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9 Stock Buys For The Second Half Of 2015

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Many investors are cautious about prevailing valuations, the Fed raising interest rates, earnings results, volatility and the pace of economic growth in Europe. And although we are in the sixth year of a bull market, neither the S&P 500 nor the Dow have made great strides so far this year. So where do investors go from here? I asked top investment advisors for their best ideas for the current market. Their recommendations are below.

John Dobosz, Editor Forbes Dividend Investor:

Most real estate investment trusts own buildings like office buildings, shopping malls or apartments that produce streams of rental income passed on to shareholders as dividends. Because of the appealing pass-through nature of REITs, which allows companies to avoid taxation at the corporate level if at least 90% of net income is paid out to shareholders, a number of companies that aren't traditional landlords are electing to convert to REIT status. Houston-based Crown Castle (CCI), which converted into a REIT in January 2014, is a good example.

Crown Castle is the largest provider of shared wireless infrastructure in the U.S., with 40,000 towers, 14,000 small cell nodes and 7,000 miles of fiber. It also operates 1,800 towers in Australia. Revenue is expected to grow 2.1% to $3.77 billion this year, with earnings rising 5% to $4.40 per share. Following its REIT conversion last year, Crown Castle jacked up dividend payouts from $0.35 to $0.85 per quarter. With $3.28 in annual dividends at the current rate, CCI yields 4.0%.

Current valuation measures strongly suggest that Crown Castle has room to run higher in price. Trading at 32.3 times trailing 12 months of free cash flow, CCI sports a 19% discount to its average price-to-free cash flow ratio over the past five years. Also, with enterprise value of 18.9 times expected 2015 EBITDA, Crown Castle presently trades 16% below the five-year average enterprise value to EBITDA multiple.

Real estate investment trusts do well when long-term interest rates move lower. That's been the case for most of the past six years, and despite the end of quantitative easing last fall, the yield on the 10-year Treasury note remains below 2%. One REIT with a compelling dividend yield and modest valuations is a big landlord in college towns around the United States, particularly in the Southeast.

Memphis, Tenn.-based Education Realty Trust was founded in 1964 and is one of the largest owners, developers and managers of collegiate housing. It owns or manages 73 communities with more than 40,000 beds serving 53 universities in 23 states. Revenue this year is expected to climb 13% to $233.2 million, although earnings per share are expected to decline to $1.79 from $1.86. Over the past four years, the quarterly dividend has risen from $0.15 per share to the current rate of $0.36, good for a yield of more than 4.3%. 

At an enterprise value 21.1 times expected 2015 earnings before interest, taxes, depreciation and amortization, EDR trades at an 18.5% discount to its five-year average enterprise value to EBITDA multiple. In addition, with a stock price of 9.8 times free cash flow per share over the past 12 months, EDR sports a 16.5% discount to its five-year average price-to-free cash flow ratio.

One final bit of evidence to burnish the bullish case on EDR, the company's chief financial officer, Edwin Brewer, Jr., purchased 1,000 shares of EDR at $35.25 back on February 25. While the absolute dollar value of $35,250 is not massive, it is substantial for a guy with a salary last year of $217,000.

I always tell my Forbes Dividend Investor subscribers to use a 10% trailing stop loss on all positions I recommend. The reason for doing this is to preserve profits or limit losses when a stock starts to move against you. Our experience with Destination Maternity is a good example of how the 10% stop can help. I originally recommended DEST in October 2012 at a dividend-adjusted price of $17.60. One year later the stock was above $32 per share, but by January 2014 it had slipped more than 10% below those highs, prompting us to get out at $28.80, a move that kept us from experiencing the pain of owning a stock that lost half of its value. After that mighty tumble, the stock has stabilized just below $15, and it looks good for fresh buying again.

Moorestown, N.J.-based Destination Maternity designs and retails maternity apparel through 1,894 retail locations in the U.S., Canada, Mexico, Puerto Rico, the Middle East and South Korea. Formerly known as Mothers Work and founded in 1982, company brands include Motherhood Maternity, A Pea in the Pod and Destination Maternity. It also distributes maternity wear via partnerships with retailers like Macy's, Sears and Kohl's.

The single analyst who follows the stock expects revenue to climb 9.9% to $568 million for the current year that ends on September 30. There is no published earnings forecast for the current year. Destination Maternity has not debt and pays $0.80 per year in dividends that are amply covered by $1.90 per share in cash from operations over the past 12 months.

Valuations look lean and suggest a bargain. At 0.38 times expected 2015 sales, DEST trades at a 24% discount to its five-year average price-to-sales ratio of 0.50. It also trades at an enterprise value 5.64 times expected 2015 EBITDA, a multiple 5.2% lower than the five-year average EV/EBITDA ratio.

The company looks fertile for value-minded investors with its fat 7.6% yield, discounted valuations, and some insider buying by directors and the CEO.

Taesik Yoon, Editor Forbes Investor:

Micron Technology is one of the world’s leading providers of advanced semiconductor solutions, specializing in high-performance DRAM, NAND Flash and NOR Flash memory chips and other products that provide for higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability and increased memory density in leading-edge computing, consumer, networking, automotive, industrial, embedded and mobile applications.

Hurt by disappointing revenue guidance for the first half of the year and similarly soft outlooks provided by competing storage chipmakers—which have increased concern about the health of global demand for DRAM and NAND products—investors have punished MU’s stock, sending it down roughly 20% so far in 2015. But I believe Micron’s near-term headwinds are primarily due to production disruptions stemming from equipment upgrades to deploy next-generation process technology in its DRAM memory business. However, as these production constraints fade later in the year, I expect output to return to levels more reflective of its growing demand environment. Given the exceedingly low valuation shares currently trade at, the stock should recover quickly as this materializes.

Green Dot is the largest provider of general purpose reloadable (GPR) prepaid debit cards and cash reload processing services in the U.S. These cards are issued as Visa- or MasterCard-branded cards and can be used by consumers at merchants who accept these brands. Uncertainty over the fate of its Walmart MoneyCard program, which has historically been responsible for a sizable portion of the company’s revenues and is up for renewal at year’s end, had contributed to poor performance in GDOT’s stock over the past six months. Yet thanks to numerous customer additions, new distribution channels and key acquisitions made during the past several years, the company has significantly diversified its operations away from this program.

As a result, it is only expected to represent 15% of adjusted operating income on a cash basis in 2015. Thus, even in the unlikely event that GDOT does lose this business, I believe that investors are overestimating the negative impact. When you also consider the strong growth Green Dot should continue to enjoy in the rest of its businesses stemming from its increasing retail presence, expanding banking operations and favorable market opportunities, I don’t think the stock will stay down for long.

Navigant Consulting is an independent global professional services firm that specializes in providing consulting services to clients that operate in highly complex market and regulatory environments or are facing transformational change and significant regulatory and legal issues.

Due to increased expense associated with ongoing effort to strengthen its senior leadership, realign several businesses and expand its business process management services offerings, earnings declined for the first time in three years and resulted in a 20% drop in its stock price in 2014. With guidance provided in February suggesting earnings will be down again as expenses remain elevated to support these future growth driving initiatives, shares have sunk further still. Yet buried in this outlook is the expectation that NCI will finally begin to see meaningful benefits from its higher investment activity, which has already augmented and optimized its workforce and enhanced its technology and business process management services capabilities. While these benefits will initially favor the top-line, I think a recovery in profits and NCI’s stock price won’t be too far behind.

Jim Oberweis, Editor Oberweis Report:

SPS Commerce is a leading provider of cloud-based supply chain management solutions, providing network-proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. Its cloud-based product suite improves the way suppliers, retailers, distributors and other customers place, manage and fulfill orders. Implementing and maintaining supply chain management capabilities is resource intensive and not a core competency for most businesses.

The SPS Commerce platform eliminates the need for on-premise software and support staff, which enables suppliers to focus their resources on their core business. The SPS Commerce platform enables retailers and suppliers to shorten supply cycle times, optimize inventory levels and sell-through, reduce costs and ensure suppliers satisfy exacting retailer requirements. Approximately 60,000 customers across more than 60 countries have used the company’s platform to improve the performance of their trading relationships. SPS’ platform fundamentally changes how organizations use electronic communication to manage their supply chains by replacing the collection of traditional, custom-built, point-to-point integrations with a “hub-and-spoke” model whereby a single integration to the SPS platform enables an organization to connect seamlessly to the entire SPS Commerce network of trading partners. Solutions include fulfillment, assortment, analytics, sourcing and enablement.

In SPS' latest reported fourth quarter, sales increased approximately 27% to $35.4 million from $28.0 million in the fourth quarter of last year. SPS Commerce reported earnings per share of $0.18 in the latest reported fourth quarter versus $0.13 in the same quarter of last year. These shares may be appropriate for risk oriented investors.

Richard Moroney, Editor Dow Theory Forecasts:

Aetna grew sales 23% last year, helped by a 6% rise in membership. An acquisition and federally mandated health insurance accounted for the enrollment gains. The company participated in 17 states’ public exchanges last year—none of its largest rivals got so deeply involved.

Managed-care stocks in the S&P 1500 Index have outperformed every other industry in the health care sector, averaging total returns of 66% over the last year. Despite those gains, managed-care stocks average Dow Theory Forecasts’ Value scores of 56, well above the sector average of 40. Aetna’s Value score of 66 is the highest among S&P 1500 managed-care companies.

Aetna grew operating cash flow 48% last year and the company has a history of sharing its cash with investors. The dividend rose 11% in November, marking four consecutive years with a double-digit increase. Over the last year, Aetna spent nearly $1.3 billion on stock buybacks, enough to lower its share count more than 4%.

Marc Gerstein, Editor Forbes Low Priced Stock Report:

In health care, a sector that's an old-favorite in terms of inevitable and huge demand growth, we have an aging population and the tendency of older people to experience more cardiac problems, especially when age is compounded by diabetes and obesity, two conditions also on the rise.

So it would seem that a company exposed to cardiac care ought to fit right into the theme of inevitability.  LeMaitre Vascular is just such a company. It focuses on products used to treat peripheral vascular disease, situations where the blood vessels become narrowed, obstructed, weakened or otherwise compromised thus diminishing the amount of blood transported and, potentially, leading to stroke, ruptured aneurysm, pulmonary embolism or death.

LMAT sells products for use by vascular surgeons, mainly in connection with open surgery. There are also some products aimed at less-invasive endovascular surgical procedures. There are many different kinds of gizmos and gadgets used here; because it’s such a small company, LMAT focuses primarily on niche differentiated products that don’t attract as much attention from the larger players.

That said, once relationships with vascular surgeons are established, LMAT is better able to cross sell; that’s been allowing the company to edge its way from niche open surgery products into more conventional open surgery products, and into endovascular products, as the surgeons with which LMAT deals do more of these procedures.

Meanwhile, LeMaitre continues to flesh out its product portfolio both with internal development and acquisitions. So how can we, as investors (and at least in my case, not a surgical expert) get a sense of whether LMAT’s strategy works as well as the company suggests it should? Sometimes, plain vanilla fundamental data can provide a helping hand.

With a market cap of just $149 million, LMAT is clearly a health care equipment and supplies pipsqueak. Yet it’s debt free and has a five-year average return on equity of 6.28%, hardly a number that would make Apple green with envy, but a heck of a lot better than the 1.69% industry median, and five-year EPS growth has occurred at an average annual rate of 18% versus an 11% industry median. So LeMaitre has to have been doing something right. It pays a dividend (the yield is a respectable 1.6%) and the price/sales ratio is 2.08, well below the 4.28 industry median.