INVESTOR’SP L A Y B O O K

Top PicksFROM Top Pros

2016

Top Picks FROM Top Pros

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Looking for a shopping list of new stock ideas for 2016?To help you, we’ve turned to the nation’s most respected and well-known newsletter advisors and asked them for their favorite investment ideas for the coming 12 months.

With over 85 top picks included in this year’s survey, there’s something for every type of investor, from high quality blue chips to speculative home runs.

As always, we caution you to use these ideas only as a starting place for your own research and only buy stocks that meet your own personal investing criteria, your risk parameters, and your time horizon.

Importantly, these stocks represent each advisor’s current outlook. As fundamentals change during the year, a favorite “buy” can become a “sell.” As such, it is up to each investor to monitor future developments at the underlying companies to be sure that the reasons behind buying a stock remain in place.

We would also emphasize the importance of diversification. No one advisor is always right and there is no guarantee that any individual recommendation will succeed; you can minimize your risks by considering a diversified package of stocks from among those featured in this report.

We also encourage you to visit MoneyShow.com on a regular basis. Every day, we feature new investment ideas from the top advisors. There’s no better way to follow the ongoing advice and favorite stocks from the very best investment newsletter advisors.

We wish you the very best for your investing in 2016.

Steven Halpern Editor, Top Pros’ Top Picks

INVESTOR’SP L A Y B O O K

2016

Top Picks FROM Top Pros

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Contents Click on page numbers to go directly to each article

A

AbbVieIngrid Hendershot 5

Acadia PharmaceuticalsJohn McCamant 6

Accenture plcBrian Lazorishak 7

AESRoger Conrad 8

AlibabaPaul Goodwin 9

Alimentation Couche-TardGordon Pape 10

Anthera PharmaceuticalsJay Silverman 11

AppleRuss Kaplan 12

Aqua AmericaGenia Turanova 13

Archrock, Inc.Tim Plaehn 14

Ares CapitalAdrian Day 15

B

Banc of CaliforniaRichard Moroney 16

Bank of AmericaBriton Ryle 17

BroadcomJim Powell 18

Bunge ConvertibleJack Adamo 19

C

Callidus SoftwareJim Oberweis, Jr. 20

Cambrex Corp.Gregg Early 21

Cathedral EnergyBenj Gallander 22

D

DyncomTom Bishop 23

E

E*Trade FinancialCrista Huff 24

Electronic ArtsKevin Kennedy 25

Emergent BiosolutionsDr. Joe Duarte 26

Enbridge, Inc.Gordon Pape 27

EQT CorporationRobert Rapier 28

F

Federated InvestorsCrista Huff 29

Fidelity Favorites: Blue Chip Growth and Corporate BondJack Bowers 30

Five Top Stock Picks for 2016 from Matt McCall: BABA, BP, MHK, VMC, and RYAAYMatt McCall 31

Franco-NevadaFrank Holmes 32

Freeport-McMoRanRuss Kaplan 33

G

Global Brass and Copper HoldingsPeter Mantas 34

I

Iberia BankDoug Hughes 35

International Business MachinesMatthew Castrel 36

Vahan Janjigian 37

Chuck Carlson 38

iShares 20+ Year Treasury Bond ETFElliot Gue 39

Landon Whaley 40

iShares Cohen & Steers REITKevin Kennedy 41

iShares MSCI Brazil Capped ETFNicholas Vardy 42

J

Jack Henry & AssociatesPeter Mantas 43

Jones Lang LaSalleBy Richard Moroney 44

L

LearRichard Moroney 45

LydallJohn Reese 46

M

Magellan Midstream PartnersRobert rapier 47

Magic SoftwareBenj Gallander 48

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Marathon PetroleumMatthew Castel 49

Market Vectors Gold Miners ETFLandon Whaley 50

MattelGeorge Putnam 51

Mellanox TechnologiesVahan Janjigian 52

MicrosoftStephen Quickel 53

Genia Turanova 54

MosaicJim Pearce 55

N

New RelicRob DeFrancesco 56

NII HoldingsGeorge Putnam 57

NordstromJohn Dobosz 58

Novo-NordiskVivian Lewis 59

NvidiaMichael Cintolo 60

O

Omnicom GroupKelley Wright 61

On AssignmentRichard Moroney 62

OSI SystemsJim Powell 63

P

Palo Alto NetworksRob DeFrancesco 64

Stephen Quickel 65

Powershares Buywrite ETFNicholas Vardy 66

PowerShares PreferredDavid and Michael Fabian 67

Pretium ResourcesStephen Leeb 68

Q

QualcommGregg Early 69

QuestarAri Charney 70

R

Reaves Utility Income FundTim Plaehn 71

Rio TintoStephen Leeb 72

Royal GoldAdrian Day 73

S

Seagate TechnologyJim Pearce 74

SquareTimothy Lutts 75

T

Teekay TankersElliot Gue 76

Tekla Life Sciences InvestorsNate Pile 77

Ten Top-Notch Stocks to Watch in 2016: DIS, QCOM, C, XOM, NOW, MSFT, CXO, BHI, HAL, AMH, ARPI, QMichael Berger 78

The J.M. Smucker CompanyEric Vermulum 79

The Medicines CompanyJay Silverman 80

Travelers CompaniesJohn Reese 81

U

Under ArmourBriton Ryle 82

V

Vanguard Russell 1000 ETFDavid and Michael Fabian 83

VeresenVivian Lewis 84

W

WabtecIngrid Hendershot 85

Wal-Mart StoresChuck Carlson 86

Kelley Wright 87

WEC Energy GroupRoger Conrad 88

WhirlpoolJ. Royden Ward 89

X

Xcel EnergyChloe Lutts Jensnen 90

Z

ZiopharmJohn McCamant 91

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Ingrid Hendershot

Editor, Hendershot Investments

AbbVieAbbVie (ABBV) has a pipeline of promising new medicines with the potential to deliver nearly $30 billion in sales from the expected launch of more than 20 new products through 2020.

HUMIRA is currently the company’s leading biologic therapy, a product focused on treating a variety of autoimmune diseases.

AbbVie outlined long-term financial objectives which position the firm for strong performance. AbbVie expects to deliver double-digit adjusted EPS growth on average through 2020 with total company sales of about $37 billion by 2020.

The company expects significant margin expansion, targeting 2020 operating margin greater than 50% with an average of 100-200 basis points of improvement per year.

Management is committed to returning cash to shareholders through a strong and growing dividend. The company announced a 12% increase in the dividend for fiscal 2016. The dividend currently yields a healthy 4.0%.

Year-to-date through September 30, 2015, the company has also repurchased $6.25 billion of its shares. AbbVie’s outlook for 2016 adjusted EPS is in the range of $4.90-$5.10, reflecting strong double-digit growth.

Long-term investors may want to inject AbbVie into their portfolio, a high-quality biotech firm with double-digit growth and a healthy dividend. Buy.

Subscribe to Hendershot Investments here…

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Acadia PharmaceuticalsNuplazid, the lead drug candidate from Acadia Pharmaceuticals (ACAD), has successfully completed Phase III trials to treat Parkinson’s Disease psychosis (PDP).

The FDA recently accepted its new drug application (NDA) for the drug and importantly granted the compound Priority Review, cutting the review timeline to just six months.

The FDA PDUFA date is set for May 1, setting up a transformational year for ACAD in 2016.

With the NDA now filed and PDUFA date on the calendar, ACAD has shifted gears and is currently in full commercial launch mode with preparation progressing as planned.

The company is building a sales force of 135 reps, who will be trained and ready for a mid-year launch.

Additionally, ACAD is growing its senior level commercial team and has hired key medical affairs personnel. In fact, early feedback from the PDP disease awareness education program has been encouraging.

2016 sets up as juggernaut year of high impact events for ACAD including US approval and commercial launch of Nuplazid.

Filing the MAA for marketing approval in the EU; ex-US commercialization rights deal(s) and the topline data read out of the Phase II Alzheimer’s Disease dementia trial.

While M&A is impossible to predict, ACAD does have a wholly-owned de-risked drug about to be approved addressing what we believe is a billion-dollar market or more, making it a logical takeout candidate. ACAD is buy under $40 with a target price of $55.

Subscribe to The Medical Technology Stock Letter here...

By John McCamant

Editor, The Medical Technology Stock Letter

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Brian Lazorishak

Contribuitor, InvesTech Market Analyst

Accenture plcAccenture plc (ACN) employs extensive experience and comprehensive capabilities across a wide range of industries and business functions to help clients integrate systems and improve performance.

The diversity of Accenture’s business along industry, product offering, and geographic lines is a key competitive advantage and creates a business model that is highly resilient and durable, with deep, long-term relationships.

Accenture currently serves more than 80% of the Fortune Global 500 and 94 of the top 100. All of the company’s largest 100 clients have been on board for at least five years and 97 of those 100 have been clients for at least ten years.

It is a global company with 47% of revenues in North America, 36% in Europe, and the remaining 17% in growth markets.

Continued execution of this strategy has led to consistent double-digit growth. This stands out in the Technology sector, where even some of the best growth companies are subject to cyclical earnings.

Over the last ten years, Accenture has grown earnings at an annualized rate of 15.5% and revenues at an average of 12.5% annually. Since going public in 2001, the company has increased earnings every fiscal year.

The current outlook for the company is appealing. Growth has been muted somewhat by the strong US dollar, but Accenture has continued to expand despite this substantial headwind.

While year-over-year revenue has been flat in US dollar terms, it has been growing about 10% when foreign sales are measured in local currency.

Most of the growth is in what the company refers to as the new digital, cloud, and security services. The company’s goal in this area is to “enable clients to be the digital disruptors, not the disrupted.” ACN continues to invest in developing these growth areas, including through acquisitions.

Accenture is very healthy financially. ACN generated $3.7 billion in free cash flow (FCF) in fiscal 2015 (ended August 31) for a FCF yield of 5.2%.

In fiscal 2016, the company will pay $2.20 in dividends (roughly 2% yield) and the dividend has grown over 20% annually since initiated in 2006. Accenture has over $3 billion in cash on the balance sheet, with virtually no debt.

Accenture has delivered strong and consistent growth, especially for a technology company. As such, it trades at a premium P/E ratio of about 20 based on fiscal 2016 earnings per share of $5.20. Yet, this higher valuation is still attractive given the resiliency of the business model and consistency of earnings.

Accenture offers a rare combination of growth and stability in the Technology sector, making it a timely portfolio idea for 2016.

Note: Clients and individuals associated with Stack Financial Management hold positions in—and may from time to time make purchases or sales of—this security.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Roger Conrad

Editor, Conrad’s Utility Investor

AESBrazil’s well-publicized political, economic, and weather woes have made association with the country toxic to investors in early 2016. The market, however, has greatly exaggerated the exposure faced by AES Corp. (AES).

And that should make for robust returns for the common stock in 2016 and solid safe income for AES 6.75% Preferred stock (AES.PC), which pays a quarterly dividend and converts October 15, 2029, to the greater of $50 per share in cash or 1.4216 shares of AES common stock.

AES has promised annual dividend growth of 10% a year through 2018. And the company delivered for its upcoming February payment with a boost in the quarterly rate to 11 cents from 10 cents per share.

The key is executing some $7 billion in planned construction of utility and power projects, all but $400 million of which has been financed already.

The company brought a 1,300 megawatt plant on line in Vietnam last year six months ahead of schedule and under budget. Another 3,000 megawatts is scheduled to come on stream by the end of 2016—mostly in Indiana—with major hydro developments set for Chile and India.

AES’ other major growth engine is utility scale energy storage; energy storage is the key to greater deployment of intermittent power sources like solar, hydro, and wind.

Meanwhile, during a September analyst briefing, management addressed the 9% of earnings coming from Brazil. This consists of relatively small but controlling interests in two regulated utilities.

As a result, true Brazil exposure is vastly overstated in AES’ financial statements, a fact not picked up on by those who don’t take the time to understand the company.

AES still expects 15% annual free cash flow growth as it invests in contract generation and regulated utility rate base.

Close to an all time high yield and historic lows for every other valuation metric from p/e, sales and cash flow to book value, AES common is a buy up to $15. AES Preferred C is a buy below its call price of $50.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Paul Goodwin

Editor, Cabot Emerging Markets Investor

AlibabaAlibaba (BABA) operates several main e-commerce sites—Taobao Marketplace, Tmall, and Juhusuan—which connect buyers with sellers, consumers with other consumers, and companies with companies.

The company owns an 80% share of China’s online shopping market, which is constantly growing as smartphones give more consumers online access.

After Alibaba’s $25 billion IPO in 2014, the company had a mammoth fund for acquisitions and development that founder Jack Ma has been using to buy out smaller rivals and other businesses with useful technology or niche markets.

Jack Ma was an English teacher who founded the business as a way for customers outside China to connect with Chinese suppliers.

The company’s 24-hour Singles Day shopathon on November 11, 2015, yielded $14.3 billion in sales, setting a new world record. And, like Amazon (AMZN), Alibaba is making a strong move to dominate China’s growing cloud services sector.

International commerce contributed just 9% of the company’s revenue during the last four quarters, but there’s no doubt that management wants to make Alibaba a player in the rest of the world.

Alibaba now has a market cap of over $217 billion and enjoyed 56% revenue growth in fiscal 2014 and 44% in 2015. After-tax profit margins have averaged well over 40% for years.

Sales in the first three quarters of calendar 2015 have increased by 45%, 28%, and 27%, respectively, and Q4 revenue will include that blockbuster Singles Day.

Earnings are forecast to grow 12% in 2016, partly because of M&A activity, but will swell by 32% in 2017.

BABA corrected from $120 in November 2014 (following its record-breaking IPO) to $57 in October 2015, but has powered back to $84 and is building a nice launching pad. It’s my pick for stock of the year.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Gordon Pape

Editor, Internet Wealth Builder

Alimentation Couche-TardFrom a small Quebec-based convenience store chain, Alimentation Couche-Tard (TSX: ATD.B) has grown into an international retail powerhouse.

The company has a strong presence in the United States and Europe, as well as in its home country of Canada.

It operates convenience store and road transportation fuel retailing chains through brands, including Circle K, Statoil, Kangaroo Express, Couche-Tard, and Mac’s.

Alimentation Couche-Tard’s network consists of approximately 8,006 convenience stores across North America.

The Toronto-listed shares started the year at C$48.69 and finished on December 31 at C$60.91 for a gain of 25% in 2015. I expect it to do at least as well in the next 12 months.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Jay Silverman

Editor, The Medical Technology Stock Letter

Anthera PharmaceuticalsAnthera Pharmaceuticals (ANTH) is nearing the readout of three clinical trials, possibly one in each quarter beginning in Q2:16. For blisibimod (“b-mod”), the first trial will be look at the Phase II in IgA nephropathy (“IgAN”).

The primary endpoint is a reduction in proteinurea and that leads to kidney failure in many IgAN patients.

Since b-mod’s mechanism of action and clinical data resulted in a significant reduction in proteinurea in the PEARL studies (2012), and global regulators agreed to this single endpoint in registration trials, we expect the data will be positive.

Afterwards, the Company is likely to sign a new partnership in Japan/Asia, where the incidence of IgAN (~300,000) is three times that of the US (100,000).

In my view, interest from new partners is high and the de-risking of the program with the upcoming data should lead to a sizable partnership.

A Phase III study with b-mod to treat lupus—CHABLIS-SC1—is due to be completed by the end of Q3:16.

A positive interim look in January put b-mod back into the spotlight, and since then, enrollment accelerated and the second lupus registration trial CHABLIS-7.5 is underway.

With new data from GSK’s Benlysta (already approved) and AZN’s anifrolumab presented at the ACR in November, lupus as an biotech investment theme is back.

Evidence continues to build that ANTH’s b-mod is the best-in-class compound. Indications are that since the ACR meeting, strategic partner interest in b-mod has risen dramatically.

The Sollpura SOLUTION Phase III trial is enrolling faster than management expected. Initially enrollment rates suggest that a Q4:16 study release is likely.

Sollpura is a novel compound for EPI—enzymatic pancreatic insufficiency in cystic fibrosis patients—and has multiple advantages over current EPI therapy, a $1 billion global market.

The drug emerged in 2015 as a new ANTH compound (licensed from LLY) and has an agreement from the FDA that will approve the non-porcine version with this agreed upon single clinical trial.

The Company should also begin and possibly complete the SIMPLICITY trial in 2016, which is Sollpura in powder/sachet form and will be used for CF kids who cannot take/tolerate current pills burden. In our opinion, Sollpura is an extremely low risk/high reward compound for Anthera.

While the shares have been under pressure due to tax-loss selling and a shying away from small-cap biotechs, 2015 has been an exceptionally positive and productive year.

By the end of 2016, moreover, the metamorphosis of Anthera will continue as those catalysts approach.

With a market cap of less $200 million (and no need for cash), either b-mod or Sollpura—let alone both—can take ANTH to the next tier(s) of biotech valuations. ANTH is a buy under $10 with a target price of $25.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

AppleWhen it comes to Apple (AAPL), there is a major conflict between investment analysts in their Wall Street skyscrapers and main street.

The analysts have been almost consistently negative when it comes to Apple. They always find some problem such as iPhone sales may not be all that good or there is going to be an economic slowdown in China.

Moving to main street we see a different story. Apple’s earnings are growing and it is expected to earn probably more in 2016 than 2015. This translates into a return on equity of 46% which is among the highest among exchange-traded stocks.

Apple has a large and ardent customer base or what Warren Buffett would call a moat. Many people—when they need computers or iPhones—go straight to the nearest Apple store.

On a value basis, Apple is trading at a price:earnings ratio of 12 which is ridiculously low for a growth stock., especially when the price:earnings ratio for the market averages is about 18. It has a huge hoard of cash which can be used for acquisitions and research and development.

As for people who put their money where their mouth is, investment manager Carl Icahn has a huge amount of Apple shares and keeps buying more. His expertise will be a great benefit to the company.

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By Russ Kaplan

Editor, Heartland Advisor

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Genia Turanova

Editor, Leeb Income Performance

Aqua AmericaWhile it might seem counterintuitive to choose a utility stock as a top pick in a year the market anticipates more Fed tightening, we think the case for Aqua America (WTR) is strong.

Aqua runs a business that provides water and wastewater services, serving approximately three million people in eight states.

For many reasons, water presents a compelling investment case; some even argue that this resource is more valuable than oil.

Whatever the actual dollar cost of water, one thing is certain, water is a daily necessity. We expect the investment case for water and water-related stocks only to grow stronger with time.

Aqua America is the nation’s second-biggest dedicated water and wastewater utility.

Over the years, the company has been able to grow (aggressively, via acquisitions) at very strong rates for a utility; from 1999 to 2014, its net income grew at a compounded rate of more than 10%.

The company also has financial strength to invest in infrastructure, as it plans to invest about $1 billion in capital improvements over the next three years.

Aqua has been able to benefit from rules in several states (such as Pennsylvania and New Jersey) that allow rate increases based on infrastructure investment.

It has a new CEOs that assumed that position relatively recently. We like Aqua America’s business fundamentals, industry positioning, and its growing dividend.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Tim Plaehn

Editor, The Dividend Hunter

Archrock, Inc.Archrock, Inc. (AROC) is the new name of the company formed as the result of a business split by Exterran Holdings. In November, the company divided into Exterran Corp. (EXTN)—which kept the international business operations—and Archrock Corporation, with the US based business assets.

Those assets consist primarily of the general partner interests of Archrock Partners LP (APLP), formerly called Exterran Partners LP (EXLP).

Archrock Partners is now a pure-play contract compression services provider to natural gas drilling companies. Compression services are required by natural gas producers to move natural gas from the wellhead to the end users.

In spite of (or more likely because of) low energy prices, natural gas demand is forecast to grow by 23% between now and 2020.

The MLP—Archrock Partners—has generated strong growth, with EBITDA compounding at 26% annually since 2011. Of current significance, 2015 EBITDA guidance is up 13.6% compared to 2014, even with the current low energy prices.

Continued growth at the partnership can be fueled by organic growth with existing clients and operational efficiencies, acquisitions, and drop downs of the assets held at the GP level.

As the general partner, AROC’s cash flow growth is fueled by a combination of distribution increases from APLP and the equity issuance by APLP to fund growth projects.

General partner incentive distribution rights payments grow at a multiple of the LP distribution growth. AROC claims its GP payments have a six times multiplier of the LP distribution growth rate.

So even with very low distribution growth from APLP, AROC can generate an attractive level of cash flow growth. Now as a standalone GP company, Archrock, Inc. is shooting for 15% annual dividend growth through 2017.

The company has already indicated a 25% dividend increase in February as the new baseline dividend rate. The reported 5.6% yield will jump to 7% after the upcoming dividend rate.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Adrian Day

Editor, Global Analyst

Ares CapitalBusiness Development Companies—or BDCs—are companies that lend money to small and medium-sized businesses and pass-through net income to shareholders (just like REITs), so the dividends tend to be high.

The shares of Ares Capital (ARCC) have been weak for both sector and company-specific reasons. BDCs are weak because of concerns about higher interest rates, but these concerns are misplaced.

Most of the companies, including Ares, have the majority of their debt investments structured with floating rates, while their corporate debt is at fixed rates.

Thus, higher rates would increase the interest payments received and widen the spread (while unlikely to be sufficient to hurt the small businesses in which they invest).

Ares has an added problem: it has a large joint venture with GE Capital, and General Electric (GE) is exiting the finance business, leading to concerns about it selling existing loans rapidly, at losses.

This is also misplaced. The loss of revenue from this joint venture is likely to be only a couple of cents per share, while Ares is working hard to replace the lost revenue.

The current yield on Ares is over 10.5%, fully covered by net investment income.

Moreover, Ares has some excess revenue from previous years it is carrying forward and can distribute should there be any short-fall in income to pay the dividend. The stock tends to be volatile, so buy on dips.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Richard Moroney

Editor, Upside

Banc of CaliforniaBanc of California (BANC) runs more than 100 branches, many of them clustered in the Los Angeles area. Revenue has climbed in 15 consecutive quarters, while operating profit margins have expanded in each of the past five quarters.

Although dividend growth has not been a point of emphasis recently, the stock offers a plump yield of 3.2%. Shares have generated a 29% return in the past year.

Aside from anticipation over the Fed’s rate hike, 2015 was a fairly placid year for US regional banks. The number of bank mergers held roughly flat and the industry is on pace for the fewest bank failures since 2007.

As the Fed begins to move interest rates gradually higher, Banc of California seems capable of increasing rates charged for loans at a faster pace than what is pays for deposits.

The stock has been weighted down by bearish sentiment. None of the five analysts covering BANC rate the stock better than a Hold.

June-quarter results had raised concerns about swelling expenses. But the bank got a better grip on expenses last quarter. Its total deposit base has also surged 50% over the past year.

By growing its commercial bank, the company has reduced its reliance on the cyclical mortgage business, now generating just 22% of pretax income.

The consensus projects 13% higher per-share profits in 2016 and analyst estimates have risen in the past 30 days. We rate the stock a Best Buy.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Briton Ryle

Editor, The Wealth Advisory

Bank of AmericaMy Top Pick for conservative investors, Bank of America (BAC), is perpetually undervalued and has more upside for its dividend than just about any stock I can name.

The bank has trimmed all the fat and conformed to all of the new legislation and is ready to rip into the new year with stellar gains for savvy investors.

From a valuation standpoint, this is a company that’s made huge improvements to put itself ahead of the pack.

It’s inching towards closing the gap to book value even as book value increases, now sporting a 0.8 P/B ratio and a book value of $22.44.

Also, it has a forward P/E of 10.6 compared to an average of 18.5 for the S&P 500.

On top of that, once the Fed’s stress test results are released in March, the dividend should be at least 50% higher. And that makes the downside here quite limited.

Bank of America posted stellar earnings in the most recent quarter; it netted $0.37 a share on $20.8 billion in revenue and beat estimates by a solid 12%.

Also, BofA recently settled the litigations related to mortgage-backed securities in 2009 and 2010.

I don’t expect BAC to trade much higher without a dividend hike. But, I’ve got a 12-month price target of $24 in anticipation of continued solid execution and an increase of 50% or more in distribution rates. In my view, accumulating shares on dips is a very good idea.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Jim Powell

Editor, Global Changes & Opportunities

BroadcomIt isn’t just the number of new technologies that is having a big impact on our lives, it is the way in which they are starting to work together that is so important.

Anyone with a computer, a tablet, or a smartphone can now tap into a vast system whose capabilities are skyrocketing.

One company that is in the catbird’s seat to benefit from the “smart everything” revolution is Broadcom (BRCM).

The company’s single-minded mission is to connect everything to everything else. Broadcom believes that 99.98% of global Internet traffic crosses at least one of its chips during every exchange.

Broadcom has hundreds of products, many of which dominate their markets. Areas of focus include online entertainment, Internet in automobiles, consumer electronics, GPS, mobile systems of every kind, encryption chips, and commercial data and communications…to name only a few.

Customers include Amazon, Cisco Systems, DirecTV, and Samsung. With the number of connected devices likely to reach 50 billion by 2020, I believe the outlook for Broadcom is excellent.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Jack Adamo

Editor, Insiders Plus

Bunge ConvertibleWith the market so volatile and dividend yields painfully low, investors yearn for a solid company with a safe, substantial dividend.

Bunge Limited (BG) is 198 years old. It produces, processes, and markets edible oils, milled products, sugar, and fertilizer.

Its products are used in human foods, animal feed, and biofuels. It’s not a glamorous business, but it makes money and weathers recessions well.

We own its Bunge Cumulative Convertible Perpetual Preference (OP:BGEPF). At its year-end closing price of $93.04 it yields 5.24%.

At our buy limit of $98.00, it yields 4.97%. Since it’s convertible into 1.0846 shares of common stock at any time at your option, you also have long-term inflation protection. It’s not callable by the company.

Note that Bunge has two other preferreds, but they don’t seem to be publicly traded. The correct Cusip for the shares that we recommend is G16962204.

It is thinly traded on the Pink Sheets, not a regular exchange, so buy it only with a limit order, never a market order. Be patient. Buy Bunge Cumulative Convertible Preferred up to $105.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Callidus SoftwareBased in Dublin, California, Callidus Software (CALD) makes CallidusCloud software which helps businesses hire and train sales professionals, manage leads, construct and quote deals, and manage sales incentive compensation.

The company’s products are offered as an on-demand SaaS subscription and are typically charged on a per-month and per-user fee basis.

Because only 300 of their 4000+ customers have more than a single CALD product and the firm offers multiple products across seven product categories, cross-selling into their current customer base should provide additional revenue growth beyond their proven success at winning new customers.

The space is competitive, but other mostly smaller players are focused on selling point-solutions that address a single need versus the Callidus suite of integrated solutions.

Competitors include Marketo (MKTO), Synygy (private), and Xactly (XTLY), along with a host of much smaller players.

Larger software companies including IBM (IBM) and Oracle (ORCL) have also delved into this space, through acquisitions of smaller niche players to boost their presence. Should that trend continue, it’s plausible that Callidus could become a target.

In addition to growing their revenues at a faster clip than industry growth—indicating market share gains—Gartner named CallidusCloud a 2015 leader in its coveted Magic Quadrant for SPM software, further suggesting strong product positioning in the marketplace.

Callidus is growing sales north of 20% while earnings have taken off, doubling in 2014 and expected to grow in excess of 35% for 2015. Shares trade for 56 times my forward estimate of $0.30.

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By Jim Oberweis, Jr.

Editor, The Oberweis Report

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Gregg Early

Editor, The Whaley Report

Cambrex Corp.My Top Pick for aggressive investors in 2016 is the leader in a market known as Contract Manufacturing Organizations (CMO) and it’s becoming very big business.

Basically, a drug company designs a drug and Cambrex Corp. (CBM) would then manufacture it in quantity for testing and trials.

Market research firm Visiongain forecasts that the worldwide pharmaceutical contract manufacturing market will grow to $71 billion in 2018. And Cambrex is the top CMO in the game.

It now costs about $3 billion to get a drug through drug trials. That means most drug companies want to make their new products get the best shot possible of passing the first time out.

There are analysts that project that, today, about 40% of the drug development business is outsourced and that number will likely increase to 80% over the next several years.

What’s more, Cambrex usually gets paid a fee for its services, plus a royalty off the drug they deliver.

Getting a cut of today’s major blockbuster drugs without assuming much of the risk is quite a niche. It’s off from its highs so now is a good time to buy.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Benj Gallander

Editor, Contra the Heard

Cathedral EnergyThere is no religion these days at Cathedral Energy (TSX: CET). The stock has taken an absolute pounding along with most in the drilling space given the plummet of oil and gas prices. Plus, the handsome dividend was scuttled. All very ugly indeed.

Revenues plunged 59% in the most recent quarter compared to one year ago, as $77 million turned into $31 million. Customers are moving to the sidelines, either cancelling or postponing drilling in many cases.

Thus, even with excellent technology and pretty darn good service, business is lacking. That led to negotiations with creditors, which appear to have been concluded successfully. We like to believe that a further conversation will not be necessary in the near future.

Worth noting is that the capital budget for 2015 has not been changed. The tally is $7.2 million. Given the current set of circumstances, a cutback here could easily have been surmised, but management has decided to stay the course.

Our belief in this company is that it will be one of the survivors of the wreckage. However, given the duration of the downturn and the possibility that it will not reverse in the near future, Cathedral might not make it.

That being said, this corporation has the possibility of a 10-bagger plus, if it can endure the current carnage. That possibility makes this a reasonable speculative investment for those strong enough to take the plunge.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

DycomDycom (DY) also installs infrastructure for wireless companies, whether it be stringing fiber optic cable down the street, burying cable in a trench, running it right into a building, erecting and outfitting a cell tower, etc.

Clearly the explosion of video over the Internet (including mobile devices) is largely behind the need for expanded gigabyte capacity.

While Dycom has grown over the years in part by making dozens of acquisitions of smaller companies that do this type of work, it is important to note that an impressive 22% of the 29% growth in fiscal Q1 was organic.

After earnings $1.17 in FY 7/14 and $2.41 last year Dycom is currently forecasted to earn $3.92 this year (FY 7/16) and $4.40 in next year.

So what is driving this growth in an economy growing overall at 2%? A major upgrade cycle is just starting to kick in.

In the company’s own words, “This quarter was impacted by a broad increase in demand from each and every one of our top five customers as we deployed 1 gigabit wireline networks and grew core market share.”

The company explains, “Today a number of major industry participants are deploying significant wireline networks across broad sections of the country. These industry developments are producing opportunities across a broad array of our existing customers, which in aggregate are without precedent for the industry, in our experience.”

Finally, the company says, “It is clear that calendar 2015 has been the foundational year for a massive investment cycle in wireline networks.” I could not have said it better myself.

Zacks and Value Line both rank Dycom a 1, their highest ratings. Further, it’s recently been the top stock in the IBD-50, with a 97 composite rating, 99 for relative earnings strength, and 98 for relative strength. Our BI Research rank is also a buy.

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By Tom Bishop

Editor, BI Research

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Crista Huff

Editor, Smart Investing in Turbulent Times

E*Trade FinancialE*Trade Financial (ETFC) also offers balance sheet management, including loans, deposits, payables, and asset allocation.

2016 revenue is projected to expand by 22%, enhanced by increased daily average trading volumes, and net new brokerage accounts.

Rising interest rates should boost E*Trade’s net operating interest income, which represented about 60% of total net revenue in 2015. In addition, a 2015 departure from its mortgage loan business will improve E*Trade’s balance sheet.

Consequently, Moody’s Investors Service raised its ratings on E*Trade Financial and E*Trade Bank in December.

The Wall Street consensus EPS estimates for 2016 and 2017 reflect 36% and 20% growth (December year-end). The stock’s 2016 price/earnings ratio (P/E) is 18.8. ETFC traded in a P/E range of 16 to 27 in recent years.

In November, E*Trade announced that it will buy back up to $800 million of its common stock through March 31, 2017. This was the company’s first repurchase announcement in eight years.

Institutions own 96% of ETFC shares. Wow! That means professional investors think ETFC is a great investment.

The stock traded between $24 and $31 for most of 2015. I expect ETFC to climb to the upper $30s in 2016, barring any significant bad news.

ETFC is an undervalued aggressive growth stock, appropriate for risk-tolerant growth investors.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Kevin Kennedy

Editor, The Coolcat Report

Electronic ArtsElectronic Arts (EA) is best known for its Sims, Madden NFL, and FIFA Soccer games, and its just released Star Wars: Battlefront video game.

The stock has been on a tear since the end of 2012, surging 373% in that span. It more than doubled in 2014 and rose another 46% last year.

Fiscal 2015 was EA’s fourth straight year with positive profits and the company has topped $1 billion in sales in five of the past seven quarters while building up more than $8 per share in cash.

Its EPS of $2.50 per share in the past year is expected to jump 42% to $3.54 per share in the next year, giving it a forward PE of 19.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Emergent BiosolutionsEmergent Biosolutions (EBS) has developed a bio-Anthrax vaccine that is its best selling product through contracts with the US government via the CDC and Defense Department.

The company is also involved in treatments for chemical weapons’ related injuries overseas, but not yet in the US.

The company reported its latest earnings on November 5 and beat expectations delivering 83 cents per share in net income on revenues of $164.9 million.

Estimates averaged $151.42 million in revenues and 56 cents per share. EBS has a history of positive surprises.

The company reported earnings of 36 cents per share for its second quarter of 2015, beating analyst estimates of 26 cents. Revenues climbed 14% year-over-year to $126.1 compared to an estimate of 124.25 million.

The company also announced that it will spin off its biosciences unit, whose focus is oncology, to investors, a move that will allow it to focus on its strengths, vaccines, and other defense related biologicals.

In the current climate of increasing terrorism threats, EBS is an excellent addition to any portfolio. Dr. Duarte owns shares in EBS.

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By Dr. Joe Duarte

Contributor, Investing Daily’s Smart Tech Investor

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Enbridge, Inc.Years ago I learned that one of the easiest ways to make money in the market is to buy top quality stocks while they are temporarily cheap.

Enbridge (ENB) fits the bill perfectly. This Canadian-based company operates the world’s largest oil and liquids pipeline system and is a major natural gas distributor as well.

The company has a history of solid growth and regular dividend increases, the latest being a 14% hike starting in March.

The stock hit an all time high of $54.43 in late April. Then, suddenly, people started to think that maybe the pipeline companies would be sideswiped by the oil sell-off. Enbridge shares turned around and started drifting lower.

Even the early December announcement of the dividend hike didn’t stem the sell-off. By mid-December, the shares had fallen all the way to $29.19.

At that point, saner heads prevailed and the stock rallied to close on December 31 at $33.19. Still, that was down 39% from the April high. That looks like a buying opportunity to me.

The stock should get back over $40 this year, plus you’re collecting a 4.6% yield. What’s not to like?

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By Gordon Pape

Editor, Internet Wealth Builder

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Robert Rapier

Editor, Energy StrategistEQT CorporationI like buying companies that are on sale and no sector is currently at a deeper discount than the energy sector.

The sell-off that started in mid-2014 has created some legitimate bargains amongst the carnage. An investor has to be selective, however, as some companies are still overvalued despite the sharp corrections.

But I believe that the biggest growth stock bargain in the energy sector at present is EQT Corporation (EQT), a leading Marcellus driller with extensive holdings in the basin’s liquids-rich sweet spot.

EQT has seen its realized price premium shrink alongside the price of natural gas liquids. Yet it continues to rapidly ramp up production, making up some of the price pain on volume.

EQT is also an enthusiastic developer of affiliated income vehicles, spinning out first its midstream operations and then its general partner interests in those as separate securities.

These interests and EQT’s strong balance sheet give the company an advantage over some of its Marcellus competitors and should keep them afloat until domestic natural gas prices recover.

EQT will be a major beneficiary of the eventual recovery in prices, not least because its midstream MLP is getting an increasing share of its pipeline traffic from other nearby producers.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Federated InvestorsOur Top Pick for conservative investors—Federated Investors (FII)—is a 60-year old global investment management company that’s uniquely positioned to increase its net income from asset management fees as short-term interest rates rise.

Federated is an industry-leading provider of money market mutual funds, which make up 70% of their assets under management.

The company has been waiving management fees on money market funds, a move that was necessitated by the shockingly low interest rate environment produced by quantitative easing.

Now that rates are rising, the company has reinstituted its management fees, thereby dramatically increasing 2016 revenue.

In addition, Federated’s third-quarter 2015 report showed assets under management growing at a faster rate than its peers.

What’s more, as investors flee from heightened volatility in junk bond mutual funds, they will likely park their money in money market funds, bringing an additional surge of fee income to Federated Investors.

Federated’s earnings per share are expected to grow 13.4% and 24.2% in 2015 and 2016 (December yearend). The dividend yield is substantial at 3.5%.

The 2016 price/earnings ratio (P/E) is quite low in comparison to the earnings growth, at 14.2, making the stock distinctly undervalued. FII traded at a P/E of 20 or higher in seven of the last ten years.

Since the 2016 consensus, EPS estimate is $2.00, if the stock trades at a 20 P/E in 2016, it would put the share price at $40. That’s an exciting price target.

FII traded between $28 and $35.50 in 2015. First, the stock’s got to complete its recent 28-32 trading range, which could happen this winter.

Then, barring any significant bad news, the stock will likely rise to its first-half 2015 trading range of $32 to $35.

Accurate earnings projections—and a neutral-to-bullish stock market—should be able to push FII toward 40 in the second half of 2016.

Institutions own 83% of FII shares, which tells you that professional investors think FII is a smart investment.

FII is my number one choice in financial stocks, based on strong earnings growth, low P/E, big dividend, and continued prospects for Fed rate increases. Buy FII now. The next Fed rate increase is around the corner.

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By Crista Huff

Editor, Smart Investing in Turbulent Times

30 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Jack Bowers

Editor, Fidelity Monitor & Insight

Fidelity Favorites: Blue Chip Growth and Corporate BondOur Top Pick for growth is Fidelity Blue Chip Growth (FBGRX). Manager Sonu Kalra has a good handle on technology disruption and how it is creating winners and losers.

In addition to a 37% technology weighting he is also betting heavy on consumer stocks (26%), which we see benefiting from permanently reduced energy prices. US consumers usually wait nine months before spending their energy savings, so that benefit is just now kicking in.

Kalra has minimal exposure to energy stocks (1.3%)—which is a plus—and he is not excessively exposed to the health care group (17%), which is now fully valued and increasingly volatile.

In short, Fidelity Blue Chip Growth is a solid bet at a time when inflation is low, value stocks are struggling, and a handful of disrupter companies are enjoying strong earnings growth.

Our Top Pick for conservative investors is Corporate Bond (FCBFX). This fund has a higher yield and longer duration (6.7) than most investment grade bond funds, but is not exposed to growing credit risks in the high yield sector.

Moreover, because the Fed is moving pre-emptively without any real signs of inflation, long-term interest rates may actually decline in 2016 if the Open Market Committee insists on pushing short-term interest rates up by a full percentage point in 2016.

This is not the 1980s, so there is very little risk of a wage spiral. There’s a huge base of stealth labor, as evidenced by the low workforce participation rate and the age of robotics is practically upon us. The unions lack any ability to demand double-digit wage increases year in and year out.

With the Fed on an unjustified hawkish kick, the main risk in 2016 is that the yield curve may flatten, benefiting longer maturity bond funds.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Five Top Stock Picks for 2016 from Matt McCall: BABA, BP, MHK, VMC, and RYAAYFive stocks from Matt McCall’s annual stock market outlook.

Alibaba Group Holding Limited (BABA)—One of the most talked about IPOs of 2014 has fallen off the radar of most retail investors after it took a beating throughout most of 2015. The stock has now fallen to a level that has it looking like an attractive avenue to play a China rebound. The bad news has been baked into the cake in China and the upside greatly outweighs the downside. With BABA you are gaining exposure to a behemoth in the tech industry.

BP plc (BP)—The mega-cap oil & gas company based in the UK has been struggling for years and is now near a level that works fundamentally. Then there is the dividend yield of 8.0%. Even if the stock goes sideways for the next 12 months, it will provide 8% in income as long as the dividend remains intact, which we feel is highly likely. If the price of oil starts to rebound in 2016, BP should be a big winner.

Mohawk Industries (MHK)—The world’s largest flooring manufacturer and the second largest producer of carpets and rugs has been in the midst of a long-term uptrend for years. The stock trades at a conservative 15 times 2016 earnings estimates and has big upside through both organic growth and acquisitions. The company will benefit from the continued housing recovery as well as home improvements. Lower oil will also boost the bottom line in the near-term as the commodity is a large expense for the company.

Vulcan Materials (VMC)—Within the materials sector, Vulcan is one of our favorite individual stocks. From a technical analysis basis, the chart has been a methodical series of higher highs and higher lows. From a fundamental view, the stock is a high growth play with earnings expected to increase over 115% in 2015 and up another 66% in 2016. The company sells construction aggregates, asphalt mix, and ready-mix concrete mainly in the US. The continued resurgence of the housing market, and as the economy continues to improve, Vulcan will be a direct winner.

Ryanair Holdings Plc ADR (RYAAY)—The Irish budget airline has not only been able to outperform their competitors, but the entire global stock market. The company trades at a higher P/E ratio than its US peers, however, the growth is there to support them. Based on this fiscal year earnings per share estimates, the stock trades with a P/E ratio of 16.4 and with bottom line growth above 20% annually the next two years the PEG ratio is well below 1.0. With oil near a 7-year low and the outlook for the commodity to remain depressed for the majority of 2016, the earnings estimates may be low for the company with even more upside potential.

If you would like to get the complete 23-page 2016 Stock Market Outlook from Matt McCall, please click on the link and enter your information.

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By Matt McCall

Editor, Penn Financial Group

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Frank Holmes

CEO of US Global Investors and Editor, Frank Talk

Franco-NevadaIn 1983, my friends and early mentors Seymour Schulich and Pierre Lassonde were on to something big; they recognized that the royalty model used in the oil and gas industry could be applied to the precious metals industry.

They raised $2 million and founded Franco-Nevada Mining (FNV), the world’s first gold royalty company. Fast forward more than 30 years, and Franco-Nevada now has a market cap of over $8.2 billion.

Royalty companies basically serve as specialized financiers that help fund cash-strapped producers’ exploration and production projects.

In return, they receive either royalties on whatever the project produces or rights to a stream, a commitment to an agreed-upon amount of the commodity per year.

For the next 20 years, until it merged with Normandy Mining and Newmont Mining (NEM) in 2002, I watched the company return an average 38% to shareholders annually.

Ever since its second IPO—Newmont spun it off in 2007—Franco-Nevada’s stock has outperformed both gold bullion and global gold miners.

Today, I’m just as convinced of Franco-Nevada’s business model. Its uniqueness allows the company and its royalty peers to generate high gross margins and ever-expanding dividends, even during economic downturns.

Since 2011, Franco-Nevada has raised its dividend from $0.04 per share to $0.21 per share, a phenomenal increase of 424%. What’s even more amazing is that it’s managed to do this even as spot gold has declined 38%.

Royalty companies avoid many of the industry’s most common challenges, including huge operating expenses, unions, liabilities, and legal hurdles. Franco-Nevada currently has fewer than 30 employees. Newmont, by comparison, has around 28,000.

Franco-Nevada has a much lower total cash cost than miners do. Dundee Capital Markets estimates that—whereas gold miners produce at a breakeven cost of $1,087 per ounce—royalty companies get by with a materially lower cost of just $441 per ounce.

Franco-Nevada, in fact, carries no outstanding debt. Its balance sheet and gross margins make it an attractive buying opportunity.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Freeport-McMoRanFreeport-McMoRan (FCX) with such products as gold, oil, and copper is in a cyclical industry. It has been hurt hard by the sharp and unexpected slump in these products. To succeed they will need to see the prices of these commodities go up, which I feel is very plausible.

Freeport-McMoRan is trading at such a low price that there is the potential for a capital gain if the company can turn things around.

It is a well-managed company and is taking the bull by the horns and taking action to turn things around.

Among the things that are being done is a reduction of capital expenditure by 35% and diluting company shares by selling 96.7 million additional shares. For shareholders, the dividend has been totally eliminated. These are a hard but necessary task.

Carl Icahn, a skilled and well known activist investor has just purchased 8.5% of the company stock and will be a great help in this turnaround plan.

In addition, owners, officers, and directors own 3.4% of the company shares. This indicates that some very important and knowledgeable people believe in the company.

Freeport-McMoRan is not for the faint of heart and only should be purchased only if you have nerves of steel and can afford to lose all the money you invest in this speculative situation.

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By Russ Kaplan

Editor, Heartland Advisor

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Peter Mantas

Contributor, Logos LP

Global Brass and Copper HoldingsThere are well known risks investing in commodity-based businesses as generally the equity interest is intrinsically linked to the underlying commodity.

However, Global Brass and Copper Holdings (BRSS) is doing something quite different in its business model which is creating an uncorrelated equity issue.

The firm is measuring its operating metrics based on its ability to generate significant FCF rather than through EPS or net income, which separate the business away from the cost and revenue fluctuations associated with operating in volatile markets.

Unlike Mueller Industries (MLI)—which is more diversified than BRSS—the company has seen greater declines due a reduction in free cash flow despite seeing relatively similar free cash flow-to-sales ratios.

MLI has seen drastic decreases in operating cash flow (down over 29%) with free cash flow growth down 40%, while BRSS has seen minimal impact in EBITDA and cash flow.

The company has price to free cash flow at 4.8, a remarkably low price-to-sales at just 0.31 with a current ratio over 3x meaning not only does the company have very strong free cash flow generating capabilities but has a very healthy balance sheet to weather the storm in the commodity markets.

Book value per share at BRSS has grown by more than 250% and free cash flow growth in 2014 grew at an astounding 2183.33%.

Cap-ex as a percentage of sales is remarkably low at near 1%, indicating the very light weight nature of the business despite volatility.

Return on invested capital, a leading metric of quality, is over 17% while weighted average cost of capital is 6.16%, a healthy spread for a growing business.

Overall, the bull thesis for BRSS is that we expect to see continued strength in its free cash flow management and any stabilization of the commodity markets (for both demand and pricing) will represent exciting upside catalysts.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Iberia BankIberia Bank (IBKC): Headquartered in Lafayette, LA, this mini powerhouse regional bank went on a buying spree in 2009 from the FDIC for pennies on the dollar, mostly in Florida.

Florida real estate has really come back around 30% just in the past two years in most of their markets and 50% plus from the lows.

People think IBKC is heavy in oil loans, but, in fact, they had almost none and very few bad loans anywhere and their huge presence in Florida is a huge win for them.

The bank is over 100 plus years old, run by smart people, and they will buy back a huge amount of the stock if it stays at these levels, after their next earnings report in a few weeks.

They pay a nice 2.5% cash dividend, 5% downside risk from these levels, and worth at least $65 to 70 a share in takeout, which is likely at these prices.

Book value is $40 plus a share and for a large liquid bank stock, this is as good as it gets in today’s world.

Buy heavy around $50 a share and make it a top holding today in this huge sell-off. Trades plenty but use limits as always.

In my opinion, Iberia Bank may be the buy of the year for a liquid bank name with low downside risk.

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By Doug Hughes

Editor, Bank Newsletter

36 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Matthew Castrel

Contributor, Logos LP

International Business MachinesAlthough a well-publicized option since Warren Buffett’s move into the name, the conservative—or income oriented—long-term investor should consider International Business Machines (IBM) in 2016.

Its goal isn’t to compete with companies like Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL) but to partner with its enterprise customers to provide the best solutions regardless of their origination.

This transition to sophisticated services focusing on solving business problems through integrated solutions is a high growth area that will allow IBM to turn the page on 14 straight quarters of lower sales.

Furthermore, both IBM’s gross and operating margins have been expanding consistently and are greater than most companies in the global information technology services industry.

Return on equity and return on assets have been growing consistently well above the industry median with return on invested capital far outpacing the weighted average cost of capital.

Free cash flow as a percentage of sales has also been consistent with a price to free cash flow ratio well above the industry average.

In addition, the company has shown an unwavering commitment to its dividend payouts which have been going strong for almost a century.

In fact, IBM has never missed a dividend payment since its inception in 1916, with dividend payments steadily increasing for the past two decades.

Its dividend payout ratio ranks in the top 2% of companies in the global information technology services industry as well as its share buyback rate.

From a valuation perspective, free cash flow suggests a fair value of around $190, indicating upside of about 35% from currently depressed price levels.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Vahan Janjigian

Editor, Bottom Line’s Money Masters Stock

Report

International Business MachinesInternational Business Machines (IBM) is famous for its ability to innovate and reinvent itself. The company created a number of well known products that were technology leaders in their day.

These products include the Selectric Typewriter, the System/360 family of computers, personal computers, and the ThinkPad laptop computer.

It wasn’t that long ago when IBM was best known for making the world’s best computers. Making computers, however, is something the company no longer does.

Today’s IBM generates almost all of its revenues by providing business services, selling software, and arranging financing services for clients.

In recent periods, the company has struggled with weaker revenues from the Software segment.

This is due in part to changes that allow clients to invest in software over longer periods of time, reducing the need for them to make large upfront outlays. In addition, the Global Services segment has struggled in part due to the stronger dollar.

Investors have been punishing the stock primarily because revenues continue to decline. However, much of the decline can be explained by divested businesses and unfavorable currency effects. In fact, after adjusting for these items, revenues have actually been flat.

Growth in future periods will depend on management’s ability to successfully implement what it calls “strategic imperatives.” These imperatives include cloud computing, data analytics, and engagement.

Revenues from these imperatives have been booming, but they are still too small to significantly impact the company’s overall top line.

This should change within the next year or two. In the meantime, investors can enjoy the generous dividends while they wait for growth to return.

Given IBM’s strong cash flows, management should have no trouble sustaining the dividends.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

International Business MachinesInternational Business Machines (IBM) is coming off two bad years, so the stock is very much overdue for a rebound. When I look at IBM, I see a lot of similarities with McDonald’s (MCD) a year ago; MCD was a Dow loser in 2014 that was a big winner in 2015) a year ago.

I see the likelihood of activist investors entering the picture at IBM. Sustained under performance usually brings out activists and there have been rumors that activists are either in the stock or starting to circle these shares.

I foresee a possible management change. When I chose McDonald’s last year, I wrote that “I would be surprised if the current CEO makes it through another year.” He didn’t. Regime change at companies is often a positive catalyst for the stock, which was the case with McDonald’s.

I believe the current CEO at IBM, Ginni Rometty, will be under intense pressure in 2016 to turn things around. However, I would be surprised if she makes it through the year.

Like McDonald’s, which was yielding nearly 4% at the end of 2014, IBM shares currently yield nearly 4%. I suspect that yield will help provide a bit of support to these shares at these levels as well as draw some interest from cash-flow investors.

To be sure, I’m not necessarily a big fan of IBM’s long-term prospects. But I do think these shares can beat the market over the next 12 months. IBM offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.

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By Chuck Carlson

Editor, The DRIP Investor

39 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Elliot Gue

Editor, Energy & Income Advisor

iShares 20+ Year Treasury Bond ETFThe median forecast at the Fed is that current weakness in US inflation figures is temporary and largely due to transitory factors like the plunge in energy prices.

The median forecast from Fed policymakers is that the Fed Funds rate will reach 1.4% by the end of this year, suggesting at least four rate hikes this year.

We see significant downside risk to that outlook. In fact, the central bank may have to reverse course and start cutting rates once again by early 2017.

The widely-watched Manufacturing Purchasing Managers Index is below 50 for the second straight month. The sharp deterioration in this index since the summer of 2014 suggests this segment of the US economy is already in recession.

Meanwhile, most stocks are already in a bear market. At year-end, only 30% of stocks traded on the NYSE were holding above their 200-day moving averages and the average stock in the S&P 500 closed the year down nearly 20% from its 52-week highs.

Put another way, the 20 stocks with the highest weighting in the S&P 500 were up an average of 13.7% in 2015, while the other 480 stocks in the S&P 500 were actually down 1.06% for the year.

Weakening economic growth and deteriorating market breadth point to rising risk of recession in the US by early 2017 and a bear market sell-off of 20% or more for the S&P 500 this year.

In that environment, investors will gravitate to the safety of US government bonds such as those held in the iShares 20+ Year Treasury Bond ETF (TLT). Bottom line: We see the government bond market outperforming the S&P 500 (SPX) in 2016.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Landon Whaley

Editor, The Whaley ReportiShares 20+ Year Treasury Bond ETFInvestors are currently mispricing what effect slowing global growth will have on the Fed’s planned 2016 hikes, and as a consequence, the ultimate impact on US Treasuries. Position yourself to profit when the market finally figures out the realities.

Despite Yellen’s attempts to convince markets that US growth is fine and that the risk of global growth bleeding over into the US is limited, the markets aren’t buying it.

I know this because 10- and 30-year US yields have been making lower highs for two straight months and both are trading below decade-old downtrend lines.

Likewise, the 3.5% rally in the 30-year bond since the beginning of November is telling us that investors are concerned about the trajectory of global growth.

Despite the fact that some markets are speaking clearly, the smart money speculators are short Treasuries all along the curve and sentiment across the board is extremely bearish.

These speculators have been increasing short exposure in the 30-year bond for the last two years and are more short than they’ve been in the last five years.

The contrarian in me loves this type of extreme positioning because when this group of speculators, mostly hedge funds, figure out they’re wrong, the stampede for the door will cause a massive short squeeze, propelling long bonds higher.

Our Top Pick for conservative investors in 2016 is iShares 20+ Year Treasury Bond ETF (TLT). It’s one of the most actively traded ETFs providing ample liquidity.

Don’t be alarmed if TLT trades down to the $114-118 area. In fact, that would be the ideal place to initiate new long positions.

A close above the $123.00 area for three consecutive days is the all clear signal for further TLT strength.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Kevin Kennedy

Editor, Coolcat ETF Report

iShares Cohen & Steers REITFor conservative investors our Top Pick for The Coolcat ETF Report is iShares Cohen & Steers REIT (ICF), which tracks an index composed of US real estate investment trusts.

The ETF emerged at the top of my ETF qualifiers list at the beginning of December despite only being up 7% in the previous six months. As such, it’s not too extended and worth a look.

This real estate investment trust has 30 holdings, with the top ten making up a hefty 56% of the index.

Retail REITs comprise 24% of the fund, followed by residential REITs at 21%. Its dividend yields 3.3%.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Nicholas Vardy

Editor, The Alpha Investor Letter

iShares MSCI Brazil Capped ETFFormer BRIC investing darling Brazil is has gone from hero to zero very quickly in the eyes of investors.

After the re-election of President Dilam Rousseff in 2014, the economy started heading south, thanks to a combination of collapsing commodity prices and a social spending binge by the newly re-elected government.

Today, Brazil’s bonds have been downgraded to junk status. Its economy is in recession, the worst since 1901. And unemployment is near double digits.

And to add insult to injury, 2016 was supposed to be Brazil’s time to showcase its economic achievements, as it plays host to the 2016 Olympic games.

Instead, the Brazilian stock market was the single worst performing stock market in the world in 2015, among the 47 that I follow, down 41.74%. It is now trading below a 10-year low.

So why am I recommending the iShares MSCI Brazil Capped ETF (EWZ) as my top speculative bet for 2016? Well, I believe Brazil is a classic emerging market contrarian play.

As the late Sir John Templeton observed, “People are always asking me where is the outlook good, but that’s the wrong question. The right question is: Where is the outlook the most miserable?”

Brazil certainly fits that bill. I would add to Templeton’s insight my own favorite contrarian indicator.

The cover of the Economist magazine, whose first issue of 2016 featured a negative cover story on Brazil. Such magazine covers have been among the best contrarian indicators I have ever run across. So buy the iShares MSCI Brazil Capped.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Jack Henry & AssociatesLittle known Jack Henry & Associates (JKHY) has excellent valuation metrics that make it the envy of not only IT companies in general but of all companies on the S&P 500 (SPX).

Free cash flow as a percentage of sales is over 21%, which put them in the cash generating capabilities of an Oracle (ORCL) or Microsoft (MSFT).

The company sports very high margins (25.60% operating versus 16.96% net) well above its industry average which, no doubt, provide it with greater FCF conversion than the rest of the market.

In addition, JKHY exhibits strong ROE and ROC (22.75% and 110.75%, respectively) while increasing FCF by 50% over the last three years.

Revenue has grown roughly 30% over the last three years, while the company’s Forward Rate of Return is a little over 14%.

Despite these excellent operating metrics leading to a very stable business model, the real story for JKHY is greater than expected growth in its solutions due to being a direct beneficiary in the regional banking space for 2016.

Our research suggests strong regional banking performance in 2016 leading to an increase in legacy solutions spending over the next few years.

Although we expect a slower growth environment for JKHY over the next few years, IT solution development has been transforming at a rapid pace and we expect this trend to continue until 2020.

Thus, there is no reason why the company won’t hit double a digit market cap over that time frame.

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By Peter Mantas

Contributor, Logos LP

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Richard Moroney

Editor, Dow Theory Forecasts

Jones Lang LaSalleJones Lang LaSalle (JLL) earns a Quadrix Overall score of 95, supported by above-average ranks for all six Quadrix categories. It scores 90 or higher for both sector-specific ranks.

The firm receives incentive fees based on the performance of its real estate investments, which can vary widely from quarter to quarter. Investors have expressed relief that its somewhat volatile investment-management unit remains strong.

Jones Lang LaSalle acquired Cresa South Florida and South Africa’s Trussard Property, commercial real estate agencies. In December, it agreed to buy CIB Management, a commercial-property manager based in Baltimore.

It also agreed to purchase Big Red Rooster, which helps clients design and manage their brands and Corrigo, a company that makes cloud-based facility-management products.

Overall, Jones Lang completed 12 acquisitions in the first nine months of 2015 and has announced or completed at least six more deals since then.

Both per-share profits and sales have grown in ten consecutive quarters, helped by a combination of organic growth and small acquisitions.

Management remains upbeat about the commercial real estate market, which could remain in its current upturn cycle for another two years.

Rising analyst estimates call for 10% higher per-share profits in the December quarter on 8% sales growth. Jones Lang LaSalle is a Focus List Buy.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Richard Moroney

Editor, Dow Theory Forecasts

LearLear (LEA) returned 29% in 2015, while the median S&P 1500 auto parts stock has lost 3%. The stock also looks attractive relative to peers, earning maximum scores of 100 for both sector specific ranks.

Yet Lear trades more than 25% below industry medians for trailing P/E, price/sales, and price/free cash flow; it also ranks among the cheapest one-third of stocks in our research universe for all three metrics.

Learrecentlyagreed to acquire Arada Systems, a company that designs vehicle connectivity technology. The purchase fits with Lear’s strategy of pursuing smaller deals in connectivity and driver assistance technology.

In August, the company acquired Autonet Mobile, a software developer that helps cars communicate with dealers.

Looking ahead, the company is projected to grow earnings per share 14% in the 12 months ending September, versus its peer-group median of 11% growth.

The shares trade at 11 times estimated earnings, a 25% discount to the auto parts industry median. Lear is a buy on our Focus List.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

LydallLydall, Inc. (LDL)—a small-cap ($600 million) headquartered in Manchester, Connecticut—has taken in more than $500 million in sales over the past year and gets high marks from several of my Guru Strategies.

Lydall has been growing earnings at an exceptional 59% pace over the long-term, using an average of the 3- and 4-year earnings per share growth rates.

It’s a favorite of my James O’Shaughnessy-based model, which likes that the firm has grown EPS in each year of the past half-decade.

This approach also likes Lydall’s combination of momentum and value: It has a solid 12-month relative strength of 74 and a price/sales ratio of 1.2.

My Martin Zweig-inspired model, meanwhile, likes that Lydall’s growth has been accelerating-it was 175% last quarter-and that the firm’s debt/equity ratio (16.7%) is well below its industry average (167.3%).

Lydall shares trade for only about 13 times earnings and the company has a return on equity of 20%, two more reasons it gets high marks from my models.

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By John Reese

Editor, Validea.com

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Magellan Midstream PartnersMagellan Midstream (MMP) is as safe a bet as they come thanks to extremely conservative financial management and the good fortune to earn its money largely from handling the still surging volumes of refined fuels.

The leading shipper of refined fuels got 68% of its cash flow in 2014 from this steady, long-term business with built-in fee increases tied to inflation.

Crude pipelines linking major Texas producers with demand centers delivered another 23% of the cash, much of it also tied to multi-year contracts with fixed commitments.

In all, Magellan says only some 15% of its business has commodity exposure. It yields 4.6% based on a distribution recently increased 16% year-over-year and is committed to increasing its payouts at a comparable pace over the next few years.

As the owner of its general partner, Magellan doesn’t have to pay out GP incentives like MLPs run by corporate sponsors.

For the most recent fiscal quarter MMP reported a 25% jump in distributable cash flow on the strength of record refined fuel pipeline volumes and robust demand for its crude pipelines and marine terminals.

The distribution coverage was 1.32x on a payout increased 14.2% year-over-year, for a current annualized yield of 4.9%.

Magellan modestly raised its annual profit guidance while sticking with plans to increase the distribution 15% this year and at least 10% in 2016.

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By Robert Rapier

Editor, Energy Strategist

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Magic SoftwareOver the last five years, the stock price for Magic Software (MGIC) has been a bit choppy but the company started paying a semi-annual dividend in late 2012, which always helps to pacify a colicky holding.

Back in August, a dividend of 9.5 cents per share was announced which seemed to spark a downtrend as a big institutional holder began selling a whack of shares in this Israeli software solutions provider.

The most recent set of performance numbers pushed the shares up temporarily but they currently sit not far from their 52-week low of $5.13.

Third quarter numbers released in November were record-breaking in terms of the top line. This is no sleight of hand, as revenues jumped by 13% from last year’s period to $45.3 million.

And they would have been even higher but the continued rise in the mighty greenback devalued company receipts in shekels, yen, and the euro. Revenues for the first nine months of 2015 were up by 5% to a record $128.2 million.

Non-GAAP operating margins have been maintained at over 15% and revenue guidance for the full-year reflects a 7 to 11% growth rate.

The bottom line is solid with non-GAAP operating income in Q3 increasing 3% to $6.6 million and non-GAAP net income increasing 14% to $5.7 million. Cash in the bank sits at a fat $80.9 million, which could indicate a dividend increase is ahead.

The key to the company’s recent operational success, as communicated by CEO Guy Bernstein, has been the continued demand for software and services in all of the global regions Magic serves.

There is certainly no shortage of opinion that says the US dollar is overvalued and it’s reasonable to assume that a drop in the USD will help move the stock off of its lows. The sell target price is $7.84.

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By Benj Gallander

Editor, Contra the Heard

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By Matthew Castel

Contributor, Logos LP

Marathon PetroleumOne group that has remained a solid performer relative to the rest of the energy complex are US refiners.

One standout growth opportunity within this group for 2016 is Marathon Petroleum (MPC), my Top Pick for growth investors in 2016.

This American petroleum refiner, marketing, and transportation company looks poised to continue to grind higher, benefitting from continued strength in gasoline demand.

Marathon’s existing refining asset base with a great blend of Midwest and Gulf Coast properties is in an excellent position to react to changes in the domestic crude market as refining margins have been enhanced as well as capacity to export distillate.

The company has successfully executed various mergers expanding earnings and has focused on organic growth to diversify away from the volatile refining business.

Both the value of MPC’s retail segment Speedway (growing at 100% in 2015) and its MPLX acquisition do not seem to be baked into its share price and represent potential upside catalysts.

Finally, MPC exhibits impressive financial strength with its ROIC far outpacing its weighted average cost of capital in addition to return on equity and return on assets metrics leading the global oil and gas refining industry.

In addition, management has done an impressive job of rewarding shareholders with industry leading 3-year dividend growth and share buyback rates.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Market Vectors Gold Miners ETFThe gold market currently has both of these characteristics in spades. And because they are a leveraged play on gold, gold miners will be the best performing sector of the equity market in 2016.

Gold should have been decimated with the Fed’s decision to raise rates but what we’ve seen instead is gold has traded sideways for the last two months and is still trading above its 2010 lows. This price action is extremely constructive from a bullish perspective but hasn’t received a lot of attention.

Gold has been quietly building a solid base between $1,100 and $1,000, which tells me that the market is skeptical of the Fed’s ability to follow through on its rate hike plan and that global growth concerns are undiminished.

The speculative positioning is both extremely bearish and seemingly ignoring the most recent price action. The smart money—mostly hedge funds—have been adding to their short exposure for months now and have never been more short as a group than they are right now.

Commercial speculators, corporations attempting to hedge away the risk of an adverse move in gold, have all but eliminated their short positions, which are at their lowest level in 14 years.

This on its own is an extremely bullish indicator. Coupled with the smart money positioning and you have a powder keg that can ignite a massive rally in gold.

To play this, use Market Vectors Gold Miners ETF (GDX), my Top Pick for aggressive investing in 2016.

GDX could trade as low as $12.50-$13.00 before beginning to move higher. If GDX closes above $15.00 it will be a confirmation signal that this theme is beginning to play out. If GDX closes above $17.00, load the hopper because GDX is headed to $30.00.

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By Landon Whaley

Editor, The Whaley Report

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

By George Putnam

Editor, The Turnaround Letter

MattelMattel (MAT) controls a stable of iconic toy brands such as Barbie, Hot Wheels, and Fisher Price.

However, over the last few years the company failed to keep up with shifts in consumer preference toward electronic playthings and other innovations.

A new CEO took over in January 2015 and he has shaken up the product development and marketing teams to make the company more creative and responsive to market opportunities.

They are also forging partnerships with innovative companies outside the toy industry, such as a collaboration with Google (GOOG) that uses virtual reality technology to bring the classic Viewmaster toy into the 21st century.

In addition, the management team is also working to take costs out of the business and expand brand’s presence in international markets.

Early returns on these efforts look promising, but the turnaround at Mattel is still a work in progress.

However, with a yield above 5%, you get compensated nicely while you wait for the changes to boost the stock price.

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Mellanox TechnologiesMellanox Technologies, Ltd. (MLNX) company does not manufacture these products. Instead, it contracts out manufacturing to third parties, including Taiwan Semiconductor and Flextronics.

Interconnect products facilitate data transmission between servers, storage systems, and communications infrastructure equipment. Its products include integrated circuits, adapter cards, switch systems, cables, modules, and software.

MLNX offers end-to-end networking solutions focused on computing, storage, and communication applications for the high performance computing, Web 2.0, financial services, enterprise data center, and cloud markets.

MLNX hit a rough patch in 2013 with revenues falling 22%. The decline was largely due to a difficult comparison to 2012 when the company generated higher-than-expected sales resulting from pent-up demand caused by the launch of Intel’s Romney and Sandy Bridge platforms.

Results in 2013 also suffered from high inventory levels at a major customer.

Things improved significantly in 2014 with revenues climbing 19% thanks primarily to stronger demand for InfiniBand products for the high-performance computing market, higher sales into the storage market, and increased sales of Ethernet products into the Web 2.0 and cloud markets.

Strong growth continued into 2015 with revenues for the first nine months surging 49% year-over-year. Despite expectations for continued growth, the stock is selling for just 14 times expected 2016 earnings.

A conservative discounted cash flow analysis indicates that MLNX is significantly undervalued at the recent price.

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By Vahan Janjigian

Editor, Bottom Line’s Money Masters Stock

Report

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

MicrosoftNo longer dependent on its old standby Windows and Office software, the new Microsoft (MSFT) is expanding an array of products accessed by consumers and companies’ eager to cut costs by storing data on those off-site servers called the cloud.

Co-founder Bill Gates and the Microsoft board tapped virtually unknown Satya Nadella, 48, to succeed Steve Ballmer.

In so doing, he helped pump new life into a lumbering corporate behemoth with revenues of $100 billion.

Nadella and his recharged team—to everyone’s amazement—are transforming Microsoft back into a cutting-edge growth company and one that pays a 2.5 percent dividend yield to boot.

Nadella has made believers of Wall Street doubters by rapidly introducing new devices in conjunction with its well-received new Windows 10 operating system.

These include phones, tablets, and game consoles, plus cloud servers and a new subscription-based Office software package.

The company has reportedly been hard-pressed to keep up with demand for its new X-Box game consoles.

This astonishing rejuvenation became strikingly apparent last fall when MSFT reported first-quarter growth for its June 2016 fiscal year that blew away analyst expectations of Ballmer-style results.

Nadella, far from grappling with a dreadnought dead in the water, has steered bulky MSFT like an America’s Cup racing yacht turning on a dime.

The results speak for themselves. To get fiscal 2016 underway he reported 13% higher earnings than Wall Street projected, not just a few pennies per share more.

For the full June 30 fiscal year, current estimates call for $2.75 per share, up from $2.46 in fiscal 2015. For fiscal 2017, which begins next July, analysts today foresee $3.12 per share.

And then there is that 2.5% dividend yield, with a payout percentage which has grown by 17% over the last five years. On paper, at least, MSFT’s 13% earnings growth plus its dividend payout comes to a total return of 15.5%.

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By Stephen Quickel

Editor, US Investment Report

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

MicrosoftWhen assessing the investment case for Microsoft (MSFT), we argue that the tech giant is handing the slowdown in its core PC business well, and that its new emphasis, on cloud, mobile, and services, has begun to bear fruit.

Under the leadership of CEO Satya Nadella, Microsoft has been transforming itself from a Windows- and PC-centric enterprise to a more diverse company, a force in the modern mobile-based world.

Revenue from commercial cloud services, for instance, more than doubled in fiscal 2015. And by most measures, the Windows 10 adoption, essential for the company growth strategy, has been a success as has related progress made, most recently, in Bing and Office 365.

Microsoft continued to move on with its hardware push as well, with a flagship company store opened in New York City in late 2015.

Further, Microsoft is one of the financially strong companies that took advantage of record-low interest rates. In 2015, the company issued a record volume of debt and accessed the debt markets not just once but twice, borrowing $23.75 billion at very favorable rates.

The company may use some proceeds to repurchase its own stock; additional share buybacks would help boost per-share earnings growth.

Of course, companies shouldn’t rely on share buybacks for their growth and we expect Microsoft to generate rising profits from its operations as well.

And while the shares of Microsoft aren’t cheap, they aren’t very expensive either, especially after subtracting all the cash the company has accumulated. Further dividend increases are not out of the question.

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By Genia Turanova

Editor, Leeb Income Performance

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

MosaicI believe 2016 will the year that momentum stocks finally get their comeuppance.

In that case, the best growth stocks for the coming year will be those that are able to grow earnings now as opposed to later.

For that reason, I am focusing on companies that are able to maintain profit margins while growing their revenue.

Also, companies that deal in hard assets should see a multiplier effect as commodity prices reverse course now that the Fed has begun raising interest rates.

For all those reasons, The Mosaic Company (MOS) stands out as a low-risk/high-reward opportunity growth play in 2016.

My proprietary IDEAL Stock Rating System assigns Mosaic a perfect score of 10 due to its high dividend yield, healthy cash flow, and low valuation based on forward earnings.

The past year has been brutal for Mosaic as global commodity prices have plunged, but now priced near $30, it could easily appreciate 25% or more over the next twelve months due its strong fundamentals.

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By Jim Pearce

Director of Portfolio Strategy, Investing Daily

56 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

New RelicNew Relic (NEWR) sits in a prime spot in the increasingly software-defined enterprise IT landscape. Users deploy New Relic solutions to measure every transaction on a server, browser, or mobile device. Billions of metrics are collected from millions of software processes.

By deploying New Relic’s Analytics Cloud, organizations can optimize their software performance and capitalize on the data flowing through the software, gaining valuable insights used to make meaningful business decisions.

The company’s solutions are seeing strong demand because they lower the total cost of ownership compared to legacy APM offerings, provide a quicker payback period, feature a faster pace of innovation via the cloud, and easily scale on demand.

A newly announced EC2 monitoring tool capable of providing deep visibility into Amazon AWS environments received 2,500 beta requests in just a few weeks.

In a move to expand its product portfolio, New Relic recently announced the acquisition of Opsmatic, provider of a cloud-based infrastructure monitoring service aimed at the IT operations market.

Opsmatic’s software provides real-time visibility into configuration changes across hundreds or thousands of servers in cloud deployments, offering alerts when problems occur in order to reduce downtimes.

Opsmatic’s infrastructure service nicely complements New Relic’s focus on software analytics. For fiscal 2017 (ending March), the consensus revenue estimate of $234 million indicates growth of 33.4%.

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By Rob DeFrancesco

Editor, Tech-Stock Prospector

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

NII HoldingsNII Holdings (NIHD) is a Latin American cellphone provider. As its technology was overtaken by smartphone technology, NII saw its business decline in many of its markets.

By 2014 the company was unable to service its heavy debt load and it filed for Chapter 11 on September 15, 2014. The company emerged from bankruptcy last summer by exchanging old debt for new stock.

When volatility hit the equity markets in August and September, many of the new stockholders bailed out, pushing the stock down hard. Then yearend selling took over and pushed it down further late in 2015.

We expect a substantial rebound in 2016 because NII owns some very valuable assets that are worth a lot more than the stock is currently trading for.

The company has sold its Mexican business and has reached an agreement to sell its Argentine unit, leaving it with just its business in Brazil.

This Brazilian business has two assets that its competitors would love to buy: its radio spectrum (which carries the cellphone signals) and its customers.

As more and more people use cellphones, spectrum is in short supply around the globe and NII controls a valuable chunk of the highest quality spectrum.

Moreover, the company has more than four million customers in Brazil, which competitors are probably salivating over.

We expect NII to sell-off its Brazilian business in the not-too-distant future. Using the sale prices of the Mexican and Argentine units as benchmarks (and the Brazilian business should fetch a better price than either of those) suggests that the stock could be worth several times its current depressed price.

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By George Putnam

Editor, The Turnaround Letter

58 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

NordstromEven Seattle-based Nordstrom (JWN), which caters to high-income shoppers, has felt the pull of gravity.

The shares—our Top Pick for 2016—tumbled 40% from July through early January, putting the stock at a three-year low.

At 14 times expected current-year earnings, Nordstrom trades at a 20% discount to its five-year average P/E and 30% below its average price-sales ratio.

Gaping discounts to historical averages also show on other valuation metrics like price-to-cash flow, price-to-book value, and enterprise value to EBITDA.

Despite the fire-sale price of Nordstrom stock, revenue has yet to take a hit, with analysts forecasting sales in the current year that ends January 2016 to climb 7.5% to $14.5 billion. Earnings, however, are expected to decrease by 7.5%.

Nordstrom has enriched shareholders with consistent and sizable dividend hikes, raising the payout at a compound annual rate of 18.6% since 2005.

At a rate of $1.48 per year, Nordstrom shares yield 3%, and the payout has plenty of room to keep on rising, with Nordstrom expected to generate $9.81 per share in cash flow from operations this year.

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By John Dobosz

Editor, Forbes Dividend Investor

59 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Novo-NordiskJeremy Grantham, chief investment manager at Grantham, Mayo Van Otterloo, recently noted that the only country for decades has consistently outperformed the US is Denmark, which he attributed to one single stock.

That stock was Novo-Nordisk (NVO), which rose by a third in 2015. But with that track record, the company can easily chalk up another growth win in 2016.

Novo-Nordisk is a drug firm that acts more like a specialist than a general practitioner, thanks to nearly a century of treating a growing global healthcare need: diabetes.

It specializes in insulin R&D and as we all get richer, more sedentary, and older, diabetes is a growing scourge, most of all in developing countries like China, India, and Mexico.

The company’s R&D spillover finds include GLP-1 for weight control, hormones, and hemophilia drugs. But just as a specialist can charge more money than a GP, Novo can charge more for its main new drug line, weight-control drug Saxenda.

Novo’s injectable anti-obesity drug is harder to take than a pill and costs about $1075 per prescription, at the high end of diet drugs.

Yet because of its diabetes franchise, and because Saxenda is a higher dose of the same drug as Victoza-liraglutide to treat diabetes-it has a natural market among diabetics with weight problems.

The drug not currently covered by US insurers has already grossed over $2.6 million in prescriptions. It already had doctors and patients in place 32 weeks ago when it launched Saxenda.

Novo-Nordisk is relatively under-owned by institutions—with under 8%—and it is cheap about paying dividends, now yielding 1.3%.

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By Vivian Lewis

Editor, Global Investing

60 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

NvidiaFor 2016, my Top Pick for more speculative investors is Nvidia (NVDA), the hands-down leader in graphics chips; and those chips are finding their way into more and more next-generation products.

The entire gaming device industry is in the early innings of a major upgrade cycle (most gamers are using devices that have less power than the games should have); gaming-related revenues were more than half of the total in the third quarter and were up 44% from a year ago.

Another big driver in the future is the automotive business, as higher-quality infotainment systems and semi- and (eventually) fully-autonomous driving require more powerful chips that Nvidia provides.

In the third quarter, auto-related revenues made up just 5% of business but were up 52% and have the potential to explode in the years ahead.

Throw in some exposure to the data center boom and it’s likely Nvidia’s position in newer, rapid-growth industries will cause growth to accelerate in the quarters ahead.

Lastly, cash flow is improving, valuation is reasonable, and management is set to return $1 billion through share buybacks and dividends (1.4% annual yield), a lot compared to the current market cap of around $17.5 billion. The story has lots of potential.

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By Michael Cintolo

Editor, Cabot Growth Investor

61 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Omnicom GroupToday, with more than 1,500 advertising agencies that specialize in over 30 marketing disciplines that services in excess of 5,000 customers in over 100 countries, Omnicom Group (OMC) is one of the largest providers of advertising and marketing communication services around the globe.

OMC has an S&P Quality Ranking of A+ and has earned the IQT G designation, which represents at minimum a 10% average annual dividend growth over the past 12 years; an outstanding achievement.

In fact, their dividend CAGR (compound annual growth rate) has been 23% and 25% for the last three and five years respectively.

Given that their dividend payout percentage of GAAP earnings is at 57% and 38% of free cash flow suggests there is still room for additional dividend growth.

OMC is a consistent generator of free cash flow and has delivered a return on invested capital between 10% and 15% each year consistently, which suggests the company has an above average moat.

The historically repetitive area of undervalue for OMC is a dividend yield of 2.20%, which, based on the current dividend of $2.00, equals a good value price of $91 per share.

The historically repetitive area of overvalue for OMC is a dividend yield of 1.00%, which, based on the current dividend of $2.00, equals $200 per share or more than 150% upside potential. OMC offers excellent value with strong upside potential.

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By Kelley Wright

Editor, IQ Trends

62 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

On AssignmentThe second-largest technology staffing firm in the US, On Assignment (ASGN) has nearly 2,250 consultants in more than 150 offices in North America and Europe.

The company is benefiting from a tight US labor market, market-share gains, and improved cost control. Aided by favorable pricing, profit margins have expanded in recent quarters.

Contributions from acquisitions and improved productivity have bolstered results. Wall Street expects per-share-profit growth of 21% this year and 22% in 2016.

Prudent investments have helped drive sales and profit growth. On Assignment is benefiting from strong demand and market-share gains, as many corporate human-resource departments have seen cuts in recent years.

On Assignment earns Quadrix scores above 80 for momentum, quality, and earnings estimates, a trait shared by only 4% of S&P 1500 members. The stock earns our highest Best Buy rating.

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By Richard Moroney

Editor, Dow Theory Forecasts

63 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

OSI SystemsIn response to the new threats posed by ISIS, several new anti-terrorism programs are in the works.

One of the most important is to tighten America’s borders and keep a closer watch on everything—and everyone—that crosses them.

One company that stands to profit from these new anti-terrorism programs is OSI Systems (OSIS).

The company’s security division is a leading supplier of X-ray and gamma-ray scanners used in airports, seaports, and railroads around the world. The company also makes handheld sniffers to detect explosives and other dangerous substances.

In addition to the company’s government orders, its systems are also being purchased by parcel delivery companies whose goal—along with Washington’s blessing—is to scan everything they handle.

I am particularly pleased to see OSI address one of the biggest challenges in US border security, inspecting incoming cargo containers.

Large-scale scanners are now being installed in major ports, a process that should take several years.

OSI also makes the full body scanners being used in airports. In response to many protests about safety and privacy, the first machines are being replaced with equipment that uses a new technology that both the company and the TSA insist is safe, effective, and less intrusive.

The upgrades should take several years to complete and be very profitable for the company. OSI Systems also has a Healthcare Division and an Optoelectronics Division that are providing products that are in demand.

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By Jim Powell

Editor, Global Changes & Opportunities Report

64 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Palo Alto NetworksPalo Alto Networks (PANW) is a cyber-security solutions vendor. Data center security use cases now represent nearly 40% of Palo Alto’s revenue.

In the Americas (representing 71% of total revenue), the datacenter business accounts for about half of revenue, vs. only 10% just 20 months ago, according to Todd Palmer, head of Palo Alto’s partner channel in the region.

Palmer says datacenter security had been underserved for a long time, as organizations previously mainly focused on protecting their network perimeters.

However, once the perimeter gets breached, hackers usually head right for the datacenter because that’s where plenty of key assets reside.

Palo Alto has seen a lot of success in the datacenter with its PA-7050 next-generation firewall, taking market share from established vendors such as Cisco Systems (CSCO) and Check Point Software (CHKP).

Given Palo Alto’s strong revenue growth profile, the company will soon be looking at Check Point in the rearview mirror. The newly released PA-7080 is Palo Alto’s most powerful firewall, featuring performance of 200 Gbps.

With that advanced product now in the portfolio, Palo Alto may catch up to (and surpass) Check Point on a total revenue basis faster than expected.

For 2016, analysts on average look for Check Point’s revenue to grow 8% to $1.76 billion, while the fiscal 2017 (ending July) consensus revenue estimate for Palo Alto now stands at $1.77 billion (representing growth of 32.7%), with the Street-high estimate at $1.97 billion.

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By Rob DeFrancesco

Editor, Tech-Stock Prospector

65 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Palo Alto NetworksEven if a stock appears overpriced, you may feel better knowing that it is accepted by investors for a demonstrated record of rapid and consistent growth.

Examples are such top performing, high valuation stocks as Amazon.Com (AMZN), Facebook (FB), and Netflix (NFLX).

For our Top Pick for speculative investing, we are adding Palo Alto Networks (PANW) to that elite list of stocks.

In this case, you should consider buying the shares even though their P/E and PEG ratios are virtually meaningless.

I admit that I balked when PANW fist flashed onto my radar screen a few years ago. Today it trades at 100 times forward earnings (vs. 15x for the S&P 500 universe).

Palo Alto is reckoned as the early leader in cyber-security, a market which third parties have described as “white hot.”

Its PEG ratio, which measures its P/E relative to its five-year earnings growth rate, is around 2.40. To put that into perspective, I regard 1.00 an ideal PEG, representing a one-to-one parity between the P/E and the rate of long-term earnings growth.

I rarely recommend a stock with a 1.25 or higher PEG. My exceptions are the aforementioned Facebook, Amazon, and Netflix…and now Palo Alto Networks.

This nine-year-old company has won its spurs in the cyber-security marketplace, where in 2015 it upped its revenues from $928 million to $1.3 billion, and is projected to gross around $1.8 billion in 2016.

On those rapidly rising revenues PANW is expected to grow earnings by 42% a year. That’s the collective opinion of 33 Wall Street analysts covering the stock, some 25 of whom rate it a Strong Buy.

Their bottom-line earnings estimate was $1.70 per share for 2015 (vs. 86 cents in 2014) and is $2.70 for 2016. The stock sells at 100 times 2015 earnings and at 66 times the 2016 analyst projection.

So why would we buy this stock? Sky-high valuation ratios notwithstanding, its stock rose 45% during the lousy 2015 stock market.

How come? Because businesses and consumers are scared out of their wits by cyber-security hacking, identity theft, and anything smacking of terrorist activity.

In addition, PANW has carved out a strong technological leadership position in its brief existence.

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By Stephen Quickel

Editor, US Investment Report

66 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Powershares Buywrite ETFUS stocks were range-bound in 2015 and there are investment strategies that make money from trendless markets.

One such strategy is a buy-write option strategy. This involves buying a stock or a basket of stocks and then selling or writing call options on those same assets.

In doing so, the portfolio generates additional monthly income from the premium collected on the sale of the call option.

If the market stays flat or declines slightly, investors keep the premium and their stock.

If the market rises, investors only receive the premium and the stocks are sold at the price that was agreed upon in the covered call. As such, the strategy underperforms in bull markets, but outperforms in flattish markets like the current one.

Of course, you can buy stocks and sell options against them directly. Fortunately, there is an easier solution.

The Powershares Buywrite ETF (PBP) is an exchange-traded fund that writes call options against the US stock market.

Specifically, the fund tracks the CBOE S&P 500 BuyWrite Index, which measures the performance of a hypothetical buy-write strategy on the S&P 500 Index.

This is hardly a recommendation that will shoot the lights out. But with stagnant earnings, the prospect of rising interest rates, and a technically flat market, it is time to focus on capital preservation more than trying to swing for the fences.

So buy the Powershares Buywrite ETF at market and set your stop at $18.00.

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By Nicholas Vardy

Editor, The Alpha Investor Letter

67 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

PowerShares PreferredThe income universe is rapidly changing for 2016 with the announcement of the Federal Reserve’s intentions to continue gradually raising interest rates.

Nevertheless, there remains attractive and low volatility opportunities to profit during this new phase.

The PowerShares Preferred Portfolio (PGX) is positioned as an alternative asset class in our Flexible Growth and Income Report as we begin the New Year.

This exchange-traded fund is comprised of 218 preferred securities that are primarily focused on the banking, REIT, and utility sectors. Preferred stocks are unique in that they offer characteristics of both equity and debt instruments.

This means they can provide non-correlated returns and high income streams during periods of subdued growth in other areas of the income marketplace.

PGX has a current 30-day SEC yield of 5.90% and dividends are paid monthly to shareholders. This makes for an attractive and steady income stream when compared to other options such as dividend paying stocks or high yield bonds.

Furthermore, the price action of PGX has shown far less overall volatility in 2015 than other high yield areas such as junk bonds or master limited partnerships.

In our opinion, this ETF is suitable to be used as a tactical holding within the context of a well diversified income portfolio.

That means a small allocation can enhance the overall yield of your portfolio, while providing exposure to a unique asset class with capital appreciation potential as well. PGX has over $3.2 billion in total assets and an embedded expense ratio of 0.50%.

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By David and Michael Fabian

Editors, Flexible Growth and Income Report

68 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Pretium ResourcesPretium Resources (PVG) is now developing what will be a world-class gold mine in British Columbia. The property, called Brucejack, is slated to begin commercial production in 2017.

In December 2015, the company announced its completion of regional exploration drilling at Brucejack for the year, and meanwhile, it continues to advance the project towards 2017 production.

The company, also in 2015, received important provincial and federal government approvals, including an environmental assessment certificate and an environmental permit. The underground mine holds 6.9 million ounces of proven and probable gold reserves.

Assuming a base case of $1,100/ounce gold, the project carries a pre-tax net present value of $2.25 billion with an expected annual production of more than 500,000 ounces in the first eight years of production.

It has already attracted the attention of China’s state-owned Zijin Mining Group, one of China’s largest gold producers, who now owns about 10% of Pretium’s common stock.

The exploration-stage Pretium went public in late 2010. Besides the aforementioned Brucejack, the company owns the Snowfield project—which lies next to Brucejack in northern British Columbia—representing one of the world’s largest undeveloped goldfields.

Pretium has put this project on the backburner and doesn’t expect to exploit its sizeable assets until the Brucejack project goes fully operational.

Keep in mind that even with its strong management team, and relatively near-term production schedule, investors should still consider Pretium a speculative investment.

Its projects are located in very rugged terrain with no infrastructure to speak of in place. But once on line, the mine is anticipated to have a long life.

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By Stephen Leeb

Editor, The Complete Investor

69 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

QualcommMy Top Pick for conservative investors is the leading mobile chipmaker in the world; it has a patent library that is one of most valuable of any company on the planet.

In addition, Qualcomm (QCOM) has a patent library that is one of most valuable of any company on the planet.

The reason? It has received 3.5% to 5% royalty on the wholesale price of every mobile phone sold with its chipset inside.

And most phones—especially smartphones in the world today—have Qualcomm’s chipset inside.

But problems in China—where the company derives about half its revenue—which sued the company on antitrust grounds, made it pay a nearly $1 billion fine, and renegotiated its royalty rate lower. Investors panicked.

But this is a great company that had a tough year. Its future is very bright in China and around the globe.

It’s throwing off a solid 3.8% yield and has been beaten down to a bargain. It has plenty of upside in 2016.

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By Gregg Early

Editor, The Whaley Report

70 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

QuestarAs regulatory momentum pushes electric utilities toward renewables, natural gas-fired generation will become the reliable backbone of our nation’s energy infrastructure.

Consequently, deep-pocketed utility giants have made aggressive bids to acquire natural gas distributors. Their strategy is to add a regulated earnings stream with a growth kicker from the coming infrastructure buildout.

Given all the attention, most publicly traded gas utilities command premium valuations. But one well-run firm still trades at a reasonable price: Utah-based Questar Corp. (STR).

The $3.3 billion company’s lower valuation may be due to the fact that it isn’t quite a pure-play gas utility.

While Questar is primarily a natural gas distributor, this vertically integrated utility also develops and produces most of the natural gas it sells to customers.

Fortunately, the company has long-standing arrangements with state regulators that allow it to earn utility-like returns from gas production.

While we’d be happy to own Questar for the long-term, we can’t ignore its takeover potential in the present environment.

And based on overlapping service territories, the most logical suitor would be PacifiCorp, one of the electric utility subsidiaries of Warren Buffett’s Berkshire Hathaway Energy.

Not only does Questar generate the kind of strong returns on equity that Buffett likes to see, it also has a connection, the president of Questar’s pipeline segment was previously the CEO of PacifiCorp.

With a quarterly dividend that’s grown 9.2% annually over the past five years and a current yield of 4.4%, Questar is a buy below $22.

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By Ari Charney

Chief Investment Strategist, Utility Forecaster

71 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Reaves Utility Income FundUtility companies have long been viewed as safe haven dividend stocks. These are the highly regulated companies that provide electric power, natural gas, and water to homes and commercial customers.

The regulatory agencies approve the rates a utility charges. Rates are set so that the utility can cover the infrastructure spending to maintain and upgrade its assets and then earn a fixed rate of return above the necessary capital spending.

The locked in regulated profit margins gives a high level of cash flow predictability. As a result, utility stocks are favored as steady and moderately growth dividend payers.

My investment recommendation for utility exposure—and my Top Pick for conservative investors—is a closed-end fund, the Reaves Utility Income Fund (UTG).

Reaves has about $2.5 billion of assets under management. The company was formed in 1961 and has performance results going back to the 1970s.

The company uses a bottom-up investment approach built on long-term and ongoing relationships with utility management teams and also with the regulators.

With its sole focus on the utility sector, Reaves has a very deep understanding of the operations and financial results of all of the companies in the group.

The fund pays monthly dividends and currently yields 6.9%. The dividend has been increased seven times since the 2004 launch of the fund and never reduced.

Dividends may include capital gains derived from realized gains on portfolio positions. UTG has never reported return of capital in any dividends paid.

The utility sector is not glamorous; the sector has been much less volatile than the overall market, with Yahoo Finance showing 3- and 5-year beta statistics of 0.37 and 0.19, respectively. The bottom line with UTG is that you get a conservatively and expertly managed utility stock-focused fund.

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By Tim Plaehn

Editor, The Dividend Hunter

72 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Rio TintoI think investors should own at least some commodity-related investments. Specifically, the relationship between oil and most other commodities is strong, with oil for many reasons being an important factor in the price of most base metals.

This relationship is strongest with respect to iron ore, of which there is abundant supply, although the material’s cost, due to its weight, strongly relates to the cost of transportation and oil, the latter being the mother of all commodities.

Of the major commodity producers, our favorite is the aforementioned Rio Tinto (RIO), which we recommend for 2016.

As a testimony to company management, we emphasize the current yield of 7.4%, backed by a trailing 12-month free cash flow yield of roughly 12%. The company has a no-dividend-cut policy.

Besides iron ore, we like RIO for its second largest product, aluminum. The company’s aluminum assets lie in the geopolitically stable US and Canada, where there’s little risk other than price.

Should copper become too expensive, as an alternative to the red metal, aluminum would see a jump in demand. Moreover, RIO produces little oil, meaning it currently faces little direct exposure on that score.

It would be foolish to try to call a bottom in RIO as the stock now trades at six-year lows and could go even lower. Still, keep in mind that, at current levels, the stock could triple and still be well short of its 2011 highs.

Given that the company today is far leaner than it was at the beginning of the decade, we think that a 24- to 30-month target of a 100% return is well measured.

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By Stephen Leeb

Editor, The Complete Investor

73 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Royal GoldMy Top Pick for growth investors in 2016 is the second-largest of the gold royalty companies (approximately $2.4 billion market cap).

Although the leader Franco-Nevada (FNV)—which remains a favorite of mine—is three times as large, more diversified, and has a lower risk profile with a rock-solid balance sheet, Royal Gold (RGLD) remains a conservative way to gain exposure to the gold market.

Royal Gold has lots of growth potential in coming years. It is also less expensive than Franco and a stronger buy at today’s prices with more near term upside.

Royal’s stock is particularly weak right now because of a recent loss, which surprised the market. The loss, however, was due to one-off events, including the timing of sales from a new stream on the giant Pueblo Viejo mine owned by Barrick (ABX).

There were also some other issues, including the suspension of operations at one mine on which Royal holds a royalty.

It is relatively small for Royal and will be mitigated to some extent in the near term by the processing of already-mined ore.

Other operations were strong, including the Mt. Milligan royalty, which is meaningful for Royal.

The company has certainly addressed the concern that its royalty stream was too concentrated, with Mt. Milligan representing almost 50% at one point.

In the last quarter it spent over $1.3 billion on four new royalties and streams (about half of that on Puerto Veijo), three of which are cash-flowing this year.

The debt is manageable—just 11% of assets—and the company—though not ruling out further acquisitions—will focus on using its cash flow to reduce its debt in the near term.

At the current level, Royal is an extremely strong buy and should be bought aggressively and a suitable buy for more conservative investors wanting exposure to the gold sector.

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By Adrian Day

Editor, Global Analyst

74 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Seagate TechnologyIncome investors looking for high dividend yields may want to steer clear of energy stocks during 2016 until there is greater clarity as to the intermediate-term direction of oil prices.

In addition, highly levered businesses such as REITs and MLPs may also struggle as the Fed ratchets up interest rates a few more times.

So until all of that is over, consider looking for income from companies that have been abandoned by increasingly impatient growth investors more interested in appreciation than income.

Due to recent selling pressure in the PC hardware industry, you can pick up a 7% yield from data storage manufacturer Seagate Technology (STX) with little risk of a dividend cut in the near term.

The company is cash flow positive and carries nearly $2 billion in cash on its balance sheet.

Its share price dropped in half during 2015 as pricing for its data storage products became increasingly commoditized, despite exponential growth in cloud computing.

In addition to generating high income, Seagate’s share price should also rebound in 2016 as it earns a very high score of 8 (on a scale of 0-10) from my proprietary IDEAL Stock Rating System thanks to its high yield, growing cash flow, and low valuation based on forward earnings estimates.

If you think 2015 was a difficult year for the stock market, 2016 will be even tougher as investors adapt to a protracted rising interest rate environment for the first time in over thirty years.

With the Fed no longer pumping cash into the stock market (and effectively pulling cash out of the market via higher interest rates), it is these types of value stocks that will thrive in 2016 as investors shun overpriced momentum stocks in favor of inexpensive cash cows like Seagate.

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By Jim Pearce

Director of Portfolio Strategy, Investing Daily

75 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

SquareOur Top Pick for growth investors is a bet on the continuing evolution of payment systems, away from cash and toward more democratic systems.

Under this approach, everyone—in any kind of business—has the capability of accepting electronic payments and credit card charges.

In the case of Square (SQ), the visible part of the service is a small plastic square that plugs into a user’s phone or tablet and captures credit card data.

But the more powerful part of the service is the software (in the cloud, of course) that takes care of digital receipts, inventory, and sales reports, as well as providing analytics and feedback.

In short, it empowers a businessperson to manage his business more effectively.

The company was founded in San Francisco in 1999 and pulled in revenues of $850 million last year, up 54% from the year before; that’s great growth.

But the company is not yet profitable and may not be until 2017; management is too focused on growth.

Speaking of management, that’s my other reason for liking the stock. Square’s founder and CEO is Jack Dorsey, better known as the CEO of Twitter (TWTR).

The stock came public on November 19 at $9, traded above $14 on its first day, but then pulled back to build a good base at $12 through most of December.

Heading into the new year, the stock appears to be developing a slight upward bias—certainly there are no motivated sellers—and I think the year ahead could be very good for the stock, as more and more investors discover both it and the Square service.

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By Timothy Lutts

Co-Editor, Cabot Stock of the Month

76 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Teekay TankersTanker operators such as Teekay Tankers (TNK) lease their vessels for a daily fee or day-rate to crude oil shippers either under long-term contracts at fixed rates (known as time charters) or shorter-term spot market rates.

Roughly 70% of Teekay Tanker’s fleet are contracted on the spot market where profitability is dependent on the short-term supply and demand for ships.

Tanker firms have benefited from falling oil prices over the past year. Low energy prices and the consequent growth in demand for oil meant there was strong demand for ships to carry all that crude.

Meanwhile, OPEC’s ongoing policy to target market share rather than a particular price for crude also benefits tanker operators.

That’s because around 90% of all oil leaving the Persian Gulf region is carried on tanker ships; when OPEC output grows so does demand for tankers to carry those exports.

Finally, after a prolonged bear market for tanker rates between 2008 and 2014, few operators have built new vessels so growth in newbuild tanker supply continues to undershoot growth in demand for waterborne oil transports.

Teekay Tankers recently announced a new policy to pay out between 30 and 50% of its quarterly adjusted net income as dividends.

This has resulted in a quadrupling of the quarterly payout from $0.03 to $0.12 per share, equivalent to a yield of around 8% at current prices. Teekay Tankers rates a buy under $8.50.

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By Elliot Gue

Editor, Energy & Income Advisor

77 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Tekla Life Sciences InvestorsOur Top Pick for income-oriented investors is a closed-end fund that is invested in a number of publicly traded and privately-held companies doing work in the life sciences sector.

Indeed, one can think of Tekla Life Sciences Investors (HQL) as a “biotech mutual fund.” Meanwhile, the fund has a policy of paying out 2% of its net assets each quarter.

Though investors can request this quarterly payout to be made in cash, the default is for them to be paid in additional shares...and this “dividend reinvestment” route is the one that I encourage my subscribers to take.

To be sure, you can get more bang for your buck by owning individual stocks in the biotech sector.

However, investing in HQL allows investors to obtain some nice diversification in this very important sector with a single purchase, while also helping to avoid the volatility that often goes along with owning biotech stocks.

And it also gives them a nice quarterly payout while they wait for the companies held by the fund to grow and mature over the long-haul; and successful investing in biotech is all about taking a long-term view. HQL is a strong buy under $22 and a buy under $26.

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By Nate Pile

Editor, Nate’s Notes

78 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Ten Top-Notch Stocks to Watch in 2016: DIS, QCOM, C, XOM, NOW, MSFT, CXO, BHI, HAL, AMH, ARPI, QThe Walt Disney Company (DIS): Mega-cap company that has a strong balance sheet and low EPS variability. DIS has solid dividend growth and a strong catalyst pipeline which could lead to upward estimate revisions by Wall Street firms. DIS has pricing power and the company is an underweight position by active managers (63% held by institutions).

Qualcomm, Inc. (QCOM): One of the most inexpensive, high quality mega-cap companies. Shares have been negatively affected by weak market sentiment and QCOM has an attractive and growing dividend (3.8%). The company has a strong balance sheet and more than $17.3 billion in cash (over $11.50 per share in cash). QCOM is trading right below $50 and shares fell 32.7% during 2015.

Citigroup, Inc. (C): They are the only United States universal bank trading below tangible book value. C continues to grow its dividend (0.3% yield) and has further potential to increase its payout ratio. The company has the capital needed to take advantage of a pick-up in trading volumes and is well positioned for growth in 2016.

Exxon Mobil Corporation (XOM): One of the highest quality energy stocks by low EPS variability. XOM has a strong balance sheet and the company offers an attractive and growing dividend (3.6%). The company can withstand continued oil price weakness better than many of its peers and is very underweight by active managers.

ServiceNow (NOW): Mid-size software vendor and SaaS pioneer who is disrupting the on premise IT Service Management Tools market. NOW is rapidly expanding across infrastructure and extending into PaaS. Favorable on NOW’s ability to broaden into IT operations management and business services applications, as well as drive adoption as a broad platform for enterprise workflow management and automation.

Microsoft (MSFT): During 2015, MSFT rallied 18.6% and greatly outperformed the S&P 500, which was down less than 1%. We attribute much of this rally to the worst of the headwinds associated with the move from XP to Windows 7 being behind them. Going forward, we expect this to serve as a catalyst for the March and June quarters because of the easy comparables from the same periods during 2015. Our investment thesis is based off of both gross and operating margins reversing its declining trend. MSFT’s commercial software business is turning the corner and recording positive mid-single digit growth. This is a major improvement after recording negative growth last year as the headwinds from a Windows XP refresh dissipates.

Concho Resources (CXO): Favorite exploration and production company due to 1) its premier asset base in the Permian basin, 2) well positioned for another beat-and-raise performance during 2016, 3) balance sheet offers capital flexibility, 4) proven acquisition model, and 5) attractive valuation. CXO has a solid balance sheet with net debt/EBITDA of 1.7x. CXO also recently completed a $794 million equity offering to fund acquisitions.

Baker Hughes, Inc. (BHI): Recent market weakness and our bullish long-term outlook on the North American energy service market have made us increasingly favorable on BHI. In November 2014, Halliburton (HAL) agreed to acquire BHI for $34.6 billion. If the deal closes, each BHI shareholder will receive 1.12 shares of HAL and $19 in cash per share. Should the deal not close, HAL must pay BHI $3.5 billion or $8 per share, giving

By Michael Berger

Editor, Technical420.com

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

BHI shareholders some additional protection. The combined company is levered to the pressure pumping industry, which we expect to lead the United States oilfield recovery. The merger will provide ample cost reduction efficiencies as BHI’s operations become integrated into HAL’s supply chain. The merger will improve the company’s offerings as it combines BHI’s drilling portfolio with HAL’s completions business.

American Homes 4 Rent (AMH): Trading at a discount to net asset value, which is supported by: 1) AMH’s accelerating cash flow growth, 2) Operational platform and sponsorship is strong, 3) Pending merger with American Residential Properties (ARPI) has funds from operations (FFO) accretion and synergies, 4) Visible value accretion as median existing home prices steadily close gap versus current replacement costs.

Quintiles Transnational Holdings (Q): Largest provider of drug development services by revenue. Q continues to buy back stock and we are favorable on its leading position and diversified client base. In mid to late 2016, we expect to see financial performance strengthen as clinical trials in the start-up phase mature and new opportunities are presented by its Integrated Healthcare Services business segment.

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The J.M. Smucker CompanyLike its staple foods, shares of The J.M. Smucker Company (SJM) are a core holding in this aging bull market thanks to growth potential, unrealized earnings power, and an attractive dividend.

The Smucker name may be synonymous with jams and fruit spreads, but after 115 years in business it has developed into the eighth largest food and beverage company in the US.

It manufactures numerous brands including Folgers coffee, Jif peanut butter, Pillsbury cake mixes, Crisco shortening, and Dunkin’ Donuts coffee, all in addition to its namesake Smucker’s products.

In early 2015, SJM completed the acquisition of Big Heart Pet Brands, adding some of America’s best known pet foods and snacks—such as Meow Mix, Milk-Bone, and Kibbles ‘n Bits—to its product mix.

The company now generates over 60% of its sales from the Coffee and Pet Food segments, which are both expected to grow faster than other food categories in coming years.

Management has done a great job of expanding the company’s product lines, which has resulted in rising earnings and a growing dividend.

Over the past ten years, the company’s profits have increased at 8% per year through both internal innovation and well-timed acquisitions. SJM expects to continue this pace of expansion, guiding to earnings per share (EPS) growth of approximately 8% per year for the near future.

As profits have increased, so has the dividend. SJM has raised its dividend for 14 consecutive years, with an average 11.1% annual growth rate for the past five years. This year, SJM will pay $2.68 per share in dividends, equivalent to a 2.2% yield.

By Eric Vermulum

Editor, InvesTech Market Analyst

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INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

With shares selling under $125, SJM trades at a discount to its peers and has the best free cash flow (FCF) yield in the industry. The company is currently guiding to 2016 EPS (fiscal year ends April 30) of $5.75 or a P/E ratio of 21.4.

However, this EPS estimate is net of amortization from the Big Heart acquisition. Adjusting for this non-cash expense, SJM’s management expects EPS of $6.90, equivalent to a P/E of 17.8, over a 20% discount to close peers.

The company’s earnings are expected to translate into $925 million of free cash flow, which equates to a 6.4% FCF yield. Such strong cash flow is rare in this market, particularly in a defensive Consumer Staple, making SJM a timely portfolio addition for 2016.

Note: Clients and individuals associated with Stack Financial Management hold positions in—and may from time to time make purchases or sales of—this security.

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The Medicines CompanyThe Medicines Co. (MDCO) had a highly successful 2015; in my view, the upcoming year will include updates on at least four future growth drivers and further execution of the strategic plan put in place towards the end of the year.

With the cardiovascular drug MDCO-216 about to gain visibility, now three potential blockbuster compounds including ‘216, ALN-PCS (cholesterol reduction), and ABP-7000 (surgical anesthetic) resulted in positive first-look (i.e., Phase I/II) clinical trials.

The best-in-class PCSK-9 inhibitor under development, ALN-PCS can significantly lower cholesterol levels and hold them down for six months.

Hence, the drug may be dosed only twice a year, way less than the 24x in the AMGN Repatha and REGN/SNY Praluent labels. ABP-7000 can become next propofol, the most widely short-term procedural anesthetic.

The novel antibiotic—carbavance—is the fourth unique MDCO asset with sizable commercial potential. Two Phase III trials are finishing up and data is due in 2016.

MDCO ended 2015 on an all time high fundamentally, but in our view the momentum continues to accelerate.

In late-December, MDCO announced the first step in its strategy to focus on high value assets, selling its hemostatis product line to Mallinckrodt for up to $400 million to bolster balance sheet.

With a risk-adjusted diversified pipeline entering late-stage clinical trials, led by a highly experience management team, in our view, 2016 will continue to unlock The Medicine Company’s value.

When biotech stocks reach a major inflection point as MDCO did in 2015, outperformance often lasts several years. Still trading well below our conservative NPV, MDCO is a buy under $50 with a target price of $75.

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By Jay Silverman

Editor, The Medical Technology Stock Letter

81 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Travelers CompaniesOver the past year, New York City-based Travelers Companies (TRV) has generated revenues of $27 billion.

With a $35 billion market cap, the stock gets excellent scores from a number of my Guru Strategies, which are based on the approaches of history’s best investors.

The strategy I base on the writings of mutual fund legend Peter Lynch is particularly high on the stock. Lynch pioneered the use of the PE-to-growth ratio as a valuation metric.

Travelers has a P/E ratio of 10.3 and it has grown earnings per share at a 40.8% pace over the long-term (based on the average of the 3-, 4-, and 5-year EPS growth rates). That makes for a stellar 0.25 PEG ratio.

Travelers also gets strong interest from my James O’Shaughnessy-based growth model. This strategy looks not only for growth, but also for a key combination: strong momentum and good value.

Travelers has a solid 12-month relative strength of 73 and trades for just 1.3 times sales, so it makes the grade.

There’s more to like about Travelers, including its 54% long-term sales growth rate (using an average of the 3-, 4-, and 5-year sales growth rates), 2.1% dividend yield, and 24% equity/assets ratio.

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By John Reese

Editor, Validea.com

82 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Under ArmourUnder Armour (UA) has big, audacious goals to take Nike (NKE) out of the number one spot. At first glance, this seems optimistically like a David and Goliath scenario; Under Armour is an $18 billion company while Nike boasts a gargantuan market cap of $103 billion.

But if you dig a little deeper and compare the performance of the two companies, the odds turn in the smaller company’s favor.

In it’s first ten years of existence as a public company, Nike’s share price grew a remarkable 709%. But UA doubled that figure in its first decade.

And over the past five years, Under Armour stock has advanced upward almost three times faster than Nike.

Meanwhile, Under Armour has amassed an incredible lineup of endorsees. They’ve got golf’s biggest rising star, Jordan Spieth. They’ve got one of the best NBA players, Steph Curry.

Under Armour has Tom Brady, Tony Romo, Cam Newton. They’ve got Cy Young winner Clayton Kershaw, skiing gold medalist Lindsey Vonn, and just wait until you hear the buzz about Michael Phelps at the next Olympics.

UA is doing everything right and the only thing keeping arch-enemy Nike ahead is its 16year head start. But Under Armour is catching up quickly and it won’t be long before it overtakes the lumbering giant.

So, with an already incredibly successful stable of product lines, a renewed push in footwear and women’s and children’s apparel, Under Armour is in the perfect place to see exponential growth that will make its past performance seem like nothing more than a warm-up.

The only real issue with UA is valuation. It’s not cheap. The forward P/E is 65. Earnings growth rates are set to expand and margins are also set to improve.

Still, you should look for pullbacks and general market weakness to grab shares of Under Armour. I’ve got a 12-month price target of $125.

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By Briton Ryle

Editor, The Wealth Advisory

83 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Vanguard Russell 1000 ETFWhen selecting core holdings for the growth component of your portfolio, it’s important to hone in on key factors such a low cost, diversification, and index construction.

The Vanguard Russell 1000 ETF (VONE) checks all of those boxes for our Flexible Growth and Income Report. This ETF tracks 1,000 large- and mid-cap stocks with an emphasis on long-term growth.

Top sector weightings in VONE include: financials, technology, consumer discretionary, and healthcare stocks. The asset allocation of this ETF is distributed in a market capitalization weighted structure as well.

In our opinion, the best way to avoid getting run over by picking the wrong area of the market is to stay diversified with your core equity exposure.

The hit or miss proposition of individual stocks makes for a very difficult environment to maintain correlation with the broader market.

Furthermore, VONE can provide a stable platform from which you can diversify into other tactical stocks or sectors that fit your investment thesis.

VONE is a currently a top holding within the equity sleeve of our model portfolio and will likely contribute to strong gains if the market remains steady in 2016.

This type of ETF provides a high degree of correlation with the broader stock market alongside the potential for outperformance versus a benchmark such as the S&P 500 Index (SPX).

VONE has $585 million in total assets, charges an expense ratio of 0.12%, and has a 30-day SEC yield of 1.92%.

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By David and Michael Fabian

Editors, Flexible Growth and Income Report

84 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

VeresenAgainst the rolling disaster in US energy businesses, my top income pick for 2016 is a Canadian stock that is at a deep discount.

Veresen (TSX: VSN) (OP: FCGYF) is also a play on global warming. Natural gas is the easiest fuel for power stations to substitute for high-carbon oil and coal. VSN is ready to supply liquefied gas to Asian markets.

But it needs a partner with deep pockets after getting all the needed permits. Natural gas is shovel ready. And if it fails to get an investor, it can sell assets and cut its highly generous dividend.

Veresen links North American gas fields in the Midwest and Rockies to a port being built in Oregon, Jordan Cove at Coos Bay.

I think it will attract a big oil patch partner to build a natural gas liquefaction (NGL) plant there to serve Asian markets just like Cheniere Energy (LNG) is doing on the Gulf of Mexico for Europe. It is licensed to export 1.55 billion cubic feet of LNG/day for 25 years.

The risk is that it will go it alone and sell of shares of its pipelines and facilities near Chicago. It has partners with deep pockets including Royal Dutch Shell (RDS.A) and KKR & Co. (KKR).

Other risks besides financing are the sinking Canadian dollar and its need to maintain and add to the pipeline network. It has C$1 billion in projects for next year funded from a C$1.275 billion credit line.

But Jordan Cove is beyond that level in costs. On December 7, 2015, VSN issued upbeat forecasts for 2016 based on the midstream pipeline business alone.

These are fully contracted and management stressed that VSN has virtually no commodity exposure in its contracts. It is commodity exposure that brought down US firms like Williams Cos (WMB), Targa Resources Partners LP (NGLS), and Kinder Morgan (KMI).

Veresen for Q3 reported net income up 1869.7% (not a misprint) to all of 3 loony cents. Most analysts covering it rate it a buy. Its dividend yield (C$1, which has been paid since 2006) is 11.66% at today’s price of C$8.93.

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By Vivian Lewis

Editor, Global Investing

85 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

WabtecWabtec (WAB) holds approximately a 50% market share in North America for their primary braking-related equipment. Its goal is to average double-digit EPS growth through the business cycle.

Over the last five years, sales have grown at a 19% annual rate with net income chugging even faster at a 30% annual growth rate. Free cash flow has compounded at a 29% annual rate over the last five years.

Management uses its growing cash flows to reinvest in its business, make strategic acquisitions, increase the dividend, and repurchase shares.

Wabtec’s dividend has compounded at a 78% annual rate over the last five years. With a low payout ratio, the track for future dividend increases is long.

Wabtec recently increased its authorization for share repurchases to $350 million. Strategic, selective acquisitions in core or adjacent markets have and should continue to represent about half of the company’s growth over the long-term.

Wabtec recently signed an agreement to acquire Faiveley Transport, a leading global provider of value-added, integrated systems and service for the railway industry with annual sales of about $1.2 billion.

Long-term investors may want to hop aboard Wabtec, a high quality market leader in a $100 billion rail industry generating double-digit growth through effective management and a successful acquisition strategy. Buy.

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By Ingrid Hendershot

Editor, Hendershot Investments

86 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Wal-Mart StoresSluggish sales at Wal-Mart (WMT), along with slumping profits, rising labor costs, and increased competition for retail dollars from online retailers have hindered the company.

Are any of these things likely to change in 2016? Probably not. But given the stock’s decline and the utter lack of interest in these shares, the bar has been set very low for the company.

Said differently, Wal-Mart is set up to beat the very low expectations investors now have and that is the sort of thing that can help jump-start a beaten-down stock.

The yield of 3.3% provides some compensation while waiting for the shares to rebound and the dividend is well covered by profits.

Again, I’m not a big long-term bull on Wal-Mart and I’m not sure if Wal-Mart can pull a worst to first in 2016. But I am confident that these shares will beat the market over the next 12 months.

Wal-Mart has a direct-purchase plan. Minimum initial investment is $250, but the firm will waive the minimum if an investor agrees to automatic monthly investment of at least $25 for ten months.

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By Chuck Carlson

Editor, The DRIP Investor

87 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Wal-Mart StoresAs the largest non-government employer in the US and largest global hyper-market, Wal-Mart Stores (WMT) needs little introduction. Its size gives WMT a huge competitive buying advantage with its vendors and with its pricing to customers.

WMT’s sales are huge, in fact, no competitor even comes close; even Amazon (AMZN). Still, Amazon is the darling because their sales are growing at a much faster clip.

WMT’s major challenge is how to achieve sales growth without sacrificing its profit margins, something that arguably the company has been struggling with.

What is attractive about WMT is its balance sheet and substantial discount from its historically repetitive area of Undervalue. The debt ratios are healthy, WMT could pay off its debt and still have 1 2/3 years operating profit.

The company consistently generates free cash flow and its payout percentage of dividends is a modest 42% of GAAP earnings and 39% of free cash flow. This leaves room for future dividend growth.

Historically, WMT represents good value at a dividend yield of 2.50%. Based on the current dividend of $1.96, that equates to a share price of $78.

Trading recently around $62 per share, the current dividend is close to 3.20%. If the stock can simply return to the historically repetitive area of good value, then that would be around a 27% gain.

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By Kelley Wright

Editor, IQ Trends

88 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

WEC Energy GroupIn the half-year since closing its merger with the former Integrys Energy, WEC Energy Group (WEC) shares have moved to a substantial discount to the average electric utility.

The yield is the highest since the fall of Enron in late 2001 and price:cash flow ratio is the lowest since the 2008-09 Financial Crisis. That’s despite dividend increases totaling 17.2% above the pre-merger rate.

That discount won’t last forever, particularly as the stock market overall runs out of gas and investors seek safe havens.

Some 70% of WEC’s assets are located in Wisconsin, where it earns a superior 12.7% return on equity.

All it takes to get there is for management to execute its 10-year capital spending plan of $14 to $15.5 billion, much of which is automatically recovered in surcharges.

And there’s the potential for further accretive mergers as well. Whatever it spends its money on, WEC’s balance sheet ensures available funding.

Strengths include just $334 million in debt maturities through the end of 2017, 2.1% of market capitalization, and compared to $2.2 billion in current assets on the books.

The company also has $2.8 billion in untapped credit lines and a super low cost of debt capital, with a yield to maturity on 30-year debt of less than 4.1%. WEC is best purchased on a dip to 50 or lower.

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By Roger Conrad

Editor, Conrad’s Utility Investor

89 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

WhirlpoolWhirlpool (WHR) acquired American Dryer in July, which is adding meaningful sales and earnings, and offering multiple expansion opportunities.

Whirlpool has also entered into a contract to supply Ryan Homes, the nation’s fifth largest homebuilder, with all appliances for new homes.

Whirlpool’s sales growth in Europe and China is solid, but sales in Latin America fell 27% because of the recession in Brazil. Whirlpool has cut production to keep costs in line with the lower sales.

The stock price has lost 27% during the past eight months and now presents investors with an excellent buying opportunity.

EPS growth accelerated in the third quarter, though, and will continue to accelerate during the next several quarters.

Sales will rise only 7% in 2016—hampered by the severe slowdown in Brazil—but EPS will surge 17% to $15.05, aided by lower raw material costs and strong contributions from American Dryer.

Whirlpool sells at 11.9 times latest EPS, its balance sheet is solid, and the dividend yield is 2.4% and rising.

I recommend purchase of the stock at the current price. I would recommend selling when WHR rises 34% to my sell target of $204.60, within 12 months.

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By J. Royden Ward

Editor, Cabot Benjamin Graham Value Investor

90 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

Xcel EnergyXcel Energy (XEL) offers investors low volatility, a 3.5% yield, and consistent dividend hikes of about 5% per year. The utility has paid dividends since 1985 and has increased the dividend every year for the past 11.

While reliable and slowly rising dividends are the number one draw here, Xcel is investing in growth as well, with a particular focus on renewable energy projects.

Xcel is also in the process of spinning some transmission infrastructure off into subsidiary companies called Transcos that will bid on and build transmission projects outside Xcel’s service territory, as allowed by new Federal regulations.

From a technical perspective, XEL is an easy stock to own, with the current beta of 0.31 indicating significantly lower volatility than the broad market.

However, the stock made nearly zero progress in 2015, due largely to high anticipation of the Fed’s rate hike.

Now that (slightly) higher rates are a reality, XEL is enjoying a nice relief rally and is likely to also enjoy a longer-term reduction in selling pressure.

Coupled with consistent earnings growth, still-high demand for dividend stocks, and low energy prices, I expect this change in sentiment to make 2016 a good year for XEL.

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By Chloe Lutts Jensen

Editor, Cabot Dividend Investor

91 www.MoneyShow.com

INVESTOR’S P L A Y B O O KTop Picks FROM Top Pros

2016

ZiopharmIn our view, 2015 has seen Ziopharm (ZIOP) transform itself into one of, it not the leader in gene therapy for the treatment and possible cure(s) for certain cancer.

The MD Anderson partnership opened the flood gates at ZIOP as it led to Dr. Cooper joining as CEO (from MD Anderson) and the subsequent Merck KGaA and NIH partnerships.

ZIOP’s key technologies are the patented Sleeping Beauty non-viral gene delivery system and the RheoSwitch that controls (on, off, or titrates) a gene’s expression in vivo.

The company has a broad list of potential gene therapies in development as both mono and combination therapies including cytokines (IL-2, IL-12, IL-15), first- and second-generation CAR-Ts, Natural Killer (NK) cells, and T-cell receptor (TCR) cells.

In our view, Dr. Cooper is the ideal CEO to execute, leverage, and deliver value to ZIOP shareholders.

His unparalleled, encyclopedic knowledge of immune-oncology will allow ZIOP to mix and match the various technologies that will be required to deliver off-the-shelf gene therapy solutions for both blood and solid tumors.

One of the keys to unlocking ZIOP’s tremendous potential this year will be the formation of several value-added partnerships (academic and corporate).

In addition, Dr. Cooper knows intimately every single I/O program in development (when he was at MD Anderson earlier last year every company in the world was trying woo him to do a deal with his labs by showing him their respective I/O platforms).

Not only did ZIOP win the prize in the MD Anderson collaboration, the company’s technology platform is so attractive that it lured Dr. Cooper out of academia. As a result, in our view Dr. Cooper now has the upper hand with all corporate business development transactions.

2016 should be a transformative year as ZIOP and their partner Intrexon (XON) unveil their plans and data at scientific symposia to tackle a broad spectrum of solid tumor types including GBM (brain), neuroblastoma, breast, prostate, colorectal, head & neck, and gastric cancers.

Futhermore, the results and advantages using the RheoSwitch and Sleeping Beauty should really begin to differentiate ZIOP from the rest of the pack.

In our view, the company has built an impressive industry leading armamentarium of gene therapy tools enabling the development of off-the-shelf gene therapies that will allow ZIOP to cost efficiently tackle virtually all the major cancer markets listed above, not just niche indications.

Phase II data and corporate partnerships have significant potential to serve as strong catalysts for ZIOP’s share price. ZIOP is a buy under $12 with a target price of $18.

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By John McCamant

Editor, The Medical Technology Stock Letter

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