For 2018

12Stocks To Buy

John Dobosz Taesik Yoon Bryan Rich John BuckinghamJim Oberweis Richard Lehmann George Putnam

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fNEWSLETTERS

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Last year, the S&P 500 Index gained 19%, the Dow Jones Industrial Average was

up 25% and the Nasdaq Composite surged 28%. Things have become a bit more

interesting this year with gains and losses of hundreds of points each day

seemingly becoming the norm. Through all these gyrations, the Nasdaq has faired

the best, up 14.2% year-to-date. The S&P 500 is up 6.9% and the Dow is up 3.5%

so far in 2018.

Valuations of the overall market do not do much to diminish unease.

Robert Shiller, the Yale economics professor, calculates the cyclically-

adjusted price-earnings (CAPE) ratio of the S&P 500 going back to 1882.

Shiller’s CAPE divides price by the past

ten years of earnings to smooth out the

noise of boom and bust economic

cycles, and indexes profits for inflation.

Over the past 135 years, that ratio has

averaged 16.8. The S&P 500 currently

trades at a CAPE of 33.2, a premium

of 98% above the long-term average.

Nobody knows whether the

reckoning comes next month, next

year, or several years down the road.

In the meantime, you don’t want to miss out on gains from stocks that

still look cheap. To help identify some of those opportunities, we

consulted with seven market-beating investment editors to find out what

their top ideas are for new money.

Nobody knows whether the reckoningcomes next month, next year, or severalyears down the road. In the meantime, you don’t want to miss out...

John Dobosz, Forbes Dividend Investor, Forbes Premium Income Report

Chatham Lodging Trust (CLDT)

Market Cap: $974.5 million Dividend Yield: 6.1% P/E (ttm): 25.9

West Palm Beach, Fla.-based Chatham Lodging is a real estate investment trust that

invests in upscale and premium-branded hotels. Chatham owns interests in 135 hotels

with 18,519 rooms, including 40 wholly-owned properties with 6,020 rooms, in 15 states

and the District of Columbia. It also owns a minority interest in two joint ventures with

95 hotels and 12,499 rooms. Revenue this year is expected to grow 6% to $317 million.

Chatham trades at discounts on multiple measures of valuation reative to history.

In addition to the monthly dividend and discounted valuations relative to history, what’s also

encouraging about CLDT is a rash of insider buying, including the chief executive officer, chief operating

officer, and chief investment officer.

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CVS Health (CVS)

Market Cap: $66.1 billion Dividend Yield: 3.1% P/E (ttm): 9.9

Woonsocket, R.I.-based CVS Health provides health care services through its pharmacy services, retail,

long-term care and corporate segments. Pharmacy services offers pharmacy benefit management

solutions; retail and long-term care sells prescription drugs and general merchandise, and the corporate

segment provides management and administrative services. Revenue this year is expected to grow 2.1%

to $188.8 million, with earnings up 18% to $6.97 per share. CVS has an enviable track record of revenue,

profit and dividend growth, and the stock trades at discounted valuations relative to five-year averages.

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Taesik Yoon, Forbes Investor, Forbes Special Situation Survey

Eagle Bulk Shipping (EGLE)

Market Cap: $397.9 million Revenues (ttm): $291.6 million Price To Book Value (ttm): 0.86

While not receiving a lot of fanfare, the maritime freight transportation industry was

one of the hardest hit by the global economic downturn that followed the financial

crisis in 2008. As commodity prices plummeted and shipping volumes collapsed,

the market found itself with way too much supply and not nearly enough demand.

One dry bulk shipper that knows this all too well is Eagle Bulk Shipping, which

had to undergo two major recapitalizations over the past four years just to survive.

But while it’s taken much longer than Eagle certainly would have liked, the more agile and financially

sound company these recapitalizations have resulted in, combined with the recovery in bulk shipping

rates over the past year, led to EGLE’s first positive net income quarter since first quarter 2010. This

only grew more significant in the recently-reported second quarter.

More importantly, with dry bulk charter rates still trending positively, the quality of its fleet having

improved significantly over the past 18 months, and its strategy of proactively managing operations—

such as significantly increasing third-party charter-in activity to supplement its cargo commitments,

taking advantage of vessel and cargo arbitrage opportunities, and utilizing hedges to mitigate the down-

side risk of its shipping commitments—paying off, I think Eagle’s profit performance will improve further

in the periods ahead and finally help its stock break out of their two-year slump.

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ABM Industries (ABM)

Market Cap: $2.1 billion Dividend Yield: 2.2% P/E (ttm): 23.4

Implementing a transformative business strategy can backfire if things don’t go your way. Just ask

leading facility services provider ABM Industries, which adopted an ambitious long-term strategic

plan in 2015 to drive revenue growth and improve margins but has only been successful in achieving

the former thus far. In fact, not only has its operating margins remained relatively unchanged from fiscal

2015 through last year, they contracted in the first half of this year due in part to rising labor costs—its

biggest expense—from a tightening labor market in the U.S.

Nevertheless, revenues have continued to exceed expectations with both organic growth and

contributions from its key acquisition trending better than anticipated. So have news orders, which were

up 16% through the first half of ABM’s fiscal year. What’s more, while the challenging labor environment

is likely to persist, its pressure on margins should begin to ease as the payoff from actions taken to

mitigate these higher costs—which include additional labor management initiatives and efforts to

renegotiate customer contracts—and the benefits of acquisition-related cost synergies become more

significant. This has me optimistic that ABM’s profit performance—which still exceeded analysts’

estimates in its latest quarter despite the labor cost headwind—will continue to trend better than

expected in the periods ahead and help its stock continue its recent recovery.

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Bryan Rich, Forbes Billionaire’s Portfolio

SandRidge Energy (SD)

Market Cap: $571.1 million Revenues: $346.1 million Price To Book Value: 0.70

SandRidge Energy is a petroleum and natural gas exploration company. This is a

post-bankruptcy stock. SandRidge emerged from bankruptcy in October 2016 with

virtually no debt, flush with cash, and in position to take advantage of a big recovery

in oil and natural gas prices. The company’s bankruptcy was a very bad deal for old

shareholders, but it’s emergence from bankruptcy is potentially a very lucrative deal

for new shareholders. Still, management and the board have a record of bad decisions,

bad acquisitions and destroying shareholder value.

That’s why two big-time activist investors took large stakes in SandRidge and blocked the company’s

acquisition of Bonanza Creek Energy last year. Fir Tree and Carl Icahn now own a combined 20.5% of

SandRidge. Not surprisingly they pushed SandRidge to clean house and in February the company ousted

its CEO and CFO, and said they would cut spending. Icahn now has five seats on the board. When oil

was trading in the $90-$100 range in 2014, SandRidge was a $3 billion company. Today it’s valued at

just $571 million and that’s after shedding $3.7 billion in debt. SandRidge now says it will evaluate cred-

ible offers for the company,including any offer from Icahn Capital.

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John Buckingham, Prudent Speculator

Juniper Networks (JNPR)

Market Cap: $9.2 billion Dividend Yield: 2.7% P/E (forward): 14.2

Juniper Networks provides Internet infrastructure solutions for ISPs and other

telecom service providers. It designs IP routing, Ethernet switching, security and

application acceleration solutions. After three consecutive challenging quarters,

JNPR caught a break in the first quarter, posting EPS of $0.28 per share (vs. $0.26

est.) and sales of $1.08 billion (vs. $1.05 billion est.). The company said the transition

from the MX to PTX cloud router platform is expected to create some average sale price

pressure in the next few quarters, but overall it sees the cloud as the greatest near-term opportunity.

The challenge will be to convince cloud-using companies to convert to large-scale routers, rather than

using many smaller (and less expensive) routers to right-size demand at any given point.

I think JNPR can overcome its issues, while tax reform provides an expected 2018 U.S. tax rate of

21% (down 5% from 2017) and has spurred the repatriation of $2.1 billion. Jupiter previously said that

it will buy back 20% of the outstanding stock. JNPR now trades with a forward P/E of 14.2, much lower

than the broader S&P Info Tech sector’s 19.5 times figure, and yields a rich (for a tech stock) 2.7%.

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Siemens AG (SIEGY)

Market Cap: $105.8 billion Dividend Yield: 3.6% P/E (ttm): 13.4

Siemens is a global engineering and manufacturing giant that specializes in electrification, automation

and digitization. It has nine business segments with more than a billion dollars in revenue and

representation in more than 190 countries. Although Siemens began 2018 by beating analyst EPS

estimates ($1.55 versus $1.26 est.), shares have tumbled from the all-time highs set in January due to

concerns over U.S. foreign policy (related to trade, lobbying rules in particular), a Healthineers IPO

price of 28€ (target range between 26€ and 31€) and headwinds in the gas and power unit.

I like Siemens’ worldwide footprint, diversified business portfolio and strong emphasis on the

digitization of infrastructure. The merger with Gamesa (wind power) has kept managers busy, while the

IPO of Healthineers should result in a more focused company once the dust settles. SIEGY also expects

that U.S. tax reform will result in a tax rate at the “low end” of the 27% to 33% guidance window.

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Jim Oberweis, Oberweis Asset Management

Alibaba (BABA)

Market Cap: $455.2 billion Revenues: $37.9 billion Price To Book Value: 7.8

When it comes to e-commerce, few companies rival China's Alibaba, which operates

online marketplaces with nearly 550 million active mobile users per month,

dwarfing Amazon and eBay. Alibaba expects more than 60% revenue growth in

fiscal 2019. Like Amazon, Alibaba also has a cloud-services business, called

Alibaba Cloud, which recently reported growth of 103% year-over-year. Alibaba is

investing in hybrid online-offline stores in China, such as its Hema Supermarket brand.

In the long term, watch Alibaba expand internationally.

For investors a sweetener will come from Alibaba's big stakes in ecosystem partners like Cainiao and

Ant Financial. Cainiao, which is valued at around $20 billion, provides logistics for its Tmall and Taobao

marketplaces. Alibaba owns 51% of Cainiao; its CEO, Jack Ma, controls Ant Financial, which may go

public this year. Alibaba said in February that it would acquire about one-third stake in Ant and end a

profit-sharing agreement with the affiliate.

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Richard Lehmann, Forbes/Lehmann Income Securities Investor

Ashford Hospitality Trust (AHT)

Market Cap: $642.0 million Dividend Yield: 7.2% Price To Book Value: 1.3

Ashford Hospitality Trust is a real estate investment trust (REIT) based in

Dallas, with a portfolio of 118 lodging properties, consisting of nearly 25,000 rooms.

The majority of the portfolio consists of hotels that operate under premium brands

owned by Marriott, Hilton, Starwood and Hyatt. The company classifies its hotel

properties as upper-midscale, upscale, upper-upscale and luxury. Typically,

upper-midscale hotels include Fairfield Inn, Hampton Inn and TownePlace Suites. The

portfolio’s upscale properties are generally Courtyard Hotels, while upper-upscale properties are largely

Embassy Suites and Hilton properties. Luxury hotels are few, but include the likes of the Ritz-Carlton

in Atlanta, One Ocean in Jacksonville and the W in Minneapolis.

Ashford Hospitality’s focus is to invest opportunistically in diversified hospitality properties, largely

full service hotels in the U.S., and at all levels of the capital structure. The company’s portfolio is

geographically dispersed across 30 states in the U.S. Comparable second quarter 2018 revenue per

available room (RevPar) increased 2.3% to $134.4 million on hotels not under construction during the

quarter. Adjusted funds from operations was $0.42 per diluted share for the second quarter, up from

$0.28 for first quarter 2018. Distributions are typically taxed as ordinary income, making this investment

suitable for medium-risk portfolios with tax-deferred strategies. Buy up to $8.10.

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PPL (PPL)

Market Cap: $22.1 billion Dividend Yield: 5.7% P/E (ttm): 17.0

PPL provides energy services to more than 10 million customers in the U.S. and U.K. The company

represents one of the largest pure play regulated utilities in the United States. Headquartered in

Allentown, Pennsylvania, PPL is the parent of seven regulated utility operating companies, delivering

electricity across a power grid covering more than 36,000 square miles, to customers in the U.K.,

Pennsylvania, Kentucky, Virginia and Tennessee. PPL also provides natural gas to customers in Kentucky.

The company enjoys stable investment grade ratings from both Moody’s and S&P. PPL reported

strong first quarter net income of $452 million or $0.65 per share, while adjusted net earnings from

ongoing operations were $517 million or $0.74. Adjusted results handily topped analysts’ consensus

estimates of $0.66. Revenues of $2.1 billion also surpassed estimates by more than 7%. First quarter

net operating results were up a sharp 12.2% from a year ago. Dividend distributions on PPL’s common

stock are taxed at 15%-20%, depending on one’s tax bracket. Dividends have been steadily increased

over the years. Solid dividend growth and a stable credit profile make this a suitable investment for

low- to medium-risk taxable portfolios.

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George Putnam, The Turnaround Letter

Merck (MRK)

Market Cap: $179.2 billion Dividend Yield: 2.9% P/E (ttm): 133.2

While Merck is arguably among the highest quality companies in the industry, its

flat stock price (unchanged in 19 years) and 14.5x earnings multiple don’t reflect it.

Since 1999, revenues have increased about 23% and adjusted earnings per share

will likely be about 72% higher, but its market cap and enterprise value have barely

budged. Today, Merck’s impressive research and development capabilities are

producing a steady stream of new patent-protected products. Keytruda (cancer

treatment) could be a $10-$15 billion blockbuster, complementing the strong Januvia diabetes franchise.

With limited patent expiry concerns and a sturdy balance sheet, combined with a safe 2.9% dividend

yield, Merck appears undervalued.

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LafargeHolcim (HCMLY)

Market Cap: $30.1 billion Dividend Yield: 3.9% Revenues: (ttm): $26.6 billion

LafargeHolcim is the world’s largest cement and aggregates company, with 2,300 operating sites in

80 countries that sell nearly 500 million tons a year into the highway, infrastructure and construction

industries. Last October, Lafarge brought in Jan Jenisch as CEO. At Jenisch’s previous company,

construction chemicals maker Sika AG, profits doubled and the share price tripled during his five years

as CEO. His five-year turnaround plan for Lafarge is focused on improving revenue growth, increasing

operating margins and converting more of its profits to cash. I expect a key part of the turnaround to

involve simplifying and focusing the company’s far-flung operations.

Lafarge recently acquired Metro Mix, it’s fourth acquistion this year. Revenue grew 6.2% in the

second quarter. For the first 6 months net sales grew 4.8%. Although waiting for a five-year plan to

unfold may seem as dull as watching cement dry, the shares pay an appealing 3.9% yield and should

provide rock solid gains when the recovery is completed.

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