Experiential / Reality-based Learning / January 3, 2011

Get Your Portfolio in Shape: Students Pick Top Stocks for 2011

With the New Year under way, its a great time to resolve to get your portfolio in shape. Students at the University of Maryland's Robert H. Smith School of Business have been closely following the markets as they manage the $2 million Mayer Fund and the Lemma Senbet Fund, run by select groups of MBA and undergraduate students. The students are on pace to meet their goals to achieve healthy returns for the funds and outpace the S&P 500 index. Here's their collective outlook for the year:

Outlook for 2011:

  • Look for sustained growth in 2011 and the welcoming of emerging markets beyond BRIC countries to the world stage.
  • Increased demand for commodity products magnified by the global recovery will likely bode well for energy companies.
  • Likewise financials continue to underperform the market due to ongoing uncertainty around the still unwinding financial mess and a new regulatory environment.
  • Barring a municipal bond crisis banks should see light at the end of the tunnel in 2011 and the financial industry as a whole will stop licking its wounds and catch up to the market.

Top Stock Recommendations:

  • Consumer Discretionary - McDonalds (MCD), Toll Brothers (TOL)
  • Consumer Staples - General Mills (GIS), Pepsi (PEP)
  • Energy - Clean Energy Fuels Corp. (CLNE), Cameron International (CAM)
  • Financials - JP Morgan (JPM), Allied World Assurance (AWH), US Bancorp (USB)
  • Healthcare - Teva Pharmaceutical Industries (TEVA), DaVita (DVA)
  • Industrials - Illinois Tool Works (ITW)
  • Technology - Itron (ITRI), Google (GOOG)
  • Telecom - NII Holdings (NIHD)

The Rationale:

Company Analyst Rationale
McDonalds (MCD)

Cindy Li 
Consumer Discretionary Analyst
Senbet Fund

The company has had consistently strong operating performance led by new product innovation, ongoing cost saving initiatives, steady new restaurant growth, effective advertising, and superior global brand equity. With its global strength, brand, stable market position, strong cash flow and geographic diversity its no wonder that McDonald's stands as the current market leader in the fast food restaurant sector.
Toll Brothers (TOL)

William Van Hest
Consumer Discretionary Sector
Mayer Fund

With multifamily fundamentals improving, the housing market is more than likely to return to pre-boom levels. Toll Brothers is uniquely positioned to continue exceeding the industry margins and has the optimal land holdings to pull out of the housing crisis faster than the other home builders with less risk in the event it drags on longer than expected. With the stock priced at below a five-year low, this is a value play with great potential this year and in the coming years.
General Mills (GIS)

Derek Criswell
Consumer Staples Analyst
Mayer Fund

Their recently launched Holistic Margin Management system has positioned them well amongst their competitors in facing rising commodity costs. This, along with an increased focus on advertising, has General Mills gaining market share, despite already being the first or second brand rank in over a dozen retail food categories.
Pepsi (PEP)

Philip Whitley
Portfolio Manager
Mayer Fund

2010 was supposed to be the year of the recovery and because of this, staples were largely ignored. Pepsi has been increasing its cash levels, pursuing growth in emerging markets, and continues to perform well with niche market products. In 2011 it may unload that cash on acquisitions, or return it to shareholders in the form of more dividends and share buybacks.
Clean Energy Fuels Corp. (CLNE)

Nicolas Godfrey
Energy Analyst
Mayer Fund

Favorable legislation recently passed both the House and the Senate. Natural gas as an alternative fuel for heavy duty vehicles is a game changer for the U.S. economy. Natural gas is economically viable, abundant, domestically produced and cleaner. Leading the market, CLNE is perfectly positioned to capitalize on that trend and is at the early stages of significant growth potential.
Cameron International (CAM)

Elan Rozmaryn
Energy Analyst
Mayer Fund

Cameron International is going to have a fantastic year over 2011. Soaring oil prices and the falling dollar will create a renewed deep sea drilling push, and this oil servicing company is very well positioned to profit from this renewed push.
JP Morgan (JPM)

Robert Quint Mansell
Financials Analyst
Mayer Fund

The bond market is pricing in higher growth. Higher long-term rates with steady short-term rates and improved loan growth will lead to higher net interest margins. JPM has excess capital that may be released early next year in the form of a dividend or a huge buyback program (10% of shares outstanding from a Deutsche Bank analyst). Im not optimistic about unemployment, but I believe JPM has been conservative in reserving for loan losses and will continue to see lower provision levels. The valuation is cheap right now at less than book value. There is downside risk due to foreclosure-gate and pending regulation changes from the Dodd-Frank bill, but I believe the current market valuation accounts for this risk.
Allied World Assurance (AWH)

Daniel Horowitz
Financials Analyst
Senbet Fund

Allied World Assurance (AWH) is a global diversified insurer and reinsurer with:
  • incredible underwriting track record (average combined ratio of 81.2% over the last 5 years)
  • trades at a Price/Book ratio of 0.75 and a Price/Earnings ratio of 4.22
  • Book value has grown from $36.82 at year end 2006 to $78.81 as of Q3 2010 (114% appreciation)
  • Float of over $8 billion invested conservatively and transparently (minimal exposure to munis, short duration of fixed maturity portfolio)

Strong management has been successfully executing on an international expansion and branding campaign. This will lead to net premium growth and shield exposure to the industry's soft pricing, as the company continues to differentiate itself from peers as a world class service provider across a diversified range of products.

US Bancorp (USB)

Steve Jain
Financials Analyst
Senbet Fund

A solidly managed, growing, and consistently profitable lender, US Bancorp has not had a single period of losses in the past three years. As the fifth-largest bank in the U.S. by assets, US Bancorp has a history of lending wisely. The bank's other primary business, payment services, is among the most profitable and efficiently-run in the country.CEO Richard Davis has said that his top priority for 2011 is to become the first bank to increase dividends and bring dividend yield at least somewhat closer to the 6% the bank paid pre-crisis.
Teva Pharmaceutical Industries (TEVA)

Alexander Wang
Healthcare Analyst
Senbet Fund

Teva is the worlds number one generic drug company. With nearly $150 billion in patents expiring by 2015 and numerous countries and organizations attempting to cut down on healthcare costs for their growing aging populations, Teva is very well positioned to benefit with these drastic changes in the pharmaceutical industry. They recently acquired Barr and Ratiopharm, both very large competitors in the United States and European markets respectively. These two acquisitions give Teva greater market share in the U.S., where it is now No. 1, and in Germany, where it is No. 2. Even as Teva continues to grow, exceeding analyst expectations, their share price has been greatly depressed in the past few months, creating a very compelling buying opportunity.
DaVita (DVA)

Lucy Qian
Portfolio Manager
Senbet Fund

DaVita is the second largest provider dialysis services in the U.S. for patients suffering from chronic kidney failure. It recently announced plans to expand internationally, where it expects strong margins and higher-growth in some largely untapped markets where there is a lot of room to gain market share.
Illinois Tool Works (ITW)

Philip Whitley
Portfolio Manager
Mayer Fund

Many cyclical firms rebounded in 2010 with leaner operations and renewed demand. However some were neglected and Illinois Tool Works fits the mold. With products that span commercial to consumer use, ITW was able to ride out the recession more smoothly than others tied to specific industries like housing. But this was ignored last year. ITW is diverse and fast moving and should be able to meet demand faster than competitors making it a performer for 2011.
Itron (ITRI)

Jim Hildebrand
Technology Analyst
Mayer Fund

World demand for energy and clean water will grow 30%-40% over the next two decades. To meet this need, the world has to become smarter where businesses, utilities and government continue to work together to increase efficiencies and reduce costs. With its current 35% worldwide share, Itron will play a key role in this smart revolution with its meter products and software management solutions.
Google (GOOG)

Lily Zhen
Technology Analyst
Senbet Fund

The company has recently launched many promising new services and products including Google Translate, the new eBook store, Cloud Connect, Google Business Apps, and Google TV (not to mention the success of Android). Also, Google succeeds where many companies are struggling: it can actually create profit from providing free products and services. Google's business model allows it to bypass the internet's free problem, positioning it perfectly to take advantage of the trend toward digitalization.
NII Holdings (NIHD)

Christine Perry
Telecom Analyst
Senbet Fund

NII Holdings is one of the fastest growing wireless service providers in the South American region. It recently acquired a Brazilian wireless license, a move that significantly enhances the company's presence in Brazil. This should have a positive impact on the NII Holdings' earnings in the near future as the Brazilian wireless industry is poised for strong growth in the coming years due to the rapid expansion of the middle class and increased discretionary spending in the country.

Media Contact

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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