Raleigh investor Bobby Edgerton has tracked stocks for decades, showing an infectious desire to sniff out good opportunities. His picks for 2023 had the best performance
among our investing pros in the annual Business North Carolina stock picking feature: Amazon gained more than 75% through early December and Insteel Industries increased by about 23%.
While large-cap tech stocks rebounded after a lousy 2022, it was a challenging year for many investors. Eight of the 12 picks by our pros declined in the past year.
This year, two investors picked Insteel Industries, which benefits from increased construction activity. Two also picked RTX, a major defense and aerospace contractor.
Just for fun, we threw darts at a board festooned with the tickers of the 60 largest market-cap companies based in the state. We’ll see how the darts compare with the pros.
The companies must be based in North Carolina or have key operations here. Our participants emphasize that smart investing involves the long-term, not just one year.
BOBBY EDGERTON
co-founder
Capital Investment Companies
Raleigh
INSTEEL INDUSTRIES (IIIN)
Market cap: $670 million
Dividend yield: 0.3%
The Mount Airy-based steel-wire reinforcing products manufacturer recently approved a special $2.50 per share dividend. Its free cash flow is more than $100 million, with total cash of $125 million and no debt. It may be the most conservative company in North Carolina, run by CEO H.O. Woltz III. Continued strong demand for bridges, parking decks and other concrete structures should boost revenue.
APPLE (AAPL)
Market cap: $3 TRILLION
Dividend yield: 0.5%
The world’s most valuable company, which is creating a major Triangle operation, is the cash flow king. It has cash of $61 billion and total debt of $123 billion, which includes bonds that Apple sold when interest rates were at 40-year lows. The company can now repurchase the bonds at 60 cents on the dollar. The bonds may be cheaper than the stock. My price target is more than $200.
VEEVA SYSTEMS (VEEV)
Market cap: $27.7 billion
Dividend yield: N.A.
The Pleasanton, California-based company may be the most interesting growth story that I have seen in the past 20 years. It builds software for drug companies, monitoring their sales force and customers and accelerating drug approval. Clients include about two-thirds of the nation’s drug companies. Cash flow approaches a billion dollars, justifying the 28-times cash flow multiple. CEO Peter Gassner is a brilliant man.
FRANK JOLLEY
managing director and co-chief investment officer
Live Oak Private Wealth
Rocky Mount
BANK OF AMERICA (BAC)
Market cap: $245 billion
Dividend yield: 3.1%
The giant bank faces investor fears over unrealized bond losses and a possible recession, which has shares trading down 40% from a peak price of $50 in early 2022. But the shares now trade for only eight times expected earnings, while providing a solid yield. It’s a repeat pick for me from last year.
RTX (RTX)
Market cap: $117 billion
Dividend yield: 2.9%
Formerly Raytheon, the company is an aerospace/defense contractor. Recent problems concerning Pratt & Whitney’s engine manufacturing process has resulted in lower short-term earnings and a 20% decline in the share price. We believe that the decline is a buying opportunity and expect RTX to benefit from historic demand in commercial aerospace and defense. Backlog is at a record high of $185 billion. The shares trade at 15 times earnings.
DOLLAR TREE (DLTR)
Market cap: $27.3 billion
Dividend yield: N/A
Dollar Tree operates the Dollar Tree and Family Dollar store brands. It struggled in 2023 due to economic headwinds, cost pressures and inventory. We look for an improving picture in 2024 as both brands gain market share from competitors. Over the past nine months, Dollar Tree repurchased 3.9 million shares at an average price of $129 per share. Shares trade 30% below 2022 highs.
CHRISTY PHILLIPS
head of equity strategies and director of research
Franklin Street Partners
Chapel Hill
RTX (RTX)
Market cap: $117 billion
Dividend yield: 2.9%
The company’s commercial aerospace and defense businesses provide a rare combination of short-term stability and longer-term growth opportunities. RTX should benefit from the recovery in air travel, both in aftermarket parts sales and new installations of its Pratt & Whitney urbofan engine. The defense segment is poised to capitalize on significant increases in global defense budgets. Three stock price catalysts are 1) recovery from powdered-metal issues; 2) greater 737 MAX deliveries; and 3) increased defense spending.
INSTEEL INDUSTRIES (IIIN)
Market cap: $670 million
Dividend yield: 0.3%
Following a period of inventory destocking by distributors in 2023, Insteel should see improvement in 2024. We expect the company to benefit from the government’s stimulus and infrastructure projects, which will fuel construction industry growth. As orders pick up, we think the stock will rise in anticipation of a big lift in earnings. Our 12-month target price objective is $60 a share, a 75% gain from early December.
CISCO (CSCO)
Market cap: $197 billion
Dividend yield: 3.2%
Cisco holds leading market shares across switching, routing, and wireless access, with strong positions in security and collaboration. They continue to be the dominant force in enterprise networking and the only provider with a complete portfolio for both on-premises and the cloud. Two tailwinds should push the valuation higher; a growing $1 billion order pipeline in artificial intelligence and the planned acquisition of fast-growing Splunk, expected to close in the third quarter of 2024. Our 12-month price target is $58 a share, implying a 21% return from early December.
ANN ZURAW
president
Zuraw Financial Advisors
Greensboro
SEALED AIR (SEE)
Market cap: $4.9 billion
Dividend yield: 2.3%
The Charlotte-based company renowned for the Bubble Wrap brand
encountered a decline in post-pandemic sales for protective packaging solutions, which make up 35% of revenue. However, the food business, contributing 65% of revenue, exhibits continued robust performance. Growing demand for packaging, driven by the surge in e-commerce, is resulting in better margins and modest revenue growth. The Cryovac and Liquidbox brands are aiding faster growth.
LOWE’S (LOW)
Market cap: $$219 billion
Dividend yield: 2.1%
Lowe’s is the second-largest retailer in the do-it-yourself space and is seeing sales growth as it adds higher-margin private-label offerings, integrates e-commerce and job-site deliveries and starts other strategic initiatives. Same-store sales growth should improve and exceed 3%, while operating margins are expanding. The recent trading price was about 15 times the 2014 earnings per share estimate. We look for market share gains, and improved earnings.
ALBEMARLE (ALB)
Market cap: $15 billion
Dividend yield: 1.3%
Albemarle faced a challenging year, including paying $218 million to settle regulatory charges over foreign government bribes, withdrawing from an Australian acquisition and pressure to renegotiate contracts in Chile. Surging lithium production has led to a supply surplus, depressing prices, while demand for electric vehicles has slowed. But the company’s outlook remains strong because of EV sales growth and strong management responses. Albemarle’s price-to-earnings ratio is only 5.5, while revenue should grow by 30% this year.
DARTBOARD PICKS
Business North Carolina
Charlotte
ADVANCE AUTO PARTS (AAP)
Market cap: $3.3 billion
Dividend yield: 1.8%
Frank Jolley picked the Raleigh-based auto parts retailer last year, which turned out to be the weakest selection with shares declining more than 60% in the past year. (His stock selections in 2022 had been the best of the crowd.) The company hired former Home Depot executive Shane Kelly as its new CEO, and he promptly announced a restructuring plan in hopes of a turnaround.
BRIGHTHOUSE FINANCIAL (BHF)
Market cap: $3.4 billion
Dividend yield: N/A
The Charlotte-based company was spun off from MetLife in 2017. It is a major seller of annuities and life insurance products with revenue of $6.8 billion in 2022. Its shares have traded between $39 and $60 in the past year. One of 13 analysts following Brighthouse rated it as a buy in December, according to Yahoo Finance.
QORVO (QRVO)
Market cap: $10.1 Billion
Dividend yield: N/A
The Greensboro-based company makes computer chips for smartphones, cars and many other applications. Its shares increased about 10% in 2023 through early December. Revenue topped $1.1 billion in the most recent quarter, the highest level in a year. Eight of the 24 analysts tracking Qorvo rate it as a buy. ■
