What to Buy and Why: Barron's 2009 Roundtable, Part II

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Includes: AIG, AMAT, BAC, BEN, DAL, DUK, EWH, EWS, GDX, HES, HIG, ITT, JPM, MET, PHK, PRU, SVU, TIP, TRV, WMB, WYE, XLE
by: SA Eli Hoffmann

Barron's chronicles round two of its three-part 2009 Roundtable. Last week's installment was largely an overview, followed by the 2009 stock picks of Meryl Witmer and Fred Hickey. This week, Bill Gross, Archie MacAllaster, Felix Zulauf and Abby Cohen weigh in.

Bill Gross

  • Not Treasurys - because of their low yields, and the eventual threat of inflation, government bonds are a trap. Chances of a 1930s-esque deflation? 10%. If you must buy government bonds, Gross likes Germany's. (Most other Roundtablers agree that Treasurys are not the place to be.)
  • AIG (NYSE:AIG) - follow the government, which stands behind AIG with the close to $200B it has sunken into it. AIG's preferreds, which yield 12.5%, are "the most incredible example of value I have ever seen in the bond market." He also likes bank preferreds.
  • iShares Lehman TIPS Bond Fund (NYSEARCA:TIP) - cash-strapped funds have been spitting these out billions of dollars at a time. They now yield 2.5% in an economy that's growing nowhere close to that, and the potential for inflation 5-10 years out is high. They could gain 10-20% in price over the next six months if markets become convinced deflation has been averted.
  • Pimco High Income Fund (NYSE:PHK) - it's about as good a deal as any in the bond market today.

Archie MacAllaster

  • Franklin Resources (NYSE:BEN) - moving away from share buybacks, BEN is starting to use its money to snap up mutual fund assets on the cheap. "In two years it will be making more money than ever before."
  • SuperValu (NYSE:SVU) - third-largest grocery chain in U.S.
  • Williams Companies (NYSE:WMB): - has hedged a lot of its gas production, so its average selling price will be more than $7 per thousand cubic feet. Gas sells now for $5.50.
  • Hartford Financial (NYSE:HIG) - it's high-to-low range is an incredible $85.11 to $4.16. HIG should make $5-6/share in 2009. It's very flexible.
  • Delta Air Lines (NYSE:DAL) - fresh out of bankruptcy court with a relatively clean balance sheet and about $35B of revenue.
  • MetLife (NYSE:MET) - any time you can buy MetLife under book value, you should.
  • Prudential Financial (NYSE:PRU) - 2008 earnings are estimated to be $3.50/share; in '09 it could earn as much as $7.

Felix Zulauf

  • Medium-term government paper blended with five-year investment-grade corporate bonds issued by companies in defensive industries, such as telecom, food and oil - it will take markets a long time to adjust to the new reality; deleveraging will continue. The "Obama hope" will peter out some time in Q1. S&P could easily fall into the 400-600 range over 2010-'11. Like Gross, he also likes German government bonds.
  • Gold - we are seeing government stimulation of historic proportions, which will ultimately be inflationary. Gold is the only currency that won't get devalued. It will be revalued. Should double in two years. (If the Fed's liabilities had to be covered in gold, it would sell for more than $6,000/ounce.) He also likes Market Vectors Gold Miners ETF (NYSEARCA:GDX).
  • Short the Hungarian forint against the euro - Hungary has the largest percentage of public and private credit - 57%.
  • Crude oil or Energy Select Sector SPDR ETF (NYSEARCA:XLE) - trade beaten-down commodities.
  • Asia equities - stocks are cheap, offer good good dividend yields and are a good way to have a foot in these markets. He likes iShares MSCI Hong Kong (NYSEARCA:EWH) and iShares MSCI Singapore (NYSEARCA:EWS).

Abby Cohen

  • Corporate bonds - senior debt of Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM) and Travellers (NYSE:TRV). Not just the coupon (5-6%) but the potential of price appreciation.
  • Bank of America (BAC) - she picked this before the events of last week.
  • Duke Energy (NYSE:DUK) - a 6% yield and long-term earnings growth of about 5%. The new administration could be a boost for DUK, which has been proactive about energy efficiency.
  • Wyeth (WYE) - less exposure to patent expirations, and it has a significant biotech initiative. Could be a buyout target.
  • ITT Industries (NYSE:ITT) - she likes its defense business, and says its water business looks like a long-term winner in the Obama era.
  • Applied Materials (NASDAQ:AMAT) - chip orders should trough in the first half of 2009. AMAT has a $4.85B backlog and $4.2B in cash. (Other Roundtablers have a hard time with this pick.)
  • Hess (NYSE:HES) - if you see some light at the end of the tunnel in terms of economic activity and energy prices move up, Hess could do well.