Each year for 35 years, our editorial team has surveyed the nation's leading newsletter advisors and investment experts asking for their favorite stocks for the year ahead, explains Kim Githler, Chair and CEO of MoneyShow.
This year's report — Top Picks 2018 — begins on Monday, January 1st and features 100 investment ideas for the new year.
We would like to emphasize to our readers that these annual reports are not contests. The goal is not to compile a list of high risk, high-flyers (and potential big losers).
Rather, each year we ask the leading advisors to provide you, our readers, with a shopping list of investment ideas for you to consider and research as you build your personal long-term portfolios.
Yes, each year’s Top Picks report includes a variety of fasting-growing stocks with high potential. But the report also includes many conservative dividend-paying stocks and blue chips chosen for safe and steady returns.
With that said, we would still like to highlight, and congratulate, some of last year's best performers whose Top Picks for 2017 double, tripled and quadrupled the market averages over the past 12 months.
Biotechnology expert John McCamant deserves special recognition; his top pick from last year rose an astounding 519%. We’ve asked John, and all these other outstanding advisors, to share their updated opinions on these top performing stocks from last year’s Top Picks 2017 report.
Crista Huff, Cabot Undervalued Stocks Advisor
Vertex Pharmaceuticals (VRTX) — up 105%
When I chose Vertex Pharmaceuticals as my top stop pick for 2017, it was an extremely undervalued, aggressive growth biotech stock, and the share price was ridiculously depressed. In 2018, investors discovered this hidden gem. The share price more than doubled between January and July!
At this point in time, VRTX is still an undervalued aggressive growth stock, although everything has moderated: earnings growth is less aggressive, the P/E is less undervalued, and the share price pullback is less alarming. Still, there’s money to be made for both traders and longer-term aggressive growth investors.
Given a neutral-to-bullish stock market in 2018, VRTX could retrace upside resistance at 165, and possibly launch upward after a period of consolidation near 165.
Bryan Perry, Cash Machine
PayPal (PYPL) — up 88%
Digital payments technology has become mainstream in the money transaction business. Once dominated by Visa and MasterCard, PayPal is rapidly enjoying widespread adoption of its payment platform, especially with millennials fully in love with its Venmo subsidiary.
The company finished the third quarter of 2017 with 218 million active customer accounts globally with yet to be released fourth quarter results set to easily post more record numbers in terms of accounts, revenues and earnings.
2017 was a great year to be long PayPal with the stock racking up a nearly 90% gain, but for this juggernaut has more upside for 2018 with several big catalysts set to push the stock higher.
The company’s decision to sell its loan portfolio to Synchrony Financial for $6 billion in cash strengthens its balance sheet. And PayPal’s latest foray into forging a relationship with European banking deposit leader Raisin has customers using its platform to direct savings to depositories with the best rates.
Innovation drives new streams of revenue and PayPal continues to be creative and at the same time acutely aware that having deals with Visa and MasterCard adheres to the mantra “if you can’t beat them, join them” making for a widespread set of opportunities for 2018.
Wall Street is forecasting sales growth of 18.6% for the year ahead with plenty of room for upside surprises. Get long and stay long PayPal because the landscape for global digital payments has now become a three-horse race.
Gordon Pape, Internet Wealth Builder
Shopify (SHOP) — up 139%
Ottawa-based Shopify, which provides marketing platforms to small businesses, was my aggressive pick for 2017 and it certainly delivered. It was trading around the $40 level at the start of the year and rose as high as $123.94 in September.
But then notorious short-seller Andrew Left took aim at the company with a high-profile YouTube video questioning its business practices and the stock dived to the $90 range. The company hit back, denying the allegations and releasing third-quarter results that showed a 72% year-over-year revenue gain and an 86% increase in gross profits.
The shares bounced back to the $105 range but are still well below the 52-week high. Action now: We made a nice profit on this stock but the upside from here looks more precarious. Sell and move on.
Mike Cintolo, Cabot Growth Investor
Arista Networks (ANET) — up 148%
Arista was one of many stocks that came public during the choppy 2014-2016 time frame and, despite solid growth, did nothing for a couple of years as investors fretted and the market made little progress. But it's been one of the real growth leaders this year, as the firm's made-for-the-cloud networking hardware and software has led to a string of estimate-beating growth.
Long-term, ANET still has great potential, possibly to be the Cisco of the cloud computing/data center era! It's clearly way ahead of its competitors, and while analysts see earnings only up 16% in 2018, I think that's very conservative as they've been low-balling Arista all year. (Third-quarter results topped expectations by a whopping 37%, for instance.)
However, the stock doesn't move in lockstep with the company, so short- to intermediate-term, I think ANET needs a rest. It's one of many big winners this year that had a relatively uninterrupted uptrend for months, but then suffered abnormal selling pressure (institutional distribution) after Thanksgiving.
It's not broken, and given the fact that the stock broke out of a giant two-year base in February, I don't think it's hit its ultimate peak after running up for 10 months. But the odds favor the stock needing more time to consolidate, correct and generally wear out some weak hands before resuming its longer-term uptrend.
If you have a big profit, you can sit tight (though I'm not opposed to booking some partial profits). That said, for new buyers, it's more of a Watch than a Buy right now -- let the bulls and bears fight it out while ANET builds a new launching pad.
Ingrid Hendershot, Hendershot Investments
AbbVie (ABBV) — up 57%
AbbVie remains committed to returning cash to shareholders through growing dividends and substantial share repurchases. Accordingly, the company announced an 11% increase in its dividend to an annualized rate of $2.84 for fiscal 2018, which represents a healthy 3% dividend yield based on current valuations.
Since its inception in 2013, AbbVie has increased its dividend more than 77%. For 2018, adjusted EPS guidance was forecast in the range of $6.37 to $6.57, reflecting growth of about 15% to 19%. AbbVie provided an update on its long-term strategic and financial objectives with total sales expected to approximate $37 billion by 2020.
Global Humira sales are expected to approach $21 billion by 2020 and contribute significant cash flow through 2025 and beyond. Non-Humira sales are expected to compound at an annual rate of 17.6% through 2025 and grow from $9.6 billion in 2017 to $35 billion in 2025. Operating margin is expected to increase 100-200 basis points per year to 50% by 2020 with double-digit adjusted EPS growth expected through that time.
The pipeline is expected to contribute nearly $30 billion to revenues by 2024 with the company on track to launch more than 20 new products by 2020. After AbbVie's healthy total return in 2017, the stock now appears fully valued. Hold.
Richard Moroney, Upside and Dow Theory Forecasts
Thor Industries (THO) — up 53%
Lam Research (LRCX) — up 75%
We remain bullish on Thor Industries, which posted encouraging October-quarter earnings. Thor posted per-share earnings of $2.43, up 63% and $0.59 above the consensus. Revenue jumped 31% to $2.2 billion, topping the consensus by 12%.
A leading maker of motorhomes and campers, Thor said the order backlog hit $3.6 billion, up 70%. Gross profit margin rose one percentage point to 14.9%, reflecting operating efficiencies, price increases, and a favorable product mix. Thor expanded production facilities to meet robust demand. Thor is rated Best Buy.
Ten years ago, Lam Research made one semiconductor-etching product. Today, it produces a variety of etching, cleaning, and deposition machines and provides a range of services to chipmakers. Lam's addressable market has expanded to more than 35% of the industry.
Lam wears its market leadership well, delivering the growth of a much smaller firm without becoming too expensive. While the stock has surged over the past year, so have earnings, sales, and cash flow.
In the September quarter, Lam earned $3.46 per share, up 91% and $0.18 above the consensus. Sales jumped 52%, also exceeding expectations. For the December quarter, Lam projects per-share profits of $3.53 to $3.77, well above the $3.33 consensus at the time of the report. Lam expects industry demand to remain strong in the year ahead, and also expects to grow faster than the industry.
Russ Kaplan, Frank Fox & Hoagstrom’s Heartland Advisor
Apple (AAPL) — up 47%
D. R. Horton (DHI) — up 87%
Last year we recommended Apple and have seen it increase 51%. Even with this sharp increase we think Apple has the potential to go up even further and we rate it as a solid hold.
D. R. Horton is an equity in the home building sector. Even though it has gone up 86% in the current year we think there is still some potential for growth.
This is not, however, an appropriate stock for those who are interested in income. It currently pays a dividend of less than 1% and this dividend is unlikely to increase much in the future.
Timothy Lutts, Cabot Stock of the Week
NMI Holdings (NMI) — up 64%
Behind the symbol of the stock is the name National Mortgage Insurance. This small firm was founded in 2011 as the housing industry was digging itself out of the ashes of the Great Recession, but unlike the big firms that went too far out on a limb with high-risk loans, NMI Holdings is small, and very particular about keeping risk to a minimum.
Most important for my purposes is that the company is growing revenues and earnings very fast, and thus attracting new investors at a healthy rate.
In the third quarter of 2017, for example, revenues grew 38% from the year before to $49 million, while earnings doubled, from ten cents to twenty cents per share. The stock was strong for the first half of the year, paused to cool off in the summer, and has been hitting new highs regularly since October.
Short-term, it may be due for another pause here, but long-term, the future is bright. Analysts currently estimate that earnings will grow 103% in 2018, yet the stock is trading at just 15 times those estimates. In short, I still like it.
Doug Gerlach, SmallCap Informer
Five Below (FIVE) — up 70%
As Amazon continues to dominate in many areas of the retail sector, a few bricks-and-mortar retailers are discovering how to thrive despite the competitive threats of the online giant.
Five Below is a chain of retail stores in which all items offered for sale are priced below five dollars. Catering to pre-teens, tweens, and teens, the stores offer a dizzying array of branded merchandise, and management sees the potential for 2,000 stores across the U.S. (from a current base of 500).
The SmallCap Informer initially recommended FIVE in December 2016 when the stock was trading at $40.48. In the trailing twelve months ending October 31, 2017, sales grew 23.7% while earnings per share were up 31.9% and the share price increased 61% to $65.17. This is just off the 52-week high price of $68.77.
We see the potential for revenues and EPS to grow at least 20% a year for the foreseeable future, but the current P/E of 42 is a bit rich and we currently rate FIVE a hold (we would be buyers at $56 if the opportunity were to present itself).
George Putnam, The Turnaround Letter
Crocs (CROX) — up 90%
Investors regained confidence in Crocs (CROX), maker of the iconic casual footwear, as the multi-year turnaround gained traction in 2017. Crocs’ new management showed they can reinvigorate the brand enough to stabilize sales despite closing many weak stores and removing unprofitable distributors in China.
The company also demonstrated its ability to restructure its complex production and distribution network and improve its operating efficiency. Estimated EBITDA (earnings before interest, taxes, depreciation and amortization) in 2018 is on-track to more than double its 2016 level.
These improvements, combined with very low investor expectations going into 2017 (the stock was at a seven-year low), produced the sharp 83% gains year-to-date. We see additional upside for the stock in 2018 as management’s efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017.
Jim Powell, Global Changes & Opportunities Report
Caterpillar (CAT) — up 71%
Orbital ATK (OA) — up 50%
Caterpillar, Inc. was my conservative pick for 2017. I think the growing US and world economies will keep the demand for CAT’s equipment on an upward course through 2018. If President Trump’s proposed infrastructure rebuilding program gets through Congress, Caterpillar could resemble a hot tech stock.
Orbital ATK (OA), my other top pick for 2017, went up 51%. The company is prospering as a leader in the privatization of space. The relatively new industry is made possible by highly efficient, and surprisingly affordable, rocket engines and satellites.
This year, we can expect to see even more private satellite launches, and more cargo vehicles sent to the International Space Station – both of which are done by Orbital ATK. I expect to see even more launches in 2019, and so on. This young industry is just getting started. The old phrase “The sky’s the limit” doesn’t apply to Orbital ATK.
Azmath Rahiman, Cabot Benjamin Graham Value Investor
Facebook (FB) — up 55%
My rationale for selling facebook was from a valuation standpoint - I thought it wouldn't fit into the Ben Graham style newsletter anymore. I felt it would be speculative to assume that its past revenue growth trend will continue in the future.
Otherwise, it's a great company with strong cash flows surpassing analyst expectation every year. However, I wouldn't consider Facebook to be a value stock unless I am certain about its long-term strategic imperatives.
Rob DeFrancesco, Tech-Stock Prospector
Salesforce (CRM) — up 51%
Salesforce, my top pick for 2017, looks primed for more market share gains in 2018. The company remains a clear leader in enterprise cloud software, and is well positioned to continue to benefit from the digital transformation wave and deployment of AI technology in the workplace.
Salesforce has become the standard in cloud-based customer relationship management (CRM) applications. Outside of the company’s core Sales Cloud unit (representing 34% of total revenue), Service Cloud (for customer service use cases) has grown into a significant business line, as it now accounts for 27% of total revenue.
John McCamant, The Medical Technology Stock Letter
Madrigal Pharmaceuticals (MDGL) — up 519%
In 2017, Madrigal emerged as one of the leaders in drug development for the extremely large and untapped NASH market, a $35 billion opportunity. NASH is one of the hottest sectors in drug development as large biopharma companies have inked a slew of huge licensing deals and acquisitions over the past few years.
Madrigal has a first-in-class thyroid hormone receptor-β agonist, MGL-3196, which recently reported proof-of-concept (POC) data showing it can safely and significantly reduce liver fat in NASH patients.
‘3196’s unique mechanism of action and safety profile gives it the potential to be a standalone NASH therapy, but should also be complementary to most other NASH mechanisms of action.
In our view, the recent positive Phase II NASH data has de-risked the HeFH data in January and the liver biopsy from the Phase II NASH trial in late April.
Madrigal is poised for two significant catalysts with the Phase II HeFH (heterozygous FH) data due in late January and the Phase II liver biopsy data in late April.
After the release of what we expect to be positive Phase II data in April, the company would have an end-of-Phase II meeting with the FDA and start the pivotal Phase III trial for ‘3196 in NASH in the last third of 2018.
Following the two expected positive Phase II readouts in HeFH and NASH, MDGL will have a slew of potential suitors for a huge partnership or premium buyout. Both would be extremely lucrative for shareholders. Our confidence is very high in CEO Paul Friedman who has an excellent track record of leveraging positive Phase II data into shareholder value.
In our view, ‘3196 is the most attractive drug candidate for the treatment of NASH, a $35 billion market opportunity, and has the potential to be a best-in-class molecule. This data significantly de-risks MDGL and ‘3196 in the upcoming Phase II trials. Madrigal is a buy under $100 with a target price of of $140.
