Milwaukee Journal Sentinel Investment Trends column [Milwaukee Journal Sentinel]

May 12--It's the bittersweet dilemma investors now face: The higher stock prices go, the more difficult it is to find opportunities.

At the same time, central bank interventions around the world to provide economic stability and growth have created artificial underpinnings for a performance-driven market.

Well aware of these conundrums, Zach Newcomer has a list of criteria that aid his search for good investments.

Newcomer, a director and senior research analyst in the Milwaukee office of Ziegler Lotsoff Capital Management LLC, seeks companies with compelling business models, pricing power and the ability to take market share.

LKQ Corp. (LKQ, $24.65), Chicago, sells aftermarket and refurbished auto parts to professional repair shops.

LKQ, which stands for Like, Kind, Quality, is the leading distributor of alternative auto parts and other products, with less than 10% of the $70 billion market, Newcomer said.

"This is an example of a company with a strong competitive position, good pricing power and a differentiated business model that clearly is gaining share with auto insurers," he said.

As the insurance industry has become more competitive, insurers are using aftermarket and refurbished auto parts for repairs related to claims, Newcomer said. The parts are often similar quality at a cheaper price, he said.

LKQ has been gaining market share through internal growth, and it predicts that revenue could rise as much as 8.5% in 2013.

The company has also been making "bolt-on" acquisitions, such as its 2011 purchase of Euro Car Parts, the largest aftermarket parts distributor in the United Kingdom. LKQ is looking to Europe where it believes it can make acquisitions opportunistically because of the soft economy there, Newcomer said.

The biggest risk with owning LKQ shares is the possibility of economic woes and warm winters that could result in fewer car collisions, he said.

LKQ has traded in a 52-week range of $15.72 to $25.05. The stock could trade as high as $30 in the next 12 to 18 months, he said.

Amazon.com Inc. (AMZN, $263.63), Seattle, is the world's biggest online retailer.

Amazon has been breaking even for nearly two years because of heavy investments in its distribution infrastructure. That has scared off some investors, but not Newcomer.

"We started buying Amazon in early 2012, thinking we would continue to see the migration of spending dollars toward online," he said. "We thought that, as long as they could grow revenues faster than the overall market and gain share, we'd be comfortable with the company."

Profitability has fallen off internationally because of slowing growth in Europe and because of Amazon's investments in that segment of the business. But Amazon has begun to show improvements in North American profitability, Newcomer said.

The biggest risks with holding the stock are the possibility of a recession and the challenges involved with operating internationally, Newcomer said.

Amazon shares are trading in a 52-week range of $206.37 to $284.72. The shares could trade as high as $300 in the next 18 to 24 months, he said.

Fastenal Co. (FAST, $50.78), Winona, Minn., sells industrial and construction supplies.

Fastenal has been well-managed and innovative enough to change its business model to grow and gain market share, Newcomer said.

As the United States becomes more energy self-sufficient and has more advantages as a manufacturing nation, Fastenal is one of the companies expected to benefit, he said.

"We think capacity will stop leaving the U.S. and there's been an underinvestment in an aging infrastructure, which Fastenal should be well-positioned to address," Newcomer said.

Fastenal shares are trading in a 52-week range of $37.61 to $53.38. The stock could trade as high as $55 in the next 12 to 18 months, he said.

ABOUT THIS

The Journal Sentinel focuses on one Wisconsin money manager or analyst in this weekly feature, looking at a trend that helps investment pros make their decisions.

___

(c)2013 the Milwaukee Journal Sentinel

Visit the Milwaukee Journal Sentinel at www.jsonline.com

Distributed by MCT Information Services