Rules of the Game
Pickers were asked to select their three favorite North Carolina-based stocks. Graphs are based on each stock’s performance between June 1, 2015 and Dec. 11, 2015. Expected growth rates and percentage of industry analysts with “buy ratings” is based on data from Thomson/First Call.
Bobby Edgerton
Co-founder, Capital Investment Cos., Raleigh
Cree Inc. (CREE)
Market Cap: $2.7 BILLION | P/E Ratio: N/A | Expected five-year EPS growth: 36%
The company is too hated on the market, with the stock down by two-thirds from a high of $75, but it has assets of $3 billion and a solid balance sheet with about $200 million in long-term debt. Light-emitting diode devices are a big deal — Cree’s LED bulb is the best-selling one in the U.S. — but they’ve drawn a lot of competitors.
Analysts with buy recommendations: 28%
Duke Energy Corp. (DUK)
Market Cap: $46.4 BILLION | P/E Ratio: 19.4 | Expected five-year EPS growth: 3%
It has a dividend of almost 5% and its stock was down from almost $90 to the mid-$60s in mid-December. The company has negative cash flow because of the dividend, but it can borrow money any time it wants. The $6.7 million Piedmont Natural Gas Co. acquisition is not a big deal in the grand scheme of things because Duke is so large.
Analysts with buy recommendations: 26%
Krispy Kreme Doughnuts Inc. (KKD)
Market Cap: $948 MILLION | P/E Ratio: 33 | Expected five-year EPS growth: 20%
The company just had a disappointing quarter, but it has a good balance sheet and virtually no debt. Krispy Kreme has huge international opportunities, even if same-store sales outside the U.S. declined nearly 4% in the third quarter. It is an out-of-favor stock, down about 40% from its high in 2013, but it can rebound in 2016.
Analysts with buy recommendations: 83%
Avoid: HanesBrands Inc. (HBI)
The Winston-Salem-based apparel company sells brands including Hanes, Champion and Playtex and last year bought Spartanburg, S.C.-based Knights Apparel. It’s a good company, but its stock is just too high.
Frank Jolley
President, Jolley Asset Management LLC, Rocky Mount
Bank of America Corp. (BAC)
Market Cap: $179 BILLION | P/E Ratio: 12.7 | Expected five-year EPS growth: 10%
Shares of the bank remain inexpensive at 83% of book value and slightly more than 11 times estimated earnings for 2016. Net interest margins should benefit as interest rates increase. Earnings should benefit from lower legal expenses. Shares traded in December for about $17, about two-thirds less than the highs reached in 2007.
Analysts with buy recommendations: 84%
Cree Inc. (CREE)
Market Cap: $2.7 BILLION | P/E Ratio: N/A | Expected five-year EPS growth: 36%
The Durham-based company makes chips and other items for LED equipment, power-management and radio-frequency products. Cree has a strong balance sheet with more than $632 million in cash and equivalents. Earnings for the fiscal year ending in June are estimated to reach $1 per share and $1.40 per share the following year.
Analysts with buy recommendations: 28%
Nucor Corp. (NUE)
Market Cap: $13 billion | P/E Ratio: 21 | Expected five-year EPS growth: 14%
The Charlotte-based company is the country’s largest steel producer. It has benefited from the lower cost of scrap metal, a primary material used to make steel. With $2 billion in cash and equivalents, Nucor should rebound with earnings rising to $2.70 in 2016 from $1.81 per share last year. Shares are down by about 25% from a high of $55.
Analysts with buy recommendations: 56%
Avoid: Red Hat Inc. (RHT)
The Raleigh-based open-source software company is in the “hot” area of cloud computing, but shares are at their all-time high after gaining 60% over the last two years.
Don Olmstead
Managing director, Novare Capital Management, Charlotte
BB&T Corp. (BBT)
Market Cap: $29 billion | P/E Ratio: 14 | Expected five-year EPS growth: 6%
The high-quality regional bank — the eighth-largest in the U.S. by assets — is poised to benefit when interest rates rise. A 3% yield, a strong balance sheet, conservative loan underwriting and solid credit quality make it a good pick. Its diverse revenue base has allowed the company to generate higher returns on assets with less volatility than peers. BB&T has also been making acquisitions to expand its geographic footprint.
Analysts with buy recommendations: 55%
Bojangles’ Inc. (BOJA)
Market Cap: $567 MILLION | P/E Ratio: 22 Expected five-year EPS growth: 16%
The company is smaller than our typical investments, but it stuck out after going public in May. A recent pullback in the stock represents an attractive buying opportunity. It’s trading more than 35% below its IPO price in May, while reporting some pretty solid numbers. The fast-food chicken chain has significant opportunities to grow within existing markets in the Southeast along with expansion into new areas.
Analysts with buy recommendations: 36%
VF Corp. (VFC)
Market Cap: $27 billion | P/E Ratio: 26.2 Expected five-year EPS growth: 11%
The maker of clothing brands The North Face, Vans and Timberland (which represent almost 60% of sales) is experiencing strong growth in the U.S. and overseas. Despite a negative sentiment around retail, these apparel areas are growing rapidly. And though a stronger dollar has had a negative impact, VF has a history of generating consistent double-digit earnings growth, improving profit margins and strong cash flow.
Analysts with buy recommendations: 88%
Avoid: LendingTree LLC (TREE)
The combination of a meteoric rise in the stock price — tripling over the last three years — and its high valuation implies high expectations for the company. If they are not met, there could be significant downside in the share price.
Christy Phillips
Director of research and senior portfolio manager, Franklin Street Partners, Chapel Hill
Insteel Industries Inc. (IIIN)
Market Cap: $390 MILLION | P/E Ratio: 18.4 Expected five-year EPS growth: 13%
The nation’s largest manufacturer of steel wire reinforcing products, Insteel’s revenues and earnings are tied to a steady recovery in infrastructure spending. Operating margins reached 7.4% in the most recent quarter, and the Mount Airy-based company has plenty of expansion opportunity: The margin peaked at 19.3% in 2007. Earnings per share over the next two years are expected to increase to $1.65 in 2016 and $2 in 2017.
Analysts with buy recommendations: 50%
Laboratory Corp. of America (LH)
Market Cap: $12.4 billion | P/E Ratio: 26.7 Expected five-year EPS growth: 12%
Burlington-based company LabCorp has diagnostic laboratories across the country and is a low-cost provider as health care payment models change. The acquisition of Covance broadens the company’s mission, enabling it to amass more diagnostic data, which should help improve clinical outcomes. Earnings per share should increase from $7.89 in 2015 to $8.82 in 2016. Target price objective in 2016 is $150.
Analysts with buy recommendations: 75%
Martin Marietta Materials Inc. (MLM)
Market Cap: $9.5 billion | P/E Ratio: 36.2 Expected five-year EPS growth: 16%
The aggregates producer is well-positioned to benefit from a recovering U.S. construction and infrastructure marketplace. New entrants face challenges because the expense of moving rock becomes prohibitive beyond a 70-mile radius, and the lengthy permitting process for new quarries. The outlook for revenue and earnings growth over the next five years is strong, with price increases expected to outpace inflation costs.
Analysts with buy recommendations: 56%
Avoid: Tanger Factory Outlet Centers (SKT)
North Carolina investors recognize this operator of 43 outlet shopping centers around the U.S. and Canada. The Greensboro-based company has a demonstrated track record, but annual earnings growth is expected to slow to less than 10% during the next few years.
Ann Benjamin Zuraw
President, Zuraw Financial Advisors LLC, Greensboro
Bojangles’ Inc. (BOJA)
Market Cap: $567 MILLION | P/E Ratio: 22 Expected five-year EPS growth: 16%
Bojangles’ started in 1977 and went public in May with an opening price of $26.75. Its stock has declined to about $15.50 in mid-December. But the company continues to add new franchises and show increased comp-store sales because of improved marketing and technology. It can’t hurt that the strong showing of the UNC Chapel Hill football team and the Carolina Panthers’ record-breaking year is prompting more tailgating sales.
Analysts with buy recommendations: 36%
Old Dominion Freight Line Inc. (ODFL)
Market Cap: $5.2 billion | P/E Ratio: 17.4 Expected five-year EPS growth: 15%
Old Dominion is a well-managed company with annual revenue growth of 8% or more, assuming macroeconomic conditions remain stable. The Thomasville-based company has increased its market share and improved its operating margin because it has a large, dense network of terminals and strong productivity. Shares are off 25% since peaking at about $80 in November 2014, trading at about $60 in mid-December.
Analysts with buy recommendations: 65%
VF Corp. (VFC)
Market Cap: $27 billion | P/E Ratio: 26.2 Expected five-year EPS growth: 11%
Outdoor and action-sports apparel makes up more than half of VF’s revenue, while growing faster and at higher margins than the rest of the company’s products. Despite the fact that the strong dollar hurt VF internationally last year, almost 40% of revenues come from outside the U.S. VF has a best-in-class portfolio of brands and a management team that should be able to report operating gains of 10% or more in 2016.
Analysts with buy recommendations: 88%
Avoid: Highwoods Properties Inc. (HIW)
This Raleigh-based real-estate investment trust has been a strong performer. But rising interest rates are likely to lead to higher acquisition costs and, therefore, slower growth.