My 2015 Stock Picks and Big Trends

Before we get into the 2015 picks, below are the 2012, 2013, and 2014 picks with their associated review posts.

2012 picks – 2012 review

2013 picks – 2013 review

2014 picks - 2014 review

As always, a small caveat regarding my 10 stocks picks for the year.

Nowhere outside of these yearly posts would I ever pick a single stock under the assumption that you must hold it the entire year, that’s just insane. The only risk management involved in these picks is an understanding of the cyclical phase I believe the broader market is in, and broader secular trends within different industries. If I felt the market as a whole was going to suck in 2014, you would not see high beta names on this list. While I think it’s a flawed exercise to judge the portfolio as a whole at the end of the year given the extremely arbitrary 10 stocks and 1 year holding period, if you really want to do that, the returns should be measured beta adjusted against the S&P 500 as a relative return strategy. While it’s relatively self evident what my strategy is given the picks on this list, just to be clear, I am a momentum trader. I look for high growth names that have the opportunity to return at least 50% each year. This means that while I think FedEx is a strong pick this year, it an’t going up 50%, hence it’s not making the list. Some of the attributes that I look for include: accelerating revenue growth, early stage companies that are about to start growing EPS after just focusing on revenues, strong technical patters and relative strength, new innovative products, large secular trends in their industry, and stocks that are not yet owned by a ton of institutions but have the ability to become cult stocks in the coming year. At the end of the day it’s all just numbers and letters, the only thing that matters to price is whether more people want to own the stock at a higher price now than they did yesterday.

But first! The top trends for 2015.

Oculus is going to launch, for real, in 2015 and all hell is going to break lose. I had a chance to try this thing and OMFG. Some laughed when Zuck bought Facebook for $1B (by all accounts the best $1b acquisition ever made), I was a little confused by the Oculus purchase, but Zuck is obviously living even 5-10 years ahead of some of us who are 5-10 years ahead of main street. Imagine being able to stand on stage during your favorite band's massive stadium concert and look around in full 3D, LIVE! This is a completely new revolutionary experience and it looks like they've gotten it right. Stand by to have your minds blown and when this thing launches it will be everywhere before you can blink, it's that good.

2015 will be the year when everyone gets their personalized DNA readout. It's just gotten that cheap and easy and it was inevitable that it would happen eventually. This is going to be a massive breakthrough for biotech as a whole huge industry springs up around being able to treat you individually based on your DNA. There will be mania, this is a very personal thing (ever seen Gatica?). The actual technology has now caught up to the promise and now the business side starts.

This next one may not seem like much of a prediction given that it's been a developing trend for quite some time, but I believe we're at a major inflection point on the curve. 2015 will be about solar energy. We've recently crossed a major threshold regarding solar tech efficiency and it's going to feel like all of the sudden solar is everywhere. That's what happens on exponential curves like the one we're on with solar, at small values it doesn't seem like much, but there's a point at which it becomes very very noticeable. We're there. You are going to read, hear and see solar everywhere. And there are going to be massive fights with the utility industry, they are already starting.

And now for the 10 stock picks...

Radware (RDWR) - There are two cyber security stocks on the list this year which is a big theme of mine for 2015. Yes, some of these names have run a lot in the past few months, notably PANW. But it's my belief that we're really still at the beginning of this massive trend. I considered just using the cyber security etf HACK as my one pick in this space this year, but thought better of it. I believe there are better names to be owned over the course of 2015 than others. For example, I passed on FireEye because I still believe the valuation is very rich compared to others, even if they have the best tech and the best growth in their space. Longer term that may be your name, right now I'm not too sure. As for RDWR, while I like their technology, what I really like is the rapidly expanding top and bottom line growth which corresponds to a very large recent break of a what has been a 4 year consolidation range in the stock after a massive run from the 09' lows. The stock isn't covered by too many street analysts and hasn't been too popular on Estimize either, but it crushed its estimates last quarter, something I expect will happen throughout 2015. The stock is breaking out big time here, and it's relatively cheap compared to its industry peers. RDWR is certainly a takeout target, as are many of the other names in this space, there's going to be consolidation at some point.

Qualys (QLYS) - This is the second cyber security name, one that's a little higher beta and a little more expensive valuation wise. I still like the growth here at 23% YoY on the top line matched with the $1.27B valuation better than other names like CYBR. Along with the strong growth the stock acts real well showing good accumulation on the chart, specifically the volume pattern. The stock is still under owned by institutions which should change in 2015. But make no mistake, this is certainly still a bet on the overall theme and belief that multiples for these companies will continue to stay relatively high this year, if not expand.

Illumina (ILMN) - This is one of my favorite companies, they make DNA sequencing technology. I believe that 2015 is going to be the year when personalized DNA sequencing really breaks through and we're going to see the ILMN multiple expand as everyone and their mother uses it as the proxy for this whole industry. Not to mention, they basically own the whole industry. More than the 35% YoY (and rising) top line growth, and the fact that it absolutely crushed its bottom line estimates last quarter, I like the fact that ILMN has spent the past 10 months working off a huge run it had in 2013 and the pattern right now is explosive. The multiple has come down and this stock is ready for another huge run.

United Therapeutics (UTHR) - There's definitely a healthcare theme this year with three stocks making the list. UTHR is kind of a catch all biotech company that I really like. The company is growing extremely quickly and shows a great chart pattern. The market cap also makes it an attractive buyout candidate.

Zeltiq Aesthetics (ZLTQ) - This is definitely my speculative pick of the year. ZLTQ is a $1B medical device company that's developed a procedure to basically freeze away fat. It's a real deal company and it's growing like a weed. I can see this becoming a serious cult stock in 2015 and beyond as these devices proliferate. Think Lasik.

LogMeIn (LOGM) - Application software had a huge run in 2014 which made some of these names a little too hot to handle. But I still don't think LOGM is getting enough credit. It's Join.me product is incredible and growing quickly as is the overall company. It continues to beat even the much higher Estimize consensus estimates every quarter with top line growth at 35% YoY and bottom line growth really picking up at 129% YoY. It's hard to believe that LOGM is only a $1.22B company which is part of what makes it so attractive. There is so much room for this one to grow with such a solid base to work off of fundamentally. Also an obvious takeout target by someone like Salesforce.

Open Text Corporation (OTEX) - My other major theme this year is betting on the enterprise. The economy is surging and companies are investing in the cloud, they're investing in growth. Open Text is a cloud content management company, basically they make corporations more efficient. OTEX trades with a $7.2B market cap growing about 40% YoY top and bottom line. I love how the stock has reacted to recent earnings reports being accumulated at even higher prices by institutions post earnings.

Trinet Group (TNET) - My second bet on the enterprise is Trinet, a company coming after ADP in a big way. We are customers of Trinet at Estimize and it's an amazing service. Every small and medium size business should be using Trinet to handle HR, payroll, and healthcare. We don't have a COO at Estimize because we have Trinet, end of story. This was an early 2014 IPO that has performed very well, and at $2.2B market cap I believe it's still real small compared to where it will be soon. Trinet was smart in signing up many of the prominent tech startups from the very successful 09' - 11' vintage which have now grown into massive companies. They are positioned extremely well in this growing space.

Echo Global Logistics (ECHO) - The consumer internet retail is ON FIRE as everything moves to the web. This holiday season really was the tipping point. Logistics companies large and small have gone nuts with multiples getting taken way up, just look at Fed Ex. My bet in 2015 is that the smaller names are going to shine, especially the ones that provide services to all of these online only merchants which need to handle shipping and returns en mass. So many companies are now offering the ability to try on clothes at home, like Bonobos, and return them hassle free. It's an incredible way to shop, and there's software behind it all. I like ECHO in this space and at a $705M market cap it's real small with the chance to get much much larger. The company is growing its top line 37% YoY and that pace is rapidly increasing. They are also starting to push a lot more to the bottom line as well at 32% YoY growth. I can easily see this one getting taken out in 2015 as well.

Under Armour (UA) - For the 4th straight year I'm sticking with Under Armour. At a $14.7B market cap there's still so much room to grow, especially with a top line growth rate above 30% YoY. The company continues to expand its reach geographically and across different product lines. 2015 will not be the year that wearable tech really goes mainstream, that will be 2016 most likely, but watch for the UA multiple to move higher towards the end of the year as the company starts to get loud about what's coming in 2016 on this front. I believe Under Armour is going to lead the way in this space. Your clothing is the natural place for this tech, it's not a watch or a bracelet, it's the stuff you wear every day and Under Armour is the most trusted brand when it comes to quality. Nike is an $83B company, I believe Under Armour will eventually be worth north of $100B.