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Stocking Stuffer Stocks - Part Two

Posted: Dec 04, 2007 08:32 AM by Glenn Curtis

Tickers in this Article: MRK, CCL, MGM, YHOO, GOOG

The holiday season is great because it's when families get together, exchange gifts, enjoy good food and drink and generally have a good time. But I also like this time of year because it's when I compile my Christmas wish list, a list of companies that I think have the potential to fare better than the overall market in the coming year. (To see the first part of my wish list, check out Stocking Stuffer Stocks.)

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Merck (NYSE:MRK)
Once Merck's drug pipeline was as barren as the moon's surface, but now its filled with potential hits. In addition, it has reached a $4.85 billion settlement that is expected to end thousands of lawsuits related to Vioxx (a painkiller that was taken off the market several years ago after a connection was found between the drug and incidence of causing heart attacks and stroke). This settlement essentially removes most of the potential liability that had been hanging over the company's head.

Going forward I believe that drugs including Singulair (for allergies), Zetia and Vytorin (both for the treatment of high cholesterol) and Januvia (for the treatment of type 2 diabetes) will be big drivers for the company. Analysts polled by Thomson Financial believe that Merck will earn $3.15 per share this year and $3.36 per share in 2008. But frankly, I think the 2008 estimate in particular may be a bit light based upon the trends that I saw in its third quarter press release. (To learn more about drug companies, see Measuring The Medicine Makers.)

Carnival Corp. (NYSE:CCL)
Let's face it, with the price of gas on the rise, folks aren't too eager to hit the highways these days. A brief jaunt to Europe is becoming less attractive, too, as the dollar continues to drop.

The new holiday solution could very well be a cruise. You hop on a boat, and all of your meals, entertainment and lodging is included. Plus it's all paid for in U.S. dollars and thankfully you're not the one worried about filling up the tank.

Perhaps this is why Carnival Cruise Lines has been doing so well. In the third quarter, EPS is up 12%, and revenue is up 10.3%. Plus the company repurchased roughly 4.5 million shares for about $195 million during the quarter. The board must think there's still some upside to be had. As a bonus, the stock also has a dividend with a current yield of 3.7%.

MGM Mirage (NYSE:MGM)
The well-known casino operator continues to amaze me. MGM Mirage has an enviable stable of properties in Nevada and other gaming markets such as Mississippi. But now its also planning to build out some fabulous new properties that I think will help diversify risk and grow revenue in the future.

For example, it plans to build a roughly 3,000-room facility in Atlantic City, New Jersey adjacent to the highly successful Borgata. That property is expected to come online in 2012. It's also reportedly planning on working with Mubadala Development to build three hotels in Abu Dhabi, which is a growing destination in the Middle East (To learn more about MGM Mirage, see MGM Mirage's Atlantic City Excursion Makes Sense and MGM's Abu Dhabi Resort Is No Gamble.)

As things stand right now Wall Street expects the company to earn $2.39 a share this year and $2.80 a share next. Frankly, I think those could be conservative numbers.

Yahoo (Nasdaq:YHOO)
Everywhere I turn these days all I hear is Google (Nasdaq: GOOG) this, Google that. When do you think that Google will hit $1,000? I'm sick of it. In my mind, investors should be paying attention to Yahoo. Despite losing its dominance as a search engine, Yahoo still has a terrific name. Plus its co-founder Jerry Yang is back at the helm, and I think he will a do a good job turning the company around.

Yang has already said that he will focus on beefing up traffic to its home page/search function and possibly scale back on smaller one-off type projects. That said a turnaround will probably take awhile.

Wall Street expects the company to earn 43 cents per share this year, and 54 cents per share next year; this is doable. My only hesitation, however, is that if Yang were to eliminate any significant projects or layoff non-essential employees in an effort to scale back costs there could be some charges. But again, operationally, it should post a year-over-year improvement in net income.

Bottom Line
I've spent a fair amount of time compiling my holiday wish list. I hope that you have found it informative, but please don't just stick to my picks. Get out there and make up your own wish list, too!

To get started, check out our Stock Picking Tutorial.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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