Four Great Companies to Invest In During Uncertain Times

The intraday bounces that occurred on Friday the 10^th and on Thursday the 16^th have likely gone a long way to forming a double bottom in the stock market.  Should the markets be able to hold the intraday lows on these two respective dates in the coming days, we will likely have established a near and potentially long term bottom in the stock market.  Given the many opportunities that are available right now, investors would be remiss if they did not put some of their capital that is currently sitting on the sidelines into sound large cap value companies.   

I know that we have been through a very rough month on top of an already rough year, but the news stream and the realities of the world appear to be changing.  In particular, something wonderful has begun to happen over the last several days in that it appears as if the financial news flow has shifted from a focus on the credit crunch to the worsening economy. 

This is a relief to me as it shows that we are moving past the crisis stage that was associated with the many near panics that occurred over the last several weeks.  There are far fewer variables to account for in a worsening economy then with a collapse of the credit markets and I would much rather be investing in a poor economy then in one where the investment community is continually guessing which financial institution will fail next.

There are four companies that stand out to me as great investments during an uncertain economic environment.  All of these companies are sound value investments with extremely low P.E. ratios, sound dividends and safe market positions.

The first company I have to recommend is Dow Chemical (DOW).  I have previously given a detailed breakdown of my take on Dow Chemical and that can be found here.  With the significant decline in the price of oil, Dow Chemical, as I suggested in my earlier post, should be doing quite well this quarter. 

While domestic demand destruction is a concern, higher prices, lower raw material costs and positive international growth should continue to drive the company going forward.  With a P.E. of 8 and a dividend yield of nearly 7% it is hard to see this trade not being profitable over the long term. 

The second company I have to recommend is AT&T (T). The company, with its strong cash flow, healthy balance sheet and absolutely dominant market position is a perfect investment in times like these.  With the beating that it has taken over the last several months, the stock is currently trading at its lowest level since 2005, and with a dividend yield of over 6% and a P.E. of only 11 the stock is likely safer then Treasuries.

The third stock that I really like at these levels is CBS (CBS). The company will likely have significant advertising issues going forward but like my previous two recommendations, it is an absolute steal at these levels. With a P.E. in the mid single digits and a dividend yield well above 10%, it’s hard to believe that this company is even a blue chip, but it is.  With solid dividend coverage, ability to leverage up the balance sheet, and the ability to sell off numerous assets to enhance shareholder value it’s hard to see how the stock could go much lower.   

The final stock that I have to recommend is the defensives stalwart Reynolds American (RAI). The stock is not nearly as leveraged up as Altria (MO) giving it increased financial flexibility when it comes to share buybacks, dividends and acquisitions.  With a P.E. of 8 and a dividend yield of 8 percent one is assured of above market returns for the foreseeable future.

By owning these names, investors will be able to own four companies with an average P.E. of 8 and a dividend yield of nearly 8%.  In addition, investors will know that they are investing in companies that make up the backbone of the economy and that provide essential services that will likely not be trimmed by consumers and businesses during a recession, even if it should be severe.  

Disclosure: Long T, DOW & CBS

Comments

[bbowen7:]

This is a good thought process, even if I do not want a greater exposure to equities than my current per centage. The market has changed greatly since I constructed my portfolio, and it would be appropriate to restructure for the next recessionary / political reality. Sell some; buy some. These criteria are good.

2008 Oct 17 11:49 AM

[Jason Tillberg:]

All those are great. But also, sell some ahead of the money covered calls. The premiums are terrific now.

I may buy some DOW on Monday and sell the Jan 09' 25 calls.

2008 Oct 18 11:51 PM

[http://www....:]

don't forget ge too

2008 Oct 19 01:39 AM