Looking at 2009 it is easy to see that it was one of those obvious times to buy stocks, which I wanted to encourage in an interview published by the Wall Street Transcripts (pdf) on February 4, 2009. At the time almost every company was cheap. My goal was to instill enough confidence in investors to buy stocks, which they were then scared to do.
I recommended Peabody Energy (NYSE:BTU) at $26.25, the largest coal producer in America. Why? Because most people knew that they would not be shutting off their lights simply because the market declined. I recommended IBM at $93, one of the largest and most important technology companies in the world. Why? Because people knew that without computers and the services that IBM provides, just about every business in the developed world would have to shut down. I recommended Walgreens (WAG) at 27. Why? Because every American knows drug stores will continue to sell drugs no matter what the market does. During a falling market very few investors have the confidence needed to buy. I recommended large, powerful and necessary business to instill this needed confidence.
In my commentary titled, Capitalizing on Year Two of this Bull Market, published by Morningstar® on March 31, 2010, I recommended DirectTV at $33.50 (NASDAQ:DTV), Oracle (NYSE:ORCL) at $35.50 and McDonalds (NYSE:MCD) at $67.00. A few months later I recommended 3M (NYSE:MMM) at $75.00 for Seeking Alpha’s Just One Stock feature. At the time the bull market was entering its second year. Although the market had recovered, it was still slightly below our calculation of fair value. There was still an opportunity to buy, but it was necessary to concentrate on earnings growth. These four fit the bill.
Today, the bull market is entering its third year. The third year of a bull market is one of consolidation, and if history is any guide then 2011 returns will be up or down by a minor amount. In other words, it is not the time to buy “the market,” but to be very selective in what you buy. Two stocks you should consider are Kohl’s Corporation (NYSE:KSS) and TJX Companies (NYSE:TJX).TJX Companies, Inc., [(TJX) - $49.38] owns and operates 2,700 stores under the names of T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, STYLESENSE, and T.K. Maxx. The company is considered the leading off-price retailer of apparel and home fashions in the US and worldwide. Wonderfully managed with a commitment to use the cash generating power of its businesses to reinvest in new store development, to buy back shares of stock and increase the amount of cash dividends paid to its owners. You can buy TJX at 14.2x trailing earnings and just 12.7x forward estimates. Our fair value estimate is $56.25.
Kohl’s Corporation [(KSS) - $53.77] operates a large chain of family-oriented department stores in all states except Hawaii. Selling brand-name and highly profitable private label and exclusive brands the company has built a cash hoard. The company has recently become friendly towards its owners. Without giving up plans to remodel and add new stores, they have instituted a multi-billion dollar share buyback program and began paying a cash dividend. You can buy KSS at 14.6 times trailing earnings and just 12.4x forward estimates. Our fair value estimate is $65.75.Disclosure: I am long KSS, TJX, BTU, IBM, WAG, DTV, ORCL, MMM.
Additional disclosure: I own shares of all companies referenced except McDonalds (MCD) which I have sold. Any opinion and/or information contained in this commentary are derived from sources believed to be reliable, but Kendall J. Anderson, CFA or Anderson Griggs Portfolio Management cannot make representation as to its accuracy or completeness. This commentary does not specifically address individual investment objectives and any conclusions may not be suitable for you. As in all common stock investing you can incur a profit or loss of capital. Past performance should not be taken as an indication or guarantee of future performance.