New Stocks Make Most Attractive/Dangerous Lists For January

Our Most Attractive and Most Dangerous stocks for January were made available to the public at midnight on Wednesday. December saw some strong performances from our picks, led by small-cap KKR Financial Holdings (KFN), which gained 35%. On the Dangerous side, Sears (SHLD) declined by 12% while EcoLab (ECL), which was featured last month, was 1% in the red.

January sees 12 new stocks on our Most Attractive list and 11 new stocks fall into the Most Dangerous category.

Our Most Attractive stocks have high and rising return on invested capital (ROIC) and low price to economic book value ratios. Most Dangerous stocks have misleading earnings and long growth appreciation periods implied in their market valuations.

Most Attractive Stock Feature For January: AMGN

Amgen Inc. (AMGN) is one of the new additions to the Most Attractive list this month. AMGN makes the list due to the decrease in rank of other stocks that were ahead of it.

Cash is king, and few companies generate cash flow as effectively and consistently as AMGN. Over the past five years, the company has had a free cash flow of at least $3 billion every year with an average free cash flow yield of 8%.

Investors should also look for a track record of growth, which AMGN definitely has. Over the past decade, AMGN has grown after-tax profit (NOPAT) by 14% compounded annually. Over that time frame the biotech giant has earned a double-digit return on invested capital (ROIC) in every year but one.

Although AMGN spent $10 billion on acquiring Onyx Pharmaceuticals this year, the company still has plenty of cash left with which to fund further research and acquisitions. Some analysts have raised concerns over AMGN’s growth potential going forward, but given the company’s track record it’s hard to believe that growth will come to a complete halt. More importantly, AMGN is such a great value at the moment that very little growth is required to justify the current stock price.

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David Trainer and Sam McBride receive no compensation to write about any specific stock, sector, or theme.

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