Fourth-quarter earnings have been lackluster at best, yet this is the priciest market in more than a decade.
As I write, over 100 stocks are setting all-time highs.
Thousands more are within earshot of record-breaking territory.
But don’t get spooked by the high valuations.
Certain stocks have much more upside ahead.
Especially the company that famed investor, Bill Miller, says could soon replace Apple (NASDAQ:AAPL) as the biggest company in the world.
Interview Transcript:
Justin Fritz: Hi there. I’m Justin Fritz, Wall Street Daily’s Executive Editor. I’m joined today by the Founder of Wall Street Daily, Robert Williams. Robert, you and I regularly review the stocks hitting their all-time highs, and two in particular got your attention this week.
Robert Williams: Yeah, I am, Justin, but let’s talk for a second about companies that are on the all-time high list. I think there’s some reluctance to buy shares on the list just simply because folks might think that the companies have already made their big move, and that they’re late to the party. But I would caution against that way of thinking. If you think about it, these companies sitting at their all-time highs are the market’s foremost momentum stocks. I mean they’re not only beating the market day in and day out, but they’re also crushing their competition.
So, again, I would caution anyone from avoiding these types of companies simply based on the fact that they’re on the all-time high list. Companies on the list trading at $50 could be on their way to $100 a share. And small-cap companies on the all-time high list that are still trading under $10, Justin, could be well on their way to being $50 stocks.
Justin Fritz: Definitely good points. And which two companies are you keying in on this week?
Robert Williams: Well, the first one, Justin, is a company called inContact Inc (NASDAQ:SAAS). inContact is a cloud computing company trading for about $11 and has a market cap of $691 million. So it’s still a really small company. Its products are designed specifically for big call centers. So inContact software allows companies to develop better customer service relationships, which is a booming business right now.
Justin Fritz: Yeah, I mean we can attest to that at Wall Street Daily. We’re constantly working to improve the relationship with readers.
Robert Williams: Exactly. But to understand why inContact stock is soaring, we have to back up a bit. Last year, S&P 500 companies spent 95% of their earnings on share buybacks and dividends. Now, that’s a trend that began all the way back in 1998. If you exclude the recession years of 2001 and 2008, dividends and stock buybacks have accounted for about 85% of corporate earnings. But if you think about it, if you’re raising dividends and buying back your own shares, that has to be at the expense of something else, right?
Well, during that same period, the profits put toward capital spending have fallen by about 40%. So now, we’re left with the oldest plants, and equipment we’ve had in this country is almost 60 years. In fact, the average age of fixed assets is about 22 years old, which is the highest level since 1956, according to data compiled by the commerce department. But this year, we’re beginning to see signs that executives are plowing money back into their businesses through capital investments.
Justin Fritz: Okay. So why would a cloud computing company specializing in customer service software be the beneficiary here?
Robert Williams: Well, that’s a great question, Justin, and it’s because these massive call centers employ tons of big expensive servers, servers that require a lot of investment in human capital just to keep them running, and maintenance costs for these servers can add up, too. But inContact software helps companies manage everything from the cloud. So companies can upgrade their equipment, so to speak, while also circumventing a lot of the costs of those servers in the human capital.
But what I like most about inContact, Justin, is that its growth is organic, and you don’t see that very often. And what I mean by organic is, its sale reps are out there beating the pavement, selling more and more of their product, expanding their customer base. And what’s not happening is management isn’t buying other companies or doing any strategic acquisitions. It’s all organic growth.
And you like to see that as a shareholder of a company – that just beat earnings and revenue estimates by Wall Street analysts by a pretty notable margin. In fact, the revenue of $49 million in the fourth quarter represents growth of about 40% over the same quarter last year. So basically what we have here, Justin, is a company in a really strong financial position, with reasonable debt levels and expanding profits. It’s the perfect example of a company that’s sitting on the all-time high list, but it only trades for $11. This company could be headed notably higher in the coming weeks.
Justin Fritz: Great, and thanks, Robert. You’re really bullish on the next one, right?
Robert Williams: Yeah, I am, Justin. I thought for perspective sake, it’d be neat to highlight another small-cap company in record territory just like inContact, only it got there in a totally different fashion. The company ZIOPHARM Oncology Inc (NASDAQ:ZIOP) – it’s also trading for about $11 a share. It’s a little bit bigger than inContact. It has a market cap of about a billion dollars. But whereas inContact has been a steady performer day in and day out, ZIOPHARM has raised to the top of the board from $3 to $11 since December.
Justin Fritz: Let’s back up for just a second. What exactly does the company do?
Robert Williams: Well, ZIOPHARM is a biotech company developing cancer therapies that rely on an exploding niche of the market known as synthetic biology. Now, in its simplest terms, synthetic biology is the marriage of human biology and genetic engineering. Trust me, Justin; synthetic biology is not an easy term to define. This field is evolving so rapidly that no widely accepted definition even exists yet. But scientists can now reprogram our DNA to repair and regenerate diseased tissues and cells.
Justin Fritz: Yeah, I’m sure many of our readers are hearing the term “synthetic biology” for the first time. Any catalysts on the horizon that are pushing the stock higher?
Robert Williams: Yeah, there is, Justin. ZIOPHARM has been rallying ever since announcing a licensing agreement with the University of Texas MD Anderson Cancer Center. It also has a key partnership agreement with a company called Intrexon Corpn (NYSE:XON). Now, Intrexon stock is also in orbit, having gone from $16 to $41 since October. So these two companies are definitely on the leading edge of something big.
In fact, famed investor Bill Miller says Intrexon could be the stock of the decade. In a recent interview, Miller went as far as to say that Intrexon could become the biggest company in the world, supplanting even Apple.
Robert Williams: Yeah, well, you can see the challenge in valuing a company first, so like inContact, that is a steady grower, and then trying to value ZIOPHARM, which is just blasting higher day to day. Now, I’m very bullish on both. But in ZIOPHARM’s case, it’s almost impossible to do evaluation. So if you’re gonna take on a position, you have to do it in an incredibly disciplined fashion, and by that, I mean strategically buying only during down days.
Justin Fritz: All right. Let’s get back to the companies you’re tracking this week: inContact and ZIOPHARM. On the one hand, you have inContact, which is showing pretty steady signs of growth quarter to quarter. How do you value a company like ZIOPHARM, which is just going ballistic right now and experiencing such a radical growth?
Now, trust me, with stocks that are racing higher, like ZIOPHARM, in such a short period of time, we will see some good-natured profiting taking. So I recommended taking advantage of these micro corrections within the stock when they do occur.
Justin Fritz: Oh, it sounds like a couple of great opportunities for our readers to watch out for. Thanks so much, Robert. For Wall Street Daily, I’m Justin Fritz, signing off.