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NEWSLETTERS

12
Stocks
To Buy
2019
Through the first nine months of 2018, it looked like another year of double-

digit percentage gains for U.S. stocks, but October and November were brutal

months. By early December, nearly half of the stocks in the S&P 500 Index had

slipped into bear market territory with declines of 20% or more from their
peaks. Now there is serious doubt whether

the current bull market lives to see its

In an environment
tenth birthday on March 9.
of elevated Picking stocks for your portfolio
volatility, there during times like these is a bit more difficult

is also the than when the market produces gains week

opportunity to pick after week with little turbulence along the

way, but in an environment of elevated

up outstanding
volatility, there is also the opportunity to
bargains. pick up outstanding bargains.

From solid dividend-payers to fundamentally sound growth stocks, Forbes’ top

investment newsletter editors identify some of those opportunities for you in

this report.

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Taesik Yoon Forbes Investor, Forbes Special
Situation Survey

TPI Composites (TPIC)

Market Cap: $901.4 million Revenue (ttm): $968.2 million
Price To Book Value: 3.9

While there can be some negative consequences to taking on too much business,

it’s usually worth the trouble—especially in the long run. I think that’ll prove to

be the case with leading global composite wind blade producer TPI Composites.

Thanks to the exceptionally strong order activity it’s enjoyed so far this year driven

by the ongoing shift towards cleaner energy sources and the steady but significant

reduction in the cost to produce wind energy, the company ended its most recent

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quarter (third-quarter 2018) with a potential value under its long-term supply

agreements of $6.3 billion through 2023. This is 43% higher than what it ended

2017 with and more than six times greater than the sales it will likely achieve in

the current year.

And while the consequence of this substantial influx in new orders—as well

as from customers moving to larger blade sizes at a faster pace than planned—

will be higher-than-expected line startup and transition costs over the next two

years, TPIC’s adjusted EBITDA is forecasted to nearly double in 2019 to $125

million and then jump another 36%-52% to $170-$190 million in 2020 while

earnings are expected to more than triple to $1.24-$1.35 per share next year

even with this pressure. As this begins to play out, I think it’ll send TPIC’s stock

meaningfully higher.

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EZCORP (EZPW)
Market Cap: $478.7 million Revenue (ttm): $813.5 million
Price To Book Value: 0.63

Shareholders don’t like it when a company raises funds through any means that

can potentially dilute the value of their holdings. So perhaps it’s not surprising

to see shares of leading pawn loan provider EZCorp still down about 40% since

announcing and then issuing enough convertible debt back in May to potentially

increase total shares outstanding by 20%. But I think this selloff is far too harsh

given that the embedded conversion price of $15.90 indicates the stock would

need to climb roughly 80% from current levels before any dilution would occur.

Furthermore, I believe these notes will be used to substantially pay off existing

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convertible debt with a similar conversion price and interest rate maturing next

year. Thus, EZPW’s dilutive and cost profile probably isn’t much different now than

it was prior to the issuance.

More importantly, with the company planning to continue funneling the

strong cash generated from its domestic operations back into opening and

acquiring additional stores in its more promising Latin America Pawn business,

which was largely responsible for the 27% rise in earnings in fiscal 2018 (which

ended in September), EZPW is primed for another year of top- and bottom-line

growth that should be strong enough in my view to spark a sizable rebound in its

stock from here.

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Richard Lehmann Forbes/Lehmann Income
Securities Investor

Oneok (OKE)
Market Cap: $24.3 billion Dividend Yield: 5.7%
Price To Book Value: 3.7

Based in Tulsa, OK, Oneok is a diversified energy company and one of the

largest midstream service providers in the U.S. It is also the general partner and

41.2% owner of Oneok Partners, LP (OKS), one of the largest MLPs. OKE owns

and operates a premier natural gas liquids (NGLs) system and is a leader in the

gathering, processing, storage and transportation of natural gas. OKE’s operations

include a 38,000-mile integrated network of NGL and natural gas pipelines,

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processing plants, fractionators and storage facilities in the Mid-Continent,

Williston, Permian and Rocky Mountain regions.

The company’s ratings recognize expected strong earnings momentum in

2018-2020, helped by rising volumes and added capacity. Expected solid earnings

growth over the next two years comes with higher leverage through 2019, as

Oneok constructs two multibillion-dollar pipeline and fractionator projects. Third-

quarter 2018 financial results were ahead of analysts’ expectations. Operating

income jumped 40% from a year earlier to $495.5 million. Net income was

$313.3, topping consensus estimates. Dividend coverage is a strong 1.39x, with

distributions typically qualified and taxed at the 15%-20% rate. Buy up to $72.00

for a 4.75% annualized yield.

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Kraft Heinz Company (KHC)
Market Cap: $58.8 billion Dividend Yield: 5.1%
Price To Book Value: 0.90

Kraft Heinz Company, which was created from the July 2015 merger of Kraft Foods

Group and H.J. Heinz Co., ranks as the fifth largest food and beverage company in

the world.

Among KHC’s brands are Kraft, Heinz, Jell-O, Kool-Aid, Maxwell House,

Oscar Mayer and Weight Watchers. The company’s investment grade ratings have

remained intact with a stable outlook since 2015.

KHC has been on the lookout for an acquisition, having launched a $143

billion bid for Unilever in February 2017 that was rejected by Unilever’s board.

Despite its failed bid, KHC has made little secret of its desire to initiate a deal. It

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has sufficient equity financing from its largest backers, Berkshire Hathaway, which

owns roughly 26.5% of the company, and 3G Capital, with 22% ownership. KHC

reported third-quarter 2018 net income of $630.0 million or $0 .51 per share on

net sales of $6.39 billion. Adjusted net income for impairment charges and other

items was $0.78 per share, 3 cents short of analysts’ estimates. While KHC stock

has been under pressure this year, cash flow and dividend coverage remain solid.

Distributions are generally qualified and taxed at the 15%-20% rate. Buy up to

$60.00 for a current annualized yield of 4.17%.

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Bryan Rich Forbes Billionaire’s Portfolio

Global Blood Therapeutics (GBT)

Market Cap: $2.2 billion Price To Book Value: 4.7
52-Week Price Range: $30.15-$68.05

Global Blood Therapeutics is pursuing an “accelerated approval” with the FDA for

its drug Voxelotor, which is a treatment for the life-threatening disorder, Sickle

Cell Disease (SCD). There is no event more powerful to reprice a stock than an

FDA approval. On that note, the accelerated application to the FDA is a big deal,

because the bar for approval is significantly lowered for serious rare diseases

that have little-to-no treatment options. SCD fits the bill. The company is on

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path to formally submit the new drug application next year, which could mean an

approval by late next year.

GBT is the third largest position in the $5 billion portfolio of the best

specialty biotech investor in the world, Joseph Edelman. He has publicly said

he thinks the company will be worth more than double its current value on an

FDA approval. And in the longer run, he thinks it could be worth four times its

current value.

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John Dobosz Forbes Dividend Investor,
Forbes Premium Income Report

Molson Coors (TAP)

Market Cap: $13.7 billion Dividend Yield: 2.6%
P/E (ttm): 8.4

Denver, Colo.-based Molson Coors Brewing was formed in the 2005 merger

of Coors Brewing Co. and Canada’s Molson. It also owns the Miller Brewing

company through its wholly-owned MillerCoors subsidiary, the second-largest

seller of beer in North America, trailing only Anheuser-Busch Inbev (BUD).

Analysts expect 2018 revenue of $10.97 billion, down 0.3% from 2017.

Molson Coors has grown EBITDA 26.8% annually over the past five years, while

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the company trades at discounts to five-year average valuations on nearly every

metric you can measure. Molson Coors and its predecessor organizations have

been paying dividends for more than 30 years. Annual dividends of $1.64 are not

a stretch. Molson Coors produced free cash flow per share of $8.07 over the past

12 months.

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B&G Foods (BGS)
Market Cap: $2.9 billion Dividend Yield: 1.2%
P/E (ttm): 43.0

Parsippany, N.J.-based B&G Foods makes, sells and distributes shelf-stable and

frozen foods in the U.S., Canada and Puerto Rico, taking its moniker from Joseph

Bloch and Julius Guggenheimer, two pickle merchants in New York City from the

early twentieth century. B&G’s modern incarnation as a food conglomerate dates

back to 1996. It owns more than 50 brands, including Cream of Wheat, Green

Giant, Le Sueur, Ortega and SnackWell’s.

Earnings before interest, taxes, depreciation and amortization has been on the

rise for the past three quarters, and the company generated EBITDA of $3.91 per

share over the past year to support $1.90 in annual dividends. Meanwhile, shares of

BGS continue to trade at substantially lower valuations relative to the past five years.

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Brad Thomas Forbes Real Estate Investor

Enbridge (ENB)
Market Cap: $57.7 billion Dividend Yield: 6.4%
P/E (ttm): 43.5

Founded in 1949, Alberta-based Enbridge is North America’s largest midstream

company, with the biggest energy infrastructure network on the continent. It

transports, generates and distributes energy, including crude oil, natural gas, Its

midstream network transports 28% and 20% of the continents oil and natural

gas, respectively. Ninety-six percent of its cash flow is under long-term, volume-

committed contracts with 100% investment grade counterparties.

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 Enbridge has delivered 23 consecutive years of double-digit payout growth

and management expects 10% dividend growth through 2020, thanks to a

strong growth backlog that includes $17 billion in projects to be complete by

2020. It also is planning up to $27 billion in new projects for 2021-2025. ENB

has a strong balance sheet, and a BBB+ credit rating, tied for the highest in

the industry.

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W.P. Carey (WPC)
Market Cap: $11.4 billion Dividend Yield: 5.9%
P/E (ttm): 26.3

W.P. Carey is one of the largest owners of net lease properties and among the top

25 real estate investment trusts (REITs) in the MSCI U.S. REIT Index. As of the third

quarter, it owned 1,186 properties. Almost all the buildings Carey acquires have

contractual rent escalators and its weighted average lease term is 10.5 years. Carey

generates attractive risk-adjusted returns by selecting mission-critical buildings in

the U.S. and Northern and Western Europe. About 63% of the portfolio is comprised

of assets from North America (62% in the U.S.) and 35% in Europe (and 1.2% in

Australia and Japan). WPC has little exposure to U.S. retail, a sector that has been

struggling, and most rent checks come from industrial and office tenants.

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 Third-quarter adjusted funds from operations per share were $1.48, up 8%

from the prior-year period. Real estate net revenues were $173.4 million, up 1.3%

from $171.2 million for the 2017 third quarter. Its occupancy rate was 98.3% in

the third quarter. Year-to-date, shares are up 2.8% and I think there’s a lot more

upside to come.

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George Putnam The Turnaround Letter

Japan Airlines (JAPSY)

Market Cap: $12.0 billion Dividend Yield: 2.8%
Price To Book Value: 1.2

Two years after its 2010 bankruptcy, Japan Airlines emerged with a clean

balance sheet and a determined focus on profitability, thanks to an impressive

turnaround led by Kazuo Inamori, founder of Japan’s Kyocera Corp., who came

out of retirement to do so.

Newer, more efficient jets replaced the dated fleet, cargo operations were

folded into the passenger fleet, and the company changed its marketing and

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pricing to attract more profitable customers and improve its image. Inamori

stepped aside in 2013, but Japan Airlines continues to focus on controlling

expenses while expanding its global reach through alliances.

Healthy economic growth is also boosting passenger volumes and pricing.

While profits have averaged more than $1 billion, the stock remains weak. Trading

at only four times Ebitda, Japan Airlines shares could be ready to take off.

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KB Homes (KBH)
Market Cap: $1.8 billion Dividend Yield: 0.5%
P/E (ttm): 13.4

In business since the 1950s, KB Homes has a presence in Florida, Texas and

California. The company offers an attractive build-to-order program that allows a

degree of customization yet captures the benefits of volume and standardization.

In recent quarters, KB Homes has produced steadily rising margins and profits per

unit. While the company has debt due in each of the upcoming years, it has plenty

of liquidity plus a recently upgraded BB- credit rating, which should allow the debt

to be refinanced at reasonable terms. The homebuilder is well-positioned for

investors looking to take a contrarian stance.

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John Buckingham Prudent Speculator

Walt Disney (DIS)

Market Cap: $166.0 billion Dividend Yield: 1.6%
P/E (ttm): 13.3

Disney operates one of the largest diversified media companies in the U.S. and

is a global leader in producing branded family entertainment. Shares have risen

modestly this year, as the company acquired and is integrating 21st Century

Fox, gained a majority stake in Hulu and launched Disney+, a direct-to-consumer

(DTC) streaming service. Disney has been a “monetization machine” (as coined by

an analyst) under the leadership of Bob Iger and I see little sign of that waning.

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The company continues to add subscribers to its DTC ESPN+ sports service and

seems to be surviving the cord cutting wave, which saw more than 1.1 million

cable TV subscriber losses in the third quarter across the country. I’m pleased

Disney won the battle for the Fox assets and think the acquisition strengthens an

already best-in class content portfolio.

Disney should enjoy increased production and marketing scale, and the

Disney+ subscription should be a content delivery method with significant

potential. In addition, the Disney film studios have been able to churn out plenty

of winners that have dwarfed the inevitable losers, while the theme parks/resorts

remain major money makers.

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