Hot Stocks 2012

Family Dollar Stores Inc.

LWith the economy flirting with a double-dip recession, consumers are trending toward discount stores. Family Dollar sports an expected three-year earnings growth rate of 15.3%, and shares are trading at 15.5 times forward earnings, the cheapest in its industry. If a recession occurs, only high-end and low-end retailers will prosper. Family Dollar is well positioned to capitalize on this trend.

Polypore International Inc.

This maker of membranes for separation and filtration processes in the energy and health-care industries has beaten earnings estimates for 10 straight quarters and has a projected growth rate of 25% this year. With a forward price-earnings ratio of more than 20 and a price/earnings-to-growth ratio of 1.4, the company’s stock is not cheap but offers a reasonable value for growth.

Fresh Market Inc.

EThis company is a specialty small-format grocer that emphasizes freshness and quality. It has a projected three-year earnings growth rate of 55%, twice that of larger competitors, and sports the second-highest pretax margin (5.9%) in its industry. With 107 stores in 21 states it has room to expand, and, like Family Dollar, it fits well into the high-end/low-end investment strategy for a slow economy.

Duke Energy Corp.

The acquisition of Raleigh-based Progress Energy Inc. should help, as should the construction of several new power plants. Plus, rate hikes ought to increase profits this year. Protected by a strong yield, Duke remained stable during the market’s poor performance last summer. This all-weather equity is a core holding for portfolios looking to mitigate volatility and provide solid income.

Piedmont Natural Gas Co.

TThe price of energy provided by natural gas has been declining, which should lead to continued conversion to this resource. Piedmont has five gas-fired power plants under development with Duke Energy and Progress Energy. Its dividend helps reduce instability, and its beta shows it’s less volatile than the S&P 500 — an attractive characteristic in this market.

Family Dollar Stores Inc.

When the economy is difficult, shoppers look for competitive prices, which means Family Dollar will benefit since the price point of its goods generally ranges from $1 to $10. Family Dollar has 6,785 stores in 44 states, an impressive presence in the U.S. Earnings growth has been good and extremely consistent, but its dividend is modest. The retailer is increasing store openings 50% in 2012.

Lowe’s Cos.

This stock is shockingly cheap considering Lowe’s infrastructure. It owns 88% of its locations, with property, plant and equipment more than $30 billion at cost, and the market values the company at less than what it paid for its properties and equipment. Plus, Lowe’s has bought back 8% of its stock in the last six months and generates about $4 billion a year in cash flow.

Cree Inc.

Despite getting a visit from President Barack Obama last year, the light-emitting diode company has performed poorly lately. But it has a large presence overseas and around $1 billion in cash, representing approximately a third of its market cap. Chinese competition is a concern, but the company should match the last two years’ haul of $250 million in cash flow.

Ingles Markets Inc.

Ingles has huge real-estate holdings and a strategy of buying property where its stores are located. It routinely generates $100 million in cash flow each year, and rising oil prices should generate good profit at its gas pumps. A shift to private-label products should also help the bottom line. Its debt is a little high for me, but the company is reducing the liability on its balance sheet.

Lowe’s Cos.

Lowe’s is the second-largest home-improvement retailer in the world. In mid-November, its shares were more than 33% below highs of more than $35 reached in 2007, largely a result of sluggish economic conditions and a weak home-improvement market. The company intends to buy back $10 billion-$13 billion of its stock (35% to 45%) from 2012 to 2015, which should boost earnings per share.

Coca-Cola Bottling Consolidated

The second-largest Coca-Cola bottler in the nation, it’s performed poorly due to weak conditions in the Southeast and rising commodity prices. However, the company generates significant cash flow, which it uses for a healthy dividend and to deleverage its balance sheet. There’s also speculation it could be acquired by Atlanta-based Coca-Cola Co. this year.

Nucor Corp.

The stock of this manufacturer of steel and steel products was down in mid-November approximately 48% from its 2008 high of around $75. Earnings recovered in 2011 and should continue to improve this year, with analysts estimating earnings of approximately $3 per share. It pays a good yield and has a strong balance sheet. This high-quality, low-cost company should be attractive long term.

Hatteras Financial Corp.

Managed by Winston-Salem-based Atlantic Capital Advisors LLC, this mortgage real-estate company invests in securities backed by U.S. government-sponsored enterprises. The stock has traded down recently, but with such a high yield, it should provide a good income for investors. While the dividend might fall, there’s low risk of rising interest rates in the short term.

Park Sterling Bank Inc.

This is the third-straight year I’ve picked Park Sterling, and, in the interest of full disclosure, I sit on its board. But the bank appears to be headed toward profitability, either in the fourth quarter of 2011 or early this year. It recently raised capital through an equity offering to expand operations. It’s well capitalized and recently acquired Greenwood, S.C.-based CapitalBank.

Nucor Corp.

This is more of a high-beta idea. With the stock trading down last year and a solid yield, it’s a good time to buy this well-managed steel company. Its balance sheet is solid, and expansion toward international markets should benefit it if the economy begins a growth cycle. Nucor’s mini-mill structure allows it to match supply and demand levels should growth be higher than expected.