TIAA-CREF's 7 Favorite Stock Picks

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Includes: AAPL, GOOG, IBM, JPM, MSFT, PFE, XOM
by: Efsinvestment

TIAA-CREF is one of the leading financial services company. The company also provides retirement benefits. Their investment strategy is “…rooted in fundamental, time-tested principles, focusing on disciplined, long-term investment strategies that carefully balance risk with the potential for high returns.”

TIAA-CREF, which initially started as a pension administrator, serves thousands of clients. It is company policy to have a "wise diversification, careful research, a long-term perspective and close attention to costs".

TIAA-CREF’s equity fund has a diversified portfolio, 19.8% of which is invested in technology stocks, followed by services [17.84%], and financial holdings [15.11%]. Here is a brief analysis of TIAA-CREF’s top seven stock picks:

Apple (AAPL): Apple is the favorite stock of large institutions. Funds own 70% of Apple shares. Apple has been a market-outperformer since 2004. With a $314.88 billion market cap, Apple’s P/E ratio is 16.23, while the forward P/E ratio falls to 11.95. Earnings increased by 66.91% this year, and 92.04% this quarter.

Wedbush and Oppenheimer suggested an outperform rating for AAPL, while UBS, ISI Group, Argus, Ticonderoga, Canaccord Genuity, Deutsche Bank, Stifel Nicolaus, and Kaufman Bros recommend buying. The average target price is $448. With a 22.36% profit margin, the company has a 0.79 PEG value. The ROA ratio is 25.73%, while ROE is 38.78%. The P/FCF is 13.62. The debt-to assets ratio is "0" for the last five quarters. Well, what else can be said about Apple? It is worth considering it for a growth oriented portfolio. CREF holds about 8.860.000 shares of AAPL, worth $3 billion.

Exxon Mobil (XOM): The Texas-based oil company has the largest market capitalization in the world. Owning a market cap of $398.37 billion, XOM has a 11.49 trailing P/E ratio, and a 8.99 forward P/E ratio. Earnings increased by 56.41% this year, and 61.06% this quarter. The P/S ratio is 0.98, while the long term debt-to equity ratio is 0.08. With a 2.32% dividend yield, Exxon’s net profit margin was 8.78%.

Oppenheimer suggests an outperform for Exxon, while Argus recommend buying. The debt-to assets ratio is around 5%. Yields are increasing every twelve months, and the company hasn’t had a major downfall since Sep. 2010. Exxon shut some of its oil pipelines near Louisiana due to the flood threat, which may cause some struggles for the company for a short period. Holding shares until all these issues shake out seems to be the best option for now. The recent dividend history per share is as follows:

May 11, 2011

$0.47

Feb 8, 2011

$0.44

Nov 9, 2010

$0.44

Aug 11, 2010

$0.44

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Microsoft (MSFT): Microsoft, founded in 1975, is the largest software provider in the world. Microsoft’s market capitalization is $211.07 billion, and the trailing P/E ratio is 9.93, while the forward P/E is 9.04. Paying a 2.56% dividend, Microsoft’s net profit margin is 31.76%. PEG value is 0.92, while earnings increased by 29.76% this year.

Oppenheimer suggested an outperform rating for Microsoft. The ROA is 23.61%, while ROE is 43.96%. The company’s debt-to assets ratio has been unstable for the last four quarters as there have been ups and downs. Analysts give a 2 recommendation for the company (1=Buy, 5=Sell). The average target price is $32.79, implying a 25% upside potential in the intermediate term. The recent dividend history is as follows:

Feb 15, 2011

$0.16

Nov 16, 2010

$0.16

Aug 17, 2010

$0.13

May 18, 2010

$0.13

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JPMorgan (JPM): The New York-based banking giant largely avoided the sub-prime mortgage crises. RBC and Oppenheimer suggest an outperform for JPM, while UBS, Deutsche Bank, Collins Stewart, Citigroup, and Ladenburg Thalmann recommend buying. With a market capital of $171.46 billion, JPM has a 9.59 trailing P/E ratio, and 7.62 forward P/E ratio. Earnings increased by 76.81% this year, while the P/B ratio is 0.95. With a 2.32% yield, JPM had a 19.55% net profit margin in 2010.

The company cut its dividends from 38¢ to 5¢ since Jan. 2009. However, the last payment shows a revival of dividends. JPM is a safe banking stock for those seeking to invest in the financial industry. JPM shares in CREF’s portfolio increased by 23% in the last quarter. The recent dividend history is as follows:

Apr 4, 2011

$0.25

Jan 4, 2011

$0.05

Oct 4, 2010

$0.05

Jul 1, 2010

$0.05

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Google (GOOG): World-renowned Google enjoyed a strong EPS growth of 39.28% during the last five years. Earnings increased by 28.89% this year. With a market cap of $170.65 billion, the California-based company has a trailing ratio of 20.57, and a forward P/E ratio of 13.4.

RBC, Oppenheimer, and Wedbush suggested an outperform for Google, while Deutsche Bank and Caris & Company recommend buying. Google enjoyed 26.82% net profit margin last year, while the operating margin was 32.74%. The ROA is 16.24%, and current ratio is 4.64. The company does not have a dividend policy yet. Analysts have an average target price of $708, implying 40% upside potential in intermediate-term. While I do not expect such a move from Google, I think Google will beat the market.

IBM: New York-based IBM offers information technology services and products worldwide. IBM owns a $205.81 market capitalization, while the P/E ratio is 14.26, and the forward P/E is 11.65. The company enjoyed 18.59% EPS growth over the last five years, while the ROE ratio is 67.53%. With a 14.85% profit margin, IBM offered a yield of 1.77% in 2010.

Stifel Nicolaus, Davenport, Deutsche Bank, and Canaccord Adams recommend buying IBM shares. The company has a good dividend record. Although debts have been increasing over the last five quarters, IBM is a safe long-term stick buddy. The recent dividend history is as follows:

May 6, 2011

$0.75

Feb 8, 2011

$0.65

Nov 8, 2010

$0.65

Aug 6, 2010

$0.65

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Pfizer (PFE): The only healthcare company in CREF’s top 7 list offers prescription medicines for humans all over the world. Owning a market capital of $165.29 billion, the biopharmaceutical giant has a P/E ratio of 19.92, and a forward P/E ratio of 9.22. Owning the highest dividend yield of this list [3.82%], Pfizer enjoyed 12.56% net profit margin last year. The P/FCF ratio is 11.20, and gross margin is 76.81%. Pfizer shares have been steadily increasing since December.

On the other hand, earnings decreased by -16.34% this year. Analysts expect a poor EPS growth of 2.84% in the next five years. I think Pfizer is a solid dividend stock, which could be added in an income oriented portfolio after a reasonable retreat. In the last quarter, CREF increased its Pfizer shares by 26%, and currently owns $1.48 billion worth of shares in the company. The recent dividend payment history is as follows:

May 11, 2011

$0.20

Feb 2, 2011

$0.20

Nov 4, 2010

$0.18

Aug 4, 2010

$0.18

Click to enlarge

Disclosure: I am long MSFT.