Six veteran investment pros selected their three favorite North Carolina stocks, and one to avoid, for 2018 in our annual forecasting contest. The prices are as of Dec. 1, 2017, when the pros submitted their picks. Eligible stocks include companies based in the state or with large employment or investment here. Thank you to the participants!
First, the 2017 results: Greensboro money manager Ann Zuraw dominated last year’s stock-selection competition, registering a 22% average gain for her four picks.
Zuraw had the best pick, BNC Bancorp, which was acquired by Pinnacle Financial Partners and gained 122%.
To see the full article by David Mildenberg: Click Here
Laboratory Corporation of America (LH) $157
Laboratory Corporation of America is the second-largest independent U.S. clinical laboratory. We believe the aging population and an increased focus on preventive care should benefit clinical labs. LabCorp operates more than 1,750 service sites and 39 primary testing facilities. LabCorp has cost and automation advantages compared to most hospitals, doctors’ offices and smaller independent labs. It has consistent organic growth within diagnostics. Covance is achieving faster growth. As a leading contract-research organization, Covance provides outsourced drug-development services worldwide, growing 7-8% annually. While we do not know the future of health care reform, LabCorp is positioned to be a part of health care expenditure growth in the future. LabCorp is benefiting from more insured patients, offering higher-margin more esoteric tests and exiting low-margin accounts. On the negative side, the projected Medicare reimbursement cuts ranging from 6% to 10% in the next three years should be considered.
Albemarle Corp. (ALB) $135
Albemarle is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. Lithium and lithium derivatives represent one of the highest growth markets in the specialty chemicals industry. Lithium currently accounts for roughly one third of ALB’s operating income, and we expect this share to grow at an accelerating pace. Through its usage of lithium batteries in electric vehicles (EVs), and utility scale storage, lithium will be an increasingly important part of the world’s transportation and energy economies. Electric vehicle sales grew 40% year to date in 2017 and we expect similar growth in 2018 and 2019. Albemarle’s bromine chemistry plays a leading role in providing performance products for fire safety, oilfield drilling, high-tech cleaning, water treatment and food safety. Demand for consumer electronics is expected to continue to grow strongly which use brominated flame retardants for fire retardant properties. The refining solutions business has been weak as a result of lower sales volumes and unfavorable pricing impacts. This business is being more than offset by strong growth in lithium sales. Albemarle’s polymer catalysts business benefits from increased sales of co-catalysts and components to ethylene manufacturers. China and India are projected to increase their plastic consumption over the next five years by the amount equivalent to the total current US consumption. Possible risks to earnings include a drop in lithium and bromine pricing and lower catalyst demand.
First Bancorp (FBNC) $38
First Bancorp is a bank holding company headquartered in Southern Pines, with total assets of approximately $4.4 billion. Its principal activity is the ownership and operation of First Bank, a state-chartered community bank that operates 95 branches in the Carolinas. First Bank also operates three mortgage loan production offices in the central region of North Carolina. First Bancorp is led by strong management, including Richard Moore, who previously served two terms as North Carolina State Treasurer. Its substantial customer deposits should positively impact earnings with rising interest rates. First Bancorp serves the retirement community in Southern Pines, which should be a growth area due to our country’s aging demographics. In recent years, First Bancorp has grown through strategic acquisitions to achieve its position as one of the top community banks in North Carolina. In 2017, First Bancorp acquired Carolina Bank Holdings Inc. in a cash and stock transaction of approximately $97.3 million. In the fourth quarter of 2017, a $175 million cash and stock deal for ASB Bancorp Inc. of Asheville was completed, adding $803 million in assets and 13 Asheville Savings Bank branches. Another positive for earnings is the potential decline of the estimated 37% if the tax bill lowers corporate tax rates.
Sonic Automotive (SAH) $21
Sonic Automotive is the fourth largest auto dealership in the U.S. BMW car sales account for an estimated 30% of profits. While BMW is coming out with a new series next year, current decreased sales are negatively impacting earnings. Sonic is building a competitor to CarMax called EchoPark in the used car market. Capital spending on EchoPark and the roll-out of the One Sonic-One Experience plan will lower profitability in the near term. Positives are the potential benefits from lower corporate taxes and stock repurchase programs. Finally, the founding family only owns 3% of Class A shares outstanding but has 100% ownership of Class B shares, which have 10-1 super-voting shares. This ownership structure gives them 75% voting control, and as a result, shares sell at a discount due to the inequitable voting rights. As a fiduciary, I am uncomfortable with shareholders not having equal voting rights in a public company.
Please be advised that the information provided in this article is not to be construed as personalized investment advice. Please consult with an appropriately qualified financial consultant for investment advice concerning your personal and financial situation. Zuraw Financial Advisors, its principals, employees, and clients may have an ownership interest in the companies discussed in this article.