated their success last year. The key difference was that making money was much more difficult given the market’s sharp plunge from late September through early December. Christy Phillips of Franklin Street Partners was the only selector whose four picks increased, on average, for the 52 weeks ending Dec. 7. She scored by urging investors to avoid Sonic Automotive, and she made a smart pick in medical-services company IQVIA, which gained 17%. She’s making the same call this year: Avoid Sonic, buy IQVIA. Two of the three stocks that Rocky Mount-based Frank Jolley recommended in 2018 declined slightly, but he benefited with an “avoid” on LendingTree, which fell 20%. Ann Zuraw’s three recommended “buy” stocks declined, but her advice to avoid Sonic helped salvage her performance. Unlike fantasy sports leagues, the Hot Stocks format doesn’t permit periodic portfolio changes. Thanks to the participants for their insight.
Market cap data is based on Dec. 12 closing price.