Stock Watch

Each month, we highlight two stocks selected as good bets by a premier analyst. The selections are based on several factors including growth potential, valuation, sector trends, competition, and dividends.

This month's guest analyst is Jim Oberweis, editor of The Oberweis Report, a top-rated investment newsletter. He's also president of Lisle, IL-based Oberweis Asset Management, a full-service brokerage firm with its own line of mutual funds.

Focus Media Holding

Although Focus Media's shares began trading in the US only last July, they've appreciated over 200 percent since then. In the final quarter of last year, revenues leaped 109 percent from the corresponding period a year earlier. Oberweis is confident that the stock will rise even higher as the Chinese become bigger consumers and the need for advertising increases. "The company has already begun an aggressive expansion into second- and third-tier cities in China, and has been targeting additional areas for television advertisements, including grocery stores and other retail venues," he says.

There are risks inherent with tiny, small-cap companies like Focus Media, however, particularly when dealing with foreign companies. In this case, for example, the Chinese government could decide to restrict advertising displays. "Competition is also a concern in any industry offering such attractive returns," acknowledges Oberweis. "However, Focus Media's substantial market share and entrenched customer relationships should provide a safeguard to some degree." In addition, it recently announced an agreement to purchase its major competitor, Target Media, which should further solidify its market dominance.

Joy Global

"Expectations are for continued impressive growth," Oberweis says, "with analysts looking for revenues to reach nearly $2.4 billion this fiscal year, which would work out to nearly 25 percent growth over the previous fiscal year, with bottom line earnings expected to surge 50 percent." Management, he notes, announced a $300 million stock repurchase, which is a positive sign and should help bolster the stock price. Also positive is the fact that the company's board of directors is compensated in one-third cash and two-thirds company stock. That helps to align their interests with those of investors.

Joy Global's recent earnings success is in good measure a reflection of the record-high prices of commodities such as oil and gas, yet Oberweis doesn't see this as a temporary state of affairs. "Natural disasters notwithstanding, many analysts are beginning to believe higher oil and natural gas prices are here to stay, which is all the more reason that coal is becoming the fuel of choice for powering electric plants, since it's a cheaper alternative." He adds that a recent federal energy bill providing incentives for cleaner coal production will only help to further demand.

Whether there's an eventual dip in commodity prices or a drop in demand for mining equipment, there are factors in place to help cushion against a downturn: Not only does Joy Global enjoy a broad international market base, about 70 percent of sales come from providing replacement parts and servicing the equipment it produces.