12 Ready-to-Rally Stocks - Barron's

Barron's handpicks twelve high-quality stocks that could soon start to rally. All the stocks have relatively low P/E ratios, decent growth outlooks and strong financial positions. Each could rise 20% in the next year, and most have dividends of 2% or more. Here's the list:

1) Abbott Laboratories (ABT): The pharmaceutical firm has a diversified business mix, and unlike many other drug companies, it's still a growth stock. Sales of its top drug, Humira, could rise 20% this year and 15% or more in 2010. The stock could hit $55 within a year, up from a recent $44.36.

2) AT&T (T): AT&T has much to gain from its exclusive relationship with Apple's (AAPL) iPhone. There are signs that wire-line losses may be moderating while wireless revenue continues to grow. AT&T's P/E ratio based on its cash earnings, excluding goodwill impact, is just 10 and the stock yields 6.4%. The stock could reach $32 vs. a recent $25.45.

3) Berkshire Hathaway (BRK.A): The company is leaving the recession in good shape and some smart investments, including in Goldman Sachs (GS) and General Electric (GE), are producing nice yields. Berkshire should also get a boost from a housing recovery since many of its wholly owned businesses are linked to the housing market. Shares could reach $125,000 in a year vs. a recent $101,400.

4) Comcast (CMCSA): The firm is seeing moderate revenue growth despite competition. Capital spending is down, free cash flow is up and Comcast is starting to buy back stock. Shares could reach $20 in a year vs. a recent $14.81.

5) Exxon Mobil (XOM): Exxon is the industry leader and has high returns, a strong balance sheet, good management and stable earnings. The stock doesn't look cheap but the premium on Exxon shares has fallen and a forward P/E of 10 isn't bad for such a top-notch company.

6) Microsoft (MSFT): Microsoft continues to dominate the desktop, despite increased competition from Google (GOOG). The company has plenty of free cash flow and lots of room to trim costs. The stock could break $30 in the next year, up from a recent $23.70.

7) Nestle (NSRGY.PK): The food company has high sales and one of the best growth outlooks in the sector. Its U.S. shares could reach $48 from a recent $39.41.

8) Novartis (NVS): The company has a strong pipeline of new drugs that will help compensate for some key patent expiries in 2011 and 2012. Shares have a dividend yield of 3.8% and a low P/E of around 12 times this year's estimated earnings.

9) PepsiCo (PEP): The firm closed a recent $8B deal to buy out public shareholders of two of its bottlers, and the outlook is good for snack foods, which generate over 50% of the company's profits. Shares could rise to $71 from a recent $56.56. Rival Coca-Cola (KO) looks attractive too.

10) Procter & Gamble (PG): The company has struggled a bit in the recession but still has an impressive brand portfolio and good overseas growth prospects. P&G can probably provide high single-digit EPS growth in the long term. The stock carries a 3.2% dividend.

11) Safeway (SWY): The grocer has been hurt by cost-conscious consumers and a deflation in dairy products and fresh produce. But at just 11 times this year's estimated earnings and trading at little more than book value, the stock looks attractive. Bulls think shares could hit $25 in the next year vs. a recent $18.78.

12) Wal-Mart (WMT): Wal-Mart is the country's biggest and best-run large retailer. Management has grown more shareholder-friendly and the company has freed up money for a large share-buyback program. The company is an above-average retailer but trades at a discount to many of its peers. Shares could reach $62 in the next year vs. a recent $51.79.

Comments

[Nyetnichevo:]

right...they have a vested interest. You buy em and the pros short them, then they crash the market. You sell then the pros buy. The market goes up. Barrons is the king of duplicity. Stocks have made a great run, a correction is overdue and certainly coming. Then the smart folks buy.

Aug 16 11:41 AM

[BxCapricorn:]

What's the hold time here? If you think I'm going to buy and hold through the September "correction", you're dreaming.

Aug 16 03:07 PM

[TCK:]

Another signal the top is near.

Aug 16 10:19 PM

[herby325:]

I'm establishing synthetic long stock positions (ideally at zero cost) on some of the stocks mentioned with cheap OTM puts as hedge, just in case ... I think the direction is right ...

Aug 16 10:25 PM

[TonyNed:]

So you're proposing more defensive names. There are some scary charts on your list. You're definitely not a market timer. I could go through your whole list but basically everything can be bought cheaper than it's current levels.

Aug 16 10:57 PM

[dubrunner:]

These are all going to lose substantial value in the near term. Traders are advised to build positions after the market crashes down Q3 or Q4. Stockpickers create bagholders LOL.

Aug 16 11:17 PM

[Paul Harper:]

By the looks of things, we are going to see a short term correction this week, I agree with you that end of Q3 will see declines in all the major indices & out of the stocks here, the only one that I would even think about before next year is Safeway.


On Aug 16 11:17 PM dubrunner wrote:

> These are all going to lose substantial value in the near term. Traders
> are advised to build positions after the market crashes down Q3 or
> Q4. Stockpickers create bagholders LOL.

Aug 17 03:13 AM

[lesamis:]

Outlook on gold mines and gold?

KGC CLD?

Selling resources have reduced ....hoarding on the move...but into mining? Who is best?

Aug 17 05:50 AM

[TonyNed:]

SWY has a nice chart which should be set up perfectly after this sell off. As soon as it bottoms out on the RSI, I think it's clear to get long with minimal downside risk.


On Aug 17 03:13 AM Paul Harper wrote:

> By the looks of things, we are going to see a short term correction
> this week, I agree with you that end of Q3 will see declines in all
> the major indices & out of the stocks here, the only one that
> I would even think about before next year is Safeway.

Aug 17 11:40 AM

[Value Added:]

I will "hold and buy", not "buy and hold". In other words, I will keep this list on file and revisit after the massive market correction I expect in 4Q09 and 1Q10. Thank you for the market research, however, I will watch these companies.

Aug 17 12:44 PM

[Wide Moat I...:]

How convenient that every target price is about 20% higher than the present. Sounds like 2007 again.

Aug 18 01:57 AM

[User 458154:]

i agree with them on abbott labs and safeway.

Aug 18 06:58 AM

[BigOlDave:]

What a disappointing line-up! As I read down the list, I kept gagging until ...oops: there was Wal-Mart (which I own). Went back to the beginning and the retch reflex started all over again.

Now I'm wondering about the wisdom of holding Wal-Mart (WMT). Let's see:

* stoXline's 12-mo target is $71.28 (that's 38%);
* S&P rates it 5/5 stars with ($62.00, yep = 20%) target;
* sales up 6.8% y-o-y;
* unfavorable forex impact likely to reverse if USD weakens;
* 2.3% dividend yield;
* $8 billion cash on books;
* retired $2.8 billion in stock in 7/31/09 qtr;
* cash flow positive $722 million in 7/31/09 qtr; and
* P/E lower than S&P, sector, and industry.

Well, I think my rationale for Wal-Mart is intact. Maybe I'll check out some of the others. Can't get excited about researching anything else on the list except Microsoft (MSFT). To free up funds to buy Microsoft, I don't think I'd sell any of my Wal-Mart.

Dave

Aug 18 12:05 PM