In January, MoneyShow asked all of the nation's leading advisors to select a favorite stock for 2015. In this special series of interviews we are talking with the five advisors who had the top performing stock picks as of mid-year. Here, we talk with Richard Moroney, editor of two leading newsletters, Dow Theory Forecasts and Upside, to review his two top performing picks, an auto parts firm and a clinical research outfit.
Steven Halpern: Our guest today is Richard Moroney, editor of the blue chip focused Dow Theory Forecasts and the small-cap focused Upside. How are you doing today, Rich?
Richard Moroney: Good, thanks. Thanks for having me.
Steven Halpern: Now for more than 80 investment ideas featured in our top picks report in January, your two top picks both ranked among our best performers. Congratulations.
Richard Moroney: Thank you.
Steven Halpern: Now, one of those top picks was Gentherm (THRM). Could you remind our listeners a little about the company and explain your original rationale for selecting this stock as your favorite for 2015.
Richard Moroney: Sure. Gentherm is a niche-oriented player in the auto parts group. What they do is sell thermal management systems, which basically comes down to heated seats and cooled seats as their main bread and butter.
They’re benefiting not only from more of those climate-controlled seats being put in more models, they’re also benefiting from a generally strong demand for autos and expansion overseas.
The reason we picked it is Gentherm was a fairly classic, what we call, "Growth at a good price," stock. It was reasonably valued and it had strong operating momentum and a pretty well-defined 12 to 18 month outlook for profits.
At this point, I still think it’s a best buy, but it has come a long way and I think we’re probably in maybe the seventh inning or so with this stock. It’s at $55 now, trades at about 20 times the 2016 estimate, so that’s somewhat expensive for our approach.
I do think they’re positioned for pretty good profit growth and you can see that thing go up another 10% to 15% over the next six months.
Steven Halpern: Let’s just remind our listeners that since January when you selected this stock it’s risen over 50%. At the same time, your second favorite idea for 2015 was ICON (ICLR), which has since risen 33%. Again, can you walk our listeners through your original rationale for selecting that stock?
Richard Moroney: Sure. Well, like Gentherm, I would say ICON is a, kind of, a fairly classic small company, mid-cap grower. They got a niche.
Their niche is as a contract research organization, so they do drug testing and medical product testing for mostly biotech companies and drug companies.
The stock was pretty cheap given its growth rate. The company had consistently surprised and earnings estimates were on the way up.
For all those reasons, it seemed like expectations were improving and were achievable. That is, the company could surprise on the upside and they did deliver a nice quarter for the March quarter.
I still think the company is positioned for pretty solid growth over the next couple years, given the number of new drugs and trials and the FDA's ability to ramp up the number of approvals. I think this company is in a pretty good position.
Steven Halpern: Now obviously, both of those stocks have done exceedingly well since the start of the year and I was wondering if maybe looking out towards year-end if there’s just another quick investment idea you might suggest for our listeners who are looking to take new positions now.
Richard Moroney: Sure. I continue to like as an area where you can find individual stories, and also, you have the support of an industry group where the fundamentals are quite strong.
We measure stocks using our Quadrix rating system, and right now, the regional banks are scoring quite well both on overall score, which reflects growth and value, and earnings estimates, and performance. They score well just on value as well.
One that I like quite a bit is Heartland Financial (HTLF). The stock in our rating system gets a 98 out of a possible 100.
They are benefiting from some acquisitions they’ve made, but they’re also benefiting from some solid organic growth.
Profit estimates are rising because of the results they posted and also because this company should benefit as short-term interest rates go up.
Steven Halpern: Again, our guest is Richard Moroney of Dow Theory Forecasts, as well as Upside Stocks newsletter. Thank you so much for your time today.
Richard Moroney: Sure. Thanks for having me.
