You know the feeling. You run a stock market screen and find a really interesting prospective addition to your portfolio. Or perhaps you grabbed coffee with a fellow investing enthusiast whom you trust a great deal, and they shared a new idea of theirs. Maybe you found a particular write-up on one of the great picks in one of the Motley Fool's investment newsletters. Regardless of the source, you are now hooked on an exciting new stock idea and just can't keep it in. We're right there with you. That's why a few of the Motley Fool's contributors felt compelled to share three of the investment ideas they're most enthusiastic about now. Read on to learn what some of the Fool's best and brightest are excited about today, and the reasons why.
Rich Smith
What's the stock that excites me most? That's easy. It's the one I just bought for my own account -- Harley-Davidson (NYSE: HOG).
For as long as I can remember, Harley-Davidson has been the motorcycle stock to beat, controlling roughly half the U.S. market for large motorcycles. Harley is so dominant that, back when things looked bleakest for American industry in 2009, none other than Warren Buffett decided to put his money into the stock.
2016 Model Fat Boy. Image source: Harley-Davidson.
Granted, with sales down in the most recent quarter, and profits slumping by more than 40%, things haven't been going great for Harley lately. All this bad news has pushed Harley stock down 16% over the past 52 weeks. But for a value investor like me, that just makes the stock look more attractive.
Today, Harley-Davidson shares cost less than 12 times forward earnings (the average S&P 500 stock costs more than 18 times forward P/E). Free cash flow is strong, and in fact, with $840 million in FCF generated last year, Harley makes 12% more cash profit than it reports as "net earnings" on its income statement.
At its current valuation of just 11.2 times free cash flow, and with a projected 10% long-term growth rate (per S&P Global Market Intelligence), plus a respectable 2.4% dividend yield, Harley-Davidson is a quality stock selling for a discount price.
"Excited" about this stock? Are you kidding? I'm downright HOG-wild over Harley-Davidson.
Jason Hall
Top-10 homebuilder Meritage Homes' (NYSE: MTH) stock is a great value today. Not only does it sell for a price-to-earnings multiple of below 12, but given the recent decline in its stock price, the market seems to be ignoring the company's focus on growth.
Last year, Meritage sold 6,522 homes, up 11% from 2014. But CEO Steve Hilton says the company will sell 10,000 homes in 2018, an acceleration of growth to about 15% more new homes sold per year.
The company plans to achieve this by both continuing to expand in its key markets and also increasing the number of entry-level homes that it builds. Last year, entry-level houses made up about 20% of its sales, but it plans for that number to grow to about 40% by 2018. There's a lot of evidence that this market is underserved today, so expanding its starter-home business could be a huge benefit to the company.
Lastly -- and this is what has me most excited -- the demographics for Meritage's opportunity are tremendous. One aspect of the recent housing crisis that many people overlook is how raw population numbers impacted the real estate market. Generation X -- of which I'm a part -- is about 25% smaller than the baby boomer generation, so a slowdown in housing should have at least been partly expected, though it was clearly exacerbated by the wildly speculative housing investments made by millions of people, with the easy money that flowed from the financial industry facilitating the disaster.
However, the millennials are growing up. There are more millennials than boomers -- nearly 90 million people between 20 and 39 -- and they are starting to become a driving force in the economy. This demographic will drive the housing market for years to come, and Meritage is one of the homebuilders best positioned to be a winner by catering to it.
Sean O'Reilly
Everyone loves buying an amazing business, run by top-quality management, at a historically low valuation. Such a trifecta is, arguably, nirvana for the value-conscious investor. It is also exactly why I am bouncing off the walls over EOG Resources (NYSE: EOG) these days.
It has been 18 long months since minor trouble in the oil markets became an all-out depression. However, as the old saying goes, the cure for low oil prices is low oil prices. No one can possibly know when a full-on recovery may occur, but we can be content with owning a best-in-breed operator until that inevitable day arrives.
EOG, once part of the evil empire that was Enron (hence the name EOG: Enron Oil & Gas), is not only one of the lowest-cost operators around, but also happens to own some of the highest-quality acreage in the United States. In addition to being the operational envy of its peers and owning prime acreage in West Texas, EOG continued to leave the competition in the dust in 2015.
While most oil majors struggled to replace their reserves due to unprecedented budget cuts in 2015, EOG achieved a 192% reserve replacement rate at the rock-bottom cost of. It exceeded its own oil production forecasts for the year and came in below its reduced expenditures budget. These managerial moves, coupled with the chance to buy into EOG today at well below its highs of 2014, make EOG an exciting stock worthy of consideration by Foolish investors.
