With 2010 more than half way done and the economic outlook uncertain to say the least, investors are now looking ahead to what the best stocks in 2011 could be. They need to ensure that they still have growth in their portfolios to deal with inflation and higher taxes, while also picking stocks that protect their portfolio from any domestic or international financial shocks.
With that in mind, we’ve put together a list of blue chip stocks with good growth potential, yet defensive enough to weather an economic downturn via a high dividend and diversified business model. Here’s what makes them appealing and worth considering for your portfolio:
Wal-Mart (WMT) Wal-Mart is cheap and everywhere. The stock is trading at 11 times forward earnings which is much lower than others in the space like Costco (COST) at 17x earnings. Off of its $56 high in April, this 2% dividend yielding stock is an excellent choice for any portfolio.
AT&T (T) iPhone sales are up 61% with more than 8.4 million units sold and AT&T holds the contracts for all of those. Unless you believe that Verizon is going to win over Apple (AAPL) for a piece of the iPhone pie in the near future, the Apple piece of AT&T’s business is a great fundamental story for the company going forward to 2011. While it is approaching its 52 week high, the growth story is still sound as more users switch to smart phones and what is even more important is the dividend. At 6.3%, if the stock doesn’t move up at all or even slightly backwards, most investors would be happy with a 6.3% annual gain in the current market.
Bristol-Myers Squibb (BMY) A lot is being said about the Obama administration’s health care reform initiatives but one thing will always remain true: The world needs medicine and for that reason, quality companies providing medical treatments for debilitating illnesses should be a mainstay in any portfolio. BMY has a stellar and very stable balance sheet. Trading high volatility for a 5% dividend is something most investors are happy to do, making this stock a long term holding for most investors.
Home Depot (HD) Housing is in a slump but it isn’t going to stay that way. In some areas of the country the recovery is already on and with mortgage interest rates below 5% and home prices rising. it’s only a matter of time before companies like Home Depot are going to see dramatic increases in foot traffic and purchase of their highly profitable big ticket items. This is a solidly run company with an exceptional balance sheet. What is even better is that they’ll pay you a 3% dividend while you wait for the housing recovery.
Boeing (BA) Investors and airplanes don’t generally mix well but Boeing is looking to soar. Commercial aerospace sales are showing a steady increase and with the 787 Dreamliner slated for delivery in early 2011, the growth levers for Boeing are big. With a 2.5% dividend yield and a new 747 in the product pipeline, this industrial stock is a definite buy in 2011.
Abbott Labs (ABT) You may have never heard of Abbott Labs but if you have prescription medication for migraine headaches or have ever drunk the popular Ensure, you have benefited from Abbott Labs. Their latest quarter showed double digit growth, better than any of its peers and the 3.5% dividend yield makes this stock a buy.
McDonald's (MCD) When we think of fast food, we think of McDonald's. The new product initiative of beverage, smoothies and frappes should lift sales worldwide, along with strong expense management. The fast food space seems to get more crowded by the day but MCD is clearly the flagship and the 3% dividend yield makes this stock even more compelling for 2011, especially if the economic downturn continues.
Intel (INTC) The semiconductor industry has seen a big run up this year and many investors are wondering how much further it can go. Intel continues to improve its gross margins and their product pipeline for 2011 is robust. At 11 times forward earnings and a 3% dividend, this tech stock is perfect for the investor who doesn’t want the high volatility and uncertainty of most tech stocks.
United Parcel Service (UPS) Dow theory teaches us that the transportation sector showing growth is a good sign that the economy is growing. After all companies only deliver when consumers and business demand products. UPS is the dominant parcel delivery force in the U.S. and has implemented a growth plan for territories outside the U.S. that has begun to take hold. Although off their 52 week high, UPS’ quarterly reports are getting increasingly stronger and the 3% dividend makes this a quality name and a growth story for next year.
Procter & Gamble (PG) Procter & Gamble is the poster child of defensive stocks. Health and beauty sales aren’t largely affected by economic cycles so for those who are looking to protect their assets while collecting a healthy 3% dividend, PG is the perfect stock for their portfolio.
While large cap, dividend paying stocks aren’t as exciting to watch as some of the mid cap tech names, they are safe and are highly appropriate for a portfolio based on growth. A good rule of thumb is, boring makes money over the long term. Feel free to suggest any other stock ideas that you may have for 2011.
Disclosure: Long BA