Top five stock picks for 2011

One of the keys to successful investing is beating the herd to the next hot stock. These five stocks and sectors could be those diamonds in the rough in 2011.

One of the keys to successful investing is beating the herd to the next hot stock. Here are my top five stock picks for 2011. They might not be in the limelight yet, but they very well could be by the end of the year:

1) Tech IPOs. In my unofficial tech IPO calendar for 2011, I detail 23 major tech companies that could have large, high-profile IPOs this year. Only one of those companies (Demand Media, Inc., NYSE:DMD) has gone public so far, and it shot up 33 percent in its first day of trading. The best are yet to come, from coupon-of-the-day company Groupon, which turned down a $6 billion offer from Google, to LinkedIn, a social networking company for professionals with more than 90 million members. Keep an eye on tech IPOs throughout the year as the market seems ready to take on more risk in a sector that’s growing rapidly; particularly in China.

2) Cloud-computing. As more businesses move their web sites and applications from dedicated web servers onto distributed server platforms, several companies are poised to soak up that new revenue stream. Amazon.com, Inc. (Public, NASDAQ:AMZN) has been at the forefront of the cloud computing industry although the company’s not all that transparent on how much revenue cloud computing actually generates for them. Estimates range from $500 million in 2010 to $1 billion. UBS analysts Brian Pitz and Brian Fitzgerald predict cloud computing could pull in some $2.5 billion a year for Amazon by 2014. Two other players you might consider in the space: Cisco Systems, Inc. (Public, NASDAQ:CSCO) and dedicated web hosting company Rackspace Hosting, Inc. (NYSE:RAX). Shares in Rackspace are up more than 86 percent over the past six months.

3) Blue chip stocks. Thanks to exchange rates and a falling dollar, even investors abroad are moving into large-cap American stocks. “Australian investors have a once-in-a-generation opportunity to get as much money as they can into overseas assets, ideally blue-chip global industrial companies,” Mike Hawkins, head of private clients at Evans and Partners, tells The Australian. “When you’re talking about those high-quality global blue-chip names, the likes of Nestle and Procter and Gamble (NYSE:PG) and Kraft (NYSE:KFT) and Unilever (NYSE:UL), you’re talking about companies that are well tapped into the growth in income and demand coming from emerging markets. We see this as a bigger story than China and India’s demand for Australia’s raw materials: the growth of the emerging-market consumer is a far more powerful and enduring theme than simply the supply of raw materials to China.” As a middle class begins to develop in emerging markets, consumers will have more disposable income for food and hygiene products. American blue chips have been positioning themselves in those markets for decades, and it could finally start paying off as the falling dollar will make their goods more affordable on Chinese shelves.

4) Platinum and palladium stocks. In the precious metals community, the focus throughout 2010 was almost exclusively on gold and silver. Gold posted gains for the year of 30 percent and silver rose 80 percent. Platinum and palladium did just as well with palladium shooting up 100 percent in 2010 and platinum rising 20 percent. The gains in platinum and palladium largely came on the heels of increasing demand from China and India where the metals are used as autocatalysts to limit pollution from cars and other vehicles. Car sales surged 32 percent in China and 31 percent in India last year. GM’s President of International Operations Tim Lee expects that growth rate to slow to 10 to 15 percent in 2011 as commodity prices rise. Still, Lee points out that the sheer size of the market in China still equates to a lot of demand. “Even 10 to 15 percent growth on such a huge base makes China a vast market,” he tells AFP. For all the talk of hybrid and electric vehicles, they still only account for 3 percent of the auto market worldwide, meaning they’ll hardly dent the growing appetite for platinum and palladium. Stricter emission standards in the U.S. should also compensate for the decreased demand for platinum and palladium as more of the metals will be used to limit emissions. ETFs offer the easiest (and safest) way to get a finger in the palladium pot. Try ETFS Physical Palladium Shares (NYSE:PALL). PALL’s up 66 percent in the past six months.

5) Wealth management in emerging economies. My fifth and final pick comes from my personal portfolio: Noah Holdings Limited (NYSE:NOAH). A wealth management company, Noah serves high net worth individuals in China. After the company’s IPO in November, shares briefly spiked 30 percent and they’ve since flat-lined around the IPO price. Heavy resistance at $16 per share indicates that the downside risk is limited, and some analysts are calling for earnings growth of 35 percent in 2011 and a target price of $22 per share. The company’s numbers are off the charts with year-over-year growth in net revenue at 210 percent. It makes sense that as the ranks of China’s wealthy swell, so too will the profits at the companies that serve them. Noah Holdings should be perfectly positioned to rake in growing profits from a brand new market.

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