5 Portfolio Anchors For A See-Saw Market

by: Investment Underground

From technology to consumer goods, we present the 6 top picks that present excellent bargains in a volatile economy. Leading their respective industries, these stocks are the best available in the market today with an excellent pricing opportunity, making them ideal for a growth portfolio

United Technologies (NYSE:UTX) is an all-seasons blue chip as it provides internal diversification through its operations in aerospace, technology, industrial and safety equipment. Not only that, it has exposure to multiple market segments including home, commercial and institutional sales, with some of the best known brands in the world, including Otis, Pratt & Whitney and Carrier in its bag. Last traded around $70, it is near the lower band of 52 week range of $64.57 and $91.83, the stock is at a great place to buy, offering a P/E ratio of only 13.5 on an industry average of 20.4.

Latest quarter earnings not only beat earnings estimates, but also pushed up forward looking guidance, with an 8% increase in sales and 10% in earnings for the quarter. Comparisons to General Electric (NYSE:GE) maintain their impetus around UTX as a stock, and not without reason; it has its legs in major growth markets around the world and its brands have a reputation that precedes them.

Costco (NASDAQ:COST) is a major price-club format wholesaler with a presence in the U.S. as well as Mexico, the UK, Japan and several other countries, where it operates warehouse format stores akin to the Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD). The bulk of its sales are from sundries and food in the most recent quarter. In tight economic conditions as are facing the U.S. currently (U.S. and Canada accounting for nearly 90% of revenues), CostCo is in an excellent strategic position by offering economically priced goods.

The stock is currently at $72, somewhere between the 52 week range of $54.05 and $83.95, with a P/E of around 22 times, at par with the industry, as is its dividend yield. However, the payout ratio is over 26% and with a modest debt, has an interest coverage of a whopping 60 times, compared to its industry average of about 10x. Last quarter results have beaten analyst estimates, and despite a fall in margins on account of high gasoline prices, the fundamentals are just where they need to be.

Praxair Inc. (NYSE:PX) is in an excellent spot to buy as prices fell drastically after quarter two results were announced, in spite of a 7% increase in EPS compared to the previous quarter and a 16% growth on a year-over-year basis. Praxair is a manufacturer of gases, used in everything from healthcare, semiconductors, food and steel-making. In addition to gases, the company manufactures equipment to process gases onsite and metallic and ceramic coatings for prevention of wear and corrosion of equipment. The stock is trading at $97, well below the 50 and 200 days moving averages, thereby presenting a solid buy opportunity.

The stock is more expensive than competitors such as Air Products & Chemicals Inc. (NYSE:APD), which offer a P/E of 15 times compared to 22 times for Praxair, but the latter is in a better position competitively. Praxair just doubled its capacity with the launch of the Hurth plant in Germany and its market position in major Asian and South American markets should place it well ahead of the competition.

General Mills (NYSE:GIS) is the household name in consumer food products, with a presence in nearly every major market in the world. The company owns some of the most popular brands in the world including Pillsbury, Haagen-Dazs, Reese’s and Betty Crocker. The stock is very attractively valued at just 13 times P/E, near the lowest in the last 5 years, compared to an industry average of 33 times and a dividend yield of 3.4, nearly twice the industry average. The interest coverage of seven times puts it in a relatively comfortable debt position.

Steadily rising revenues and margins, including in 2009 when the world was collapsing, speaks highly of the company’s intrinsic value and ability to generate cash. EPS grew for fiscal 2010 at nearly 20%. Although forward P/E is slightly below trailing P/E, the stock is a good buy and trades in a tight range with the 52 week band separated by less than $7, making it an excellent fundamental and long term buy.

One of the biggest outsourcing firms out there, Cognizant Technologies (NASDAQ:CTSH), is on a path to a potential breakout. After a recent $500M expansion plan in India, the company has delivered a solid second quarter with top line revenues gaining nearly 8% (34% year-over-year) and earnings taking a slight humbling on account of higher selling costs. The one key metric that one should look for is the headcount addition; the company reports an additional 7,100 employees in the last quarter.

For a small company with a market capitalization of about $19 billion, the company may be a major target for a takeover or buyout by a bigger technology firm such as Oracle (NASDAQ:ORCL), although a local outsourcing merger is not unimaginable. Last trade at $62.99, the stock is well off its year-to-date high of around $82, with the P/E at 23.7 times, compared to an industry average of 30 times. the stock is a high growth stock and does not currently pay dividend.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.