Here’s three of the Best Stocks of 2010. The charts below are as-of the end of the calendar year.
To keep things simple and consistent, let’s assume Fair Value on of these companies are worth 40 times earnings. Let’s see if we should buy now…
 Netflix (NFLX) is one I should have bought. Years ago when the company said it was going to stream movies over the Internet I knew that would be big. I think the stock was around $15 at the time. But since the stock didn’t pop (and the company wouldn’t make a profit on this news right away) I didn’t buy NFLX.
NFLX went from $55 to $176 in 2010 — up 220%. The P/E of 46 isn’t bad compared to the profit growth the company is delivering (get it? Netflix delivering?). I don’t know about buying now — the stock’s already made a HUGE run. I think I’ll consider buying if we get a correction. BTW here’s the NFLX ten-year chart which is extended indeed. What I really like about his stock is management never goes back and re-does annual profits. I went through all NFLX’s annual reports today and all the figures match every year. No restating earnings. That’s clean. With a P/E of 46, NFLX is slightly over the 40 Fair Value P/E, NFLX doesn’t have upside unless it increases estimates. |
 Salesforce.com (CRM) went from $74 to $132 last year for a gain of 78%. Salesforce is in cloud computing. The company wants you to know this so bad its website has a cloud theme. I thought it was a sales force company, but what do I know.
You know what I remember about this company? That it warned in 2008 and the stock tanked because the P/E is high. Maybe I’m being to cautious, but I’m leery of stocks with P/E’s around 100 that could warn or maybe miss estimates. I guess I’m not on board with the whole cloud thing yet. But you must read page 6 of this report which shows the growth of CRM’s subscribers. Whew. At 40 times earnings estimates this stock is worth $55 this year and $75 next year. Right now the stock’s pushing a buck-fifty. Whew. Not shown here is CRM’s earnings table. Profits are expected to climb +63%, +3%, +17% and +16%during the next four quarters. This stock’s rolling with a P/E of 96. Double whew. With these estimates, CRM closed 2010 at $132 and the Fair Value is $55. That’s downside of 58% to Fair Value. |
 I’ve never gotten the impression OpenTable (OPEN) could fight off competition. If anything, Yelp should copy the idea and do reservations for free. I mean, to charge restaurants for a reservation service? That should be an open-source program. Still, OPEN was up from $25 to $70 in 2010 — a sizzling 177%.
Profits went gangbusters. What started this run was on February 9, 2010 the company beat the 7 cent quarterly estimate by 7 cents. You can see this stock breakout in the left part of the one-year chart. Take a look at OPEN’s ten-year chart. The stock looks very extended. But on the other hand the earnings table shows profit growth ahead of +50%, +79%, +80% and +22%. That’s outstanding growth, and OPEN’s been beating the street too so maybe I’m being to hard on the stock. A P/E of 40 would give OPEN a price of $44. The stock closed at $70 in 2010. Downside to fair value is 38%. |
