Vince-
Your question is a good one. In fact, money managers are always asking a similar question, "Whick stock should I buy?" The answer to your question depends upon many things, including your son's age, investing time horizon, amount to invest (i.e., is there enough money to buy several different stocks, instead of putting it all in one stock?), near-term requirements for cash (short-term or long-term investing?), ability to handle volatility (if not, you can buy him a drug stock and some dramamine), ability to withstand losses (otherwise, a very conservative investment may be needed).
My favorite stock among all stocks is THQI, even at $20. If you like THQI, it might make a good stock for your son, because you are familiar with it.
Unless your son's situation suggests otherwise, I'd suggest investing in a handful of stocks, even though I think THQI will double in 1998. Ideally, they should be in different industries. My specialty is small caps, so here's a diverse list of my favorites, both near-term and long-term:
Obviously, THQI is my first recommendation.
Semiconductors: Semtech (SMTC) has declined 50% from its recent peak, although its business is strong. The stock trades at 13 times next year's EPS, MUCH cheaper than its peers. Expected growth rate above 30%.
Oilfield machinery: Lufkin Industries (LUFK) is one of the most undervalued stocks in its group, trading at less than 12 times next year's EPS. Growth rate above 25%.
Consumer/business services: Cendant (CD) is my favorite large cap stock, trading at 24 times next year's EPS. It should have a growth rate above 30% for the next few years. Its P/E isn't very cheap, but it's very cheap based on price/cash flow. It's one of the only "safe" big caps, in my opinion. It's also MUCH cheaper than other big consumer companies.
Telecom equipment: Coherent Communications (CCSC) is the leader in echo cancellation equipment, an integral component of the booming wireless market. It trades at 22 times next year's EPS. Growth rate above 30%.
Health care services: NovaCare (NOV), the leader in rehabilitation services, trades at less than 15 times next year's EPS. Growth rate above 25%.
For the tremendously battered stocks, look at the chip equipment stocks: Novellus Systems (NVLS), Cohu (COHU) and Zygo (ZIGO). They are trading at prices that assume flat growth for the next few years. They've been very oversold.
For more speculative stocks (an important component in any agressive portfolio), how about profitable biotech companies? I like BioChem Pharma (BCHE) and Centocor (CNTO).
Here's a speculative, but very undervalued stock: Quigley (QGLY), maker of Cold-Eeze. It's certainly not as safe as the first bunch I listed, but it is quite cheap.
It's my opinion that most big cap stocks should be avoided, based on excessive valuations. INTC isn't overpriced, but it is having some issues. MSFT is wildly overpriced, and probably makes a better short than long position (are you listening, Stagger?). Most consumer multinationals or Dow stocks are too vulnerable, in my opinion. The same goes for big drug stocks and many banks. The values remain in the small cap arena, where the big money has missed them.
I didn't intend for this to be a menu, and I hope it doesn't enrage or bore any folks on this thread. Nonetheless, I think the previous list includes many stocks that will be excellent performers over the next few years. I hope it is helpful to you and your son, Vince.
Good luck.
Todd
Happy holidays to all. Ho. Ho. Ho. |
