Wells Fargo (WFC): If you are going to step into the banking industry, you may as well do it in the safest way possible. While Bank of America (BAC), Citigroup (C) and other big banks' share prices are constantly being pummeled due to terrible headlines, liquidity risks, and so forth, this Warren Buffett holding has managed to stay well clear of murky waters. Arguably the scariest thing facing the big banks right now is liquidity risk. Several of the TBTF (too-big-to-fail) banks have unlimited risk when it comes to possible lawsuits, and they may or may not have the capital required to keep things running smoothly. Wells Fargo, on the other hand, does not face this risk. They currently maintain a credit rating of AA-. At a trailing P/E of 9.8, they are trading at a slight premium to their competitors like JP Morgan (JPM), who has a trailing P/E of about 8. Their industry premium is more than deserved, however, and negative headlines and performance for other banks have infected investor confidence for Wells Fargo's shares. The industry as a whole will continue to be cleaned up, and investors can earn 2% in dividend yields while the outlook improves. Additionally, this dividend may see a return back to the $1.34 paid out before the financial sector nearly collapsed. At current levels, even a $1 dividend would mean a 3.9% yield. However, yields like that won't be seen until the Federal Reserve and the U.S. Government can say with certainty that banks as a whole are stable.
ConocoPhillips (COP): Many investors will take a look at the measly projected growth for ConcoPhillips and deduce that the seemingly low P/E ratio of 8.14 (based on 2011 consensus estimates) is justified. It wasn't before, and now it's especially not justified after the company announced plans to spin-off their refining arm during the first half of 2012. The remaining parent company will still be ConocoPhillips, and investors will enjoy faster growth from lucrative exploration and production projects. While analysts have been skeptical of COP's ability to compete against "ultra-growth" companies like CHK and APA, ConocoPhillips will be the world's largest E&P pure play, with unparalleled resources and expertise. The driving goal behind the move is to increase distributions to shareholders. Currently, shareholders enjoy a very solid 4% yield. Capital appreciation appears very likely as well, given the cheap metrics and corporate plans.
Dow Chemical (DOW): On a valuation basis, Dow is extremely compelling. Based on 2011 consensus earnings estimates, Dow is trading at a shockingly low 9.89 P/E ratio. Additionally, the current 3.7% yield is very generous. The dividend had been stuck at about $.60 per share since Dow made the choice to halt dividend increases until most of the debt taken on as a result of their strategic Rohm & Haas acquisition. Dow popped their dividend last quarter to an annualized yield of $1. Dow paid out $1.68 per share before the Great Recession. At current levels, that would equate to a mouth-watering 6% yield. Further deleveraging and an uptick in free cash flows will help Dow's yield get back to even more generous levels. Dow has an exceptionally wide footprint on the global economy, as they have ties to cars, planes, farms, solar systems, energy companies, and so forth. Despite slow GDP growth in mature economies, Dow has achieved stellar year over year growth in the U.S., and has stated that they believe the U.S. market to be a major source of growth. They also receive a large portion of their revenues from emerging markets.