The Investment Reporter recently reviewed its list of 100 US all-star stocks. All are established businesses and most use their growing earnings to pay higher and higher dividends. Most of the 100 are currently rated as ‘buy’, some are ‘hold’. None is rated as ‘sell’. (This is a list of All-Stars, after all.)
Of those 100 all-stars, here are two that are attractively best stocks to buy for 2018 relative to their growth prospects.
LKQ Corporation has Plenty of Open Road Ahead in 2018
LKQ Corporation (LKQ) derives its name from an auto insurance term, “Like Kind and Quality.” This term refers to replacing a damaged auto part with a used part of comparable age and condition, such as from a salvage vehicle, notes Brian Lazorishak, senior portfolio manager for Stack Financial Management and contributing editor to InvesTech Research.
LKQ’s business is in supplying alternative parts to
repair facilities, and in turn to insurance companies
who are indirect customers of LKQ. In addition to used
(salvage/junkyard) parts, these include aftermarket
(new, but not OEM) and refurbished parts.
The industry continues to grow as insurance companies compete on price and need to be cost effective on claims expenses. One of the easiest ways to do this is to use alternative parts when appropriate.
LKQ parts present a clear value proposition, and can often provide savings of 50% or more over original equipment. Additionally, the number of cars in the “sweet spot” for collision repair (3-10 years old) has troughed and will begin rising again in 2018。
As the largest player in a fragmented industry, LKQ enjoys economies of scale and parts availability that competitors cannot match. Through a combination of organic growth and acquisitions, LKQ has accumulated an impressive record of long-term growth.
Revenues have rocketed from $1.1 Billion in 2007 to an estimated $9.2B in 2017. During this time, the company has expanded into new product lines and geographic areas, moving from exclusively U.S. sales to generating 35% of sales in Europe.
A recent acquisition of Stahlgruber, the largest participant in Germany, will help further expansion. Europe is particularly attractive because of a heavier focus on repairs done by body shops.
Two longer-term risks to LKQ’s business are competition and potential technological advances. While the company is the leader in its niche industry, competitors such as Amazon (AMZN) could emerge to battle for some segments of the company’s business. To date, this has been more related to lower cost and lower margin parts, but further developments bear watching.
Another potential long-term shift that could affect the company is the increased use of crash avoidance systems and self-driving cars. If these innovations are successful in reducing automobile accidents and claims, it could lead to downward pressure on LKQ’s parts volume. At this point, however, adoption remains slow and has been offset by increasing complexity and cost of collision claims.
LKQ has grown both revenues and earnings in excess of +20% over the last 10 years. While the company is unlikely to continue that rapid pace of growth in the future, the combination of organic growth and acquisitions should allow for solid double-digit earnings growth in the years ahead.
With an attractive P/E ratio of 19.3 based on forward earnings estimates, this stock has plenty of open road ahead in 2018.
MannKind Corp: Inhalation Treatment for Diabetes
After receiving a very positive label change for its lead product, Afrezza (an inhalable form of insulin), late in the year, MannKind (MNKD) also raised a sizable chunk of cash, notes Nate Pile.
The company has been putting that money to work running television ads in a number of select regions around the country as part of a campaign to raise awareness of the product among both Type1 and Type2 diabetics.
Not only is Afrezza inhalable rather than injectable (all other insulins are injected), it also acts more quickly in the body than existing insulins.
Because of this, diabetics who are using Afrezza are reporting that not only are they able to maintain better control of their blood sugar levels on the high side, they are doing so with less fear that they might cause things to spiral out of control on the low side.
Along with Afrezza, the company also owns the rights to the technology platform upon which Afrezza was created (called Technosphere).
As more of the large pharmaceutical companies look to turn their existing pill and injection products into inhalable, it would not surprise me at all if at least a few of them decide to license MannKind’s technology.
The company has also a identified and begun work on its own formulations of a number of pharmaceutical compounds that it has discovered are especially good candidates for pairing with the Technosphere platform.
The company got a new CEO in May, and though there is still plenty of work to be done, the story is starting to look more and more like the sort of turnaround story that Wall Street likes to get excited about.
With roughly one-third of the float currently sold short, things could get interesting in a hurry once awareness of the product finally hits “critical mass” and doctors and diabetics.
I am a big believer in always scaling-in or scalingout of positions with several small trades over a long period of time rather than doing it all at once.
Given the volatility of the stock, investors are encouraged to be especially disciplined about scaling into a position over time. Provided you are willing to take such an approach, Mannkind is considered a strong buy under $5 and a buy under $10.
LKQ Corporation has Plenty of Open Road Ahead in 2018
LKQ Corporation (LKQ) derives its name from an auto insurance term, “Like Kind and Quality.” This term refers to replacing a damaged auto part with a used part of comparable age and condition, such as from a salvage vehicle, notes Brian Lazorishak, senior portfolio manager for Stack Financial Management and contributing editor to InvesTech Research.
The industry continues to grow as insurance companies compete on price and need to be cost effective on claims expenses. One of the easiest ways to do this is to use alternative parts when appropriate.
LKQ parts present a clear value proposition, and can often provide savings of 50% or more over original equipment. Additionally, the number of cars in the “sweet spot” for collision repair (3-10 years old) has troughed and will begin rising again in 2018。
As the largest player in a fragmented industry, LKQ enjoys economies of scale and parts availability that competitors cannot match. Through a combination of organic growth and acquisitions, LKQ has accumulated an impressive record of long-term growth.
Revenues have rocketed from $1.1 Billion in 2007 to an estimated $9.2B in 2017. During this time, the company has expanded into new product lines and geographic areas, moving from exclusively U.S. sales to generating 35% of sales in Europe.
A recent acquisition of Stahlgruber, the largest participant in Germany, will help further expansion. Europe is particularly attractive because of a heavier focus on repairs done by body shops.
Two longer-term risks to LKQ’s business are competition and potential technological advances. While the company is the leader in its niche industry, competitors such as Amazon (AMZN) could emerge to battle for some segments of the company’s business. To date, this has been more related to lower cost and lower margin parts, but further developments bear watching.
Another potential long-term shift that could affect the company is the increased use of crash avoidance systems and self-driving cars. If these innovations are successful in reducing automobile accidents and claims, it could lead to downward pressure on LKQ’s parts volume. At this point, however, adoption remains slow and has been offset by increasing complexity and cost of collision claims.
LKQ has grown both revenues and earnings in excess of +20% over the last 10 years. While the company is unlikely to continue that rapid pace of growth in the future, the combination of organic growth and acquisitions should allow for solid double-digit earnings growth in the years ahead.
With an attractive P/E ratio of 19.3 based on forward earnings estimates, this stock has plenty of open road ahead in 2018.
MannKind Corp: Inhalation Treatment for Diabetes
After receiving a very positive label change for its lead product, Afrezza (an inhalable form of insulin), late in the year, MannKind (MNKD) also raised a sizable chunk of cash, notes Nate Pile.
The company has been putting that money to work running television ads in a number of select regions around the country as part of a campaign to raise awareness of the product among both Type1 and Type2 diabetics.
Not only is Afrezza inhalable rather than injectable (all other insulins are injected), it also acts more quickly in the body than existing insulins.
Because of this, diabetics who are using Afrezza are reporting that not only are they able to maintain better control of their blood sugar levels on the high side, they are doing so with less fear that they might cause things to spiral out of control on the low side.
Along with Afrezza, the company also owns the rights to the technology platform upon which Afrezza was created (called Technosphere).
As more of the large pharmaceutical companies look to turn their existing pill and injection products into inhalable, it would not surprise me at all if at least a few of them decide to license MannKind’s technology.
The company has also a identified and begun work on its own formulations of a number of pharmaceutical compounds that it has discovered are especially good candidates for pairing with the Technosphere platform.
The company got a new CEO in May, and though there is still plenty of work to be done, the story is starting to look more and more like the sort of turnaround story that Wall Street likes to get excited about.
With roughly one-third of the float currently sold short, things could get interesting in a hurry once awareness of the product finally hits “critical mass” and doctors and diabetics.
I am a big believer in always scaling-in or scalingout of positions with several small trades over a long period of time rather than doing it all at once.
Given the volatility of the stock, investors are encouraged to be especially disciplined about scaling into a position over time. Provided you are willing to take such an approach, Mannkind is considered a strong buy under $5 and a buy under $10.
