Three Former Picks Are Still Tasty

 | May 31, 2013 | 11:00 AM EDT
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In this piece, we'll again update some of our picks from the start of the year.

We are pleased that all of our recommendations are trading higher now than they were then. In some cases, the 2013 stock gains have been overdue, and primarily reflect the market catching up to the business. In other cases, the climbs have been triggered by more recent company-level progress.

Our conviction on all of these picks remains strong -- yet, in some instances, this year's climbs have underperformed the overall market. For the three stocks below, which we recommended back in November and December, we believe the majority of their ultimate gains are yet to come. Accordingly, we believe each warrants continued inclusion in a portfolio -- or should otherwise garner serious consideration for investment.

First, Archer Daniels Midland (ADM) shares, recommended in November, have seen a solid move from $26.27 to the current price of around $33.40. The worst drought in 50 years led to volume and margin shortfalls in the company's core grain processing, transportation and ethanol units -- and the fundamentals at ADM have yet to improve. But, as the company cycles through the effects of the drought over the next couple of quarters, revenue and profitability should rebound to normal levels.

In fact, there is a high likelihood that ADM's earnings can jump more than 30% in the coming year. That should warrant further stock gains.

Corning (GLW) -- original recommendation here -- has also enjoyed a nice climb, rising from $12.47 to a current price of $15.68. The company reported a better-than-expected quarter and outlook based on continued margin stability in display, as well as rapidly rising volume in Gorilla Glass.

In addition, the company pleasantly surprised investors by hedging a falling yen for the next two years, at a nominal cost to shareholders, in order to reduce earnings volatility. Corning management also moved to a new "core earnings" metric to take into account the yen exposure and its Hemlock subsidiary, moves that were likewise well-received by shareholders and analysts. Lastly, the company board announced a new $2 billion buyback authorization, as well as a dividend hike.

It is increasingly likely that Corning will continue meeting or modestly exceeding expectations in 2013, and we see it as a company making solid business progress that shoudl boost the share price.

Finally, Tidewater (TDW) stock has also performed well since we first recommended it, rising from $44.17 to a current price of $56.11. The company reported better results for the March quarter, with both revenue and earnings coming in significantly above analysts' estimates. Management affirmed that full-year 2013 numbers are on track, as well, thanks to continued pick-up in offshore utilization activity and day rates. While deepwater rates have been solid and improving for well over a year, in the past few months shallow water rates have started to rise in a meaningful way. We -- and management -- think the company is in the very early innings of a multiyear trend.

In that environment, earnings are projected to grow at a double-digit pace for the next several years. Valuation is still attractive at 13x 2014 earnings estimates, and at 8.5x expectations for 2015. Tidewater should continue to report improving results -- which should, in turn, translate to an improving share price.

Bottom line: While all of the above names have had nice to impressive share climbs so far this year, we are comfortable adding to them all. We expect that, by the end of the year, all of these stocks will have reaped some more gains.

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