Wednesday, December 22, 2010

* Best Stocks for 2011

It is a great time of year! The Christmas music, decorations, family gatherings, holiday plays and stock picks. Stock picks? Yes, 'tis the season for stock predictions! Virtually every financial writer will pen an article selecting his or her top picks for the upcoming year. I enjoy reading them and the logic behind the picks. As a long-term buy and hold investor, generally most aren't useful for me; nevertheless, I find them entertaining and sometimes there is a gem to be found. Here are some picks for 2011...

Jon Birger at Fortune notes that there's still a real buying opportunity in growth stocks, with this years selections slanted toward commodities. Here are the 10 picks for 2010:
Mosaic (MOS) potash production capacity has grown 10% since 2006 and is expected to increase another 60% between now and 2020. And as it rises, the company's stock seems likely to follow. Currently yielding: 0.3%

Agrium (AGU) earnings are on pace to jump 60% in 2010, and analysts are expecting another 44% bump next year. Currently yielding: 0.1%

Analysts expect Dow's (DOW) 2011 earnings to be up 32% -- on the heels of a 212% earnings improvement this year. (2009 was a disaster.) Best of all, Dow's stock isn't priced to reflect the growth company it has become. Currently yielding: 1.8%

Transocean (RIG) is well indemnified against blowout-related liability. Oil prices have risen 17% since May as global demand has rebounded to 2007 levels and production isn't keeping up with demand. Currently yielding: 0.0%

Royal Dutch Shell (RDS-B) is a safe place to get a dividend yield. But it has a really good set of strategic initiatives going for it too. Currently yielding: 5.1%

Lennar (LEN) has a history of making lemonade from real estate lemons. During the S&L crisis in the early 1990s, it made a small fortune buying distressed properties at 30¢ or 40¢ on the dollar and then reselling them for 50¢ or 60¢. Currently yielding: 0.9%

East West Bancorp (EWBC) is now believed to be the largest Chinese-American-focused bank in the country. Americans boast a savings rate 19% higher than the national average. Currently yielding: 0.2%

Royal Caribbean (RCL) is trading at a modest 13 times 2011 earnings, but deserves a P/E closer to 17, which was Royal Caribbean's average valuation from 1997 to 2007. Currently yielding: 0.0%

Entropic (ENTR) is priced more like a value stock: At $9 a share, it trades at 11.7 times projected 2011 earnings. Currently yielding: 0.0%

Apple (AAPL) is definitely not overpriced. Especially not for a company so well positioned in such fast-growing markets. Currently yielding: 0.0%
In selecting their best stocks for 2011, CBS Money Watch focused on value stocks and asked Tom Forester, manager of the Forester Value Fund, to come up with the “top five value stocks for 2011.” His list of companies are mostly household names whose neglect or avoidance by investors leaves them trading at bargain valuations. The list includes:
Microsoft (MSFT) has grown cheap over the years in line with the ebbing of the software maker’s reputation as an innovator. Currently yielding: 2.3%

Hewlett-Packard (HPQ) reputation has been tarnished by the antics of some of the bosses making their way through the executive suite’s revolving door. The result is a PE ratio of about 7.5 times next year’s earnings as investors continue to shun the stock. Currently yielding: 0.8%

Chevron (CVX) is the cheapest of the oil super-majors and is more sensitive than its rivals to the price of oil because more of its business is related to production rather than activities like refining. Currently yielding: 3.3%

CVS Caremark (CVS) trading at roughly 11 times next year’s earnings, investors seem to be ignoring CVS’s valuable pharmacy benefit management business. Currently yielding: 1.0%

Best Buy (BBY) should benefit from strong holiday sales of gadgetry like iPads, Kinect Xboxes, phones and big-screen TVs; and should continue to get a boost from the demise of Circuit City. Currently yielding: 1.7%
Greg Sushinsky in an article on Investopedia selected a sampler of some potent large-cap stocks which pay attractive dividends. Here are his selections and reasons for choosing them:
Verizon Communications (VZ) is expected to offer iPhones next year. Estimates are that it may land as many as 10 million activations when Verizon Wireless begins selling the iPhone. This will be a healthy addition to Verizon's revenue stream. Currently yielding: 5.6%

Merck (MRK). underlying business has healthy margins and cash flow generation. Even if you scale back the revenue and earnings projections the stock looks cheap. Currently yielding: 4.2%

Conoco Phillips (COP) and other integrated oil company stocks tailed off after the BP (BP) oil spill in the Gulf of Mexico. Currently it sells for less than nine times earnings. Currently yielding: 3.4%

Unilever Plc (UL) has a wide mix of businesses, and the stock got a recent enthusiastic analyst upgrade. The stock is a bit pricey now, but it is projected to continue its earnings rebound. Currently yielding: 3.8%

Coca Cola (KO) continues to grow its earnings despite economic headwinds. The underlying growth and value of the company makes its dividend as solid and stable as any. Currently yielding: 2.8%
As a long-term, buy-and-hold income investor, many of the stocks in the above lists don't meet my criteria for a buy. Dividend investors are looking for stocks that will perform well over the long run, not just 2011. As such, I prefer to start with this list of stocks.

Full Disclosure: Long CVX, KO. See a list of all my income holdings here.

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- 9 High-Yield Managed Distribution Policy Funds

(Photo Daniela Baack)

Tags: [AAPL] [AGU] [BBY] [COP] [CVS] [CVX] [DOW] [ENTR] [EWBC] [HPQ] [KO] [LEN] [MOS] [MRK] [MSFT] [RCL] [RDS.B] [RIG] [UL] [VZ]