One of the investment options our firm offers to our clients is an equity overlay. The individual-stock strategy adds alpha to portfolios, and gives investors exposure to some of the names with good long-term growth potential.
In the interest of generating some ideas for this portfolio, I ran my scan for the best performers from the ranks of big-cap stocks. One name that popped up for the first time in months was Salesforce.com (CRM).
The maker of customer relationship management software has a market cap just shy of $24 billion. It moves an average of about 1.8 million shares per day. Despite being a large stock with good liquidity, Salesforce.com is still prone to some volatile trade, as evidenced by its beta of 1.41.
During Wednesday's market rally, the stock rallied to an all-time high of $173.96. As with many stocks these days, it's extended from a reasonable buy point, so a pullback may offer the next opportunity.
This name falls solidly under the definition of "growth stock." Salesforce pays no dividend, but has offered good price appreciation. Despite struggling during the spring and summer of 2012, it finished the year with a gain of 66%, to $168.10. Analysts are projecting earnings of $1.52 per share this year, up 9%. In 2014, that's expected to rise another 32%, to $2 per share.
Valeant Pharmaceuticals (VRX) is another large-cap stock with good prospects. This stock fell off my radar this year when it plunged 12.5% in May after reporting a first-quarter loss as part of its dermatology unit selloff. Nonetheless, Valeant finished 2012 with a 28% gain to $59.77. The company makes treatments for nervous system disorders and other ailments.
Like numerous other stocks, Valeant ran up to a new high on Wednesday. In Thursday's session, it surged to $61.60, a penny short of Wednesday's intraday peak. This, too, is showing a bit of froth at the moment, so it's not the optimal time for new buyers. Watch for a pullback to its 50-day or even 200-day line.
The company's earnings picture is bright. It's expected to report its fourth quarter results next month, delivering earnings per share (EPS) of $4.54. That would be a 55% year-over-year increase. This year, it's expected to earn $5.66 per share, a gain of 25%.
The third stock that showed up on my top large-cap screen was ARM Holdings (ARMH). The U.K.-based company is on the cutting edge of the "wearable computing" trend -- that is, chips incorporated into clothing and other gear. It specializes in power-efficient chips. It's a supplier to Apple (AAPL) as well as Samsung.
The chip sector is notoriously cyclical, and you don't have to look far to find pundits who are both bullish and bearish on the stock. I'm indifferent, and have no horse in the race. However, the company's current fundamental and technical indicators show some promise.
The stock gapped up to a new high Wednesday, $39.07. It's far extended from both its 50-day and 200-day lines, and is most definitely out of buy range. However, the fundamental potential makes the stock worth watching. Analysts expect the company to post 2012 earnings of $0.70 per share, a 21% year-over-year gain. It's expected to report fourth-quarter and yearly results early next month. For this year, analysts have pegged earnings growth at 26%, to $0.88 per share.