10 Stocks For Gains In A Highly Volatile Market

Includes: BMY, CHL, DLTR, DUK, LLY, MCD, PM, SO, T, VZ
by: Brian Nichols

The market has gotten hammered today dropping to its lowest range since August 10, after debt debates and the European financial crisis caused mass panic within the markets. Most would agree the market's loss on Thursday is a result of the Fed's Operation Twist and the comments that were made to insinuate a potential recession.

This, along with Moody's downgrade of 3 large banks, caused mass fear and strong selling as the markets dropped by more than 3%. During this time of volatility and uncertainty, investors are questioning their holdings and many others have decided to get out of the markets until the economy begins to recover. However, there are good stocks that investors can buy that could provide substantial gains during this time of uncertainty. Below is a look at 10 stocks that I believe will return large gains, from current prices, over the next year.

The chart below lists 10 stocks that I believe will return large gains along with its trading information. I have included each stock's market cap in billions, P/E, Beta, Yield, and 3-month performance. The price-to-earnings are included so that we know the stock does not trade high on expectations. It's my belief that stocks trading above 30 times earnings present a high risk because they're trading on expectations and optimism. Therefore, each of these stocks trade with a P/E below 30.

Also included is the Beta, which measures a stock's volatility compared to the market. In a volatile market I prefer a beta below 1, however I will own stocks that are slightly above. The reason being is that a beta above 1.0 will typically trade with more volatility than the markets. So in a volatile market I do not believe investors are best suited to own stocks that present such high volatility. In this market I prefer stocks that pay dividend yields because it's a guaranteed return and it also reflects the confidence that executives place in the company by returning capital during uncertain times. Finally, the 3-month stock performance is to gauge how well, or how badly, these stocks have performed during this 3-month downtrend.

Company Ticker Cap P/E Beta Yield 3-Month Performance
McDonald's Corp (NYSE:MCD) $88.5 17.34 0.46 2.84 3.79%
AT&T Inc (NYSE:T) $163.26 8.34 0.67 6.24 (10.78%)
Verizon Communications (NYSE:VZ) $100.09 15.78 0.62 5.66 (1.64%)
Philip Morris International (NYSE:PM) $112.80 14.70 0.84 4.80 (3.65%)
Bristol-Myers Squibb Company (NYSE:BMY) $51.77 15.77 0.62 4.35 9.41%
Eli Lilly & Company (NYSE:LLY) $42.06 8.53 0.76 5.39 (3.58)
China Mobile Ltd. (NYSE:CHL) $193.91 10.16 0.58 4.22 7.96%
Duke Enegy (NYSE:DUK) $25.54 12.61 0.39 5.16 3.64%
The Southern Co (NYSE:SO) $35.78 17.77 0.33 4.53 5.46%
Dollar Tree (NASDAQ:DLTR) $9.03 20.49 0.40 n/a 13.33%

McDonald's has trended higher over the last five years, despite a recession and strong volatility within the markets. The stock has continued to trend higher during the last 3 months as the Dow Jones lost 12%. The company is not heavily affected by a recession because its products are so cheap, and as the economy worsens, some families see McDonald's as an efficient meal with a low price. McDonald's offers several items on its dollar menu, and has expanded into other areas of the globe, incorporating various cultures into its trademark meals.

The company has been among the greatest at innovating with new services that appeal to nearly everyone. Its new McCafe has been a success, contributing to a large portion of the additional $1 billion in revenue during its most recent quarter. This stock trends by itself with no regard to the market and although it may briefly fall, it almost always comes back stronger.

One of the fastest-growing markets of the economy is communications. Technology companies are constantly evolving and creating new service to compete with competitors, while both AT&T and Verizon reap the benefits. Both companies are innovating with new services and features that appeal to both the consumer and business.

The stocks trade in a consistent range with hefty dividends. However, AT&T has posted a large loss during the last 3 months, which is uncommon for a stock that usually trades with such balance. Neither of these companies is going to lose a significant portion of value over the next few years, because communications has become a necessity in our economy, and these two companies are the leaders of the industry with technology and services that are unmatched.

The handset, smart phone, and tablet industry is going to become even more competitive, and both AT&T and Verizon are going to be there collecting profits while creating new services for the future. This, along with a consistent annual increase in dividends, is why I am very bullish of these two companies going forward.

It doesn't matter how bad the economy gets, investors can be assured that people are still going to continue smoking and buying tobacco. The tobacco industry has fought through countless policies, laws, and lawsuits over the last 10 years, and always comes out stronger. At one time cigarettes were sold in restaurants and rest stops like bottled Coca-Cola. Smoking was seen on multiple commercials, every movie -- even schools allowed smoking in the 1970s.

But now tobacco products come with a strict label that basically tells the user that smoking will kill them, there is virtually no advertising, and taxes on the products are always being increased. Yet tobacco companies come out stronger, and I do not believe there is another industry in the world that could perform at the same level if faced with similar regulations.

Therefore a recession means nothing -- tobacco companies will be fine, and Philip Morris is the best, with a 52% gain since January 2009, including three increases in dividend to a yield of 4.76%.The company continues to innovate tobacco, and has been remarkable at beating regulations. The government increases taxes, so PM sells two-pack specials for a dollar off. The state says you can no longer smoke in restaurants, or indoors, then PM creates smokeless tobacco that can be swallowed.

Tobacco continues to survive, and Phillip Morris is the best at reinventing itself to avoid obstacles and keep profits high. Therefore I believe this stock should prove to be among the best over the next several years as our economy deals with adversity, since this company has proven adversity is no challenge.

Bristol-Myers Squibb and Eli Lilly are my favorite drug companies heading into the next 5 years. Both companies are large, but not large enough to where new products and high sales can not make a significant difference in the company's stock. Both pay a solid dividend and have outperformed the market over the last 3 months, with BMY posting substantial gains. Both stocks trade in a tight 52-week range with minimum volatility. Both have a large lineup of products with customers who are dependent on one or more of the companies' drugs. Both companies have large pipelines with drugs in late phases of development. I expect both of these companies to continue growing and developing new drugs that will both help patients and return higher levels of profitability.

China Mobile is the AT&T of China, but larger. The company is a provider of communications in one of the world's fastest-growing economies, and although the growth has slowed, I do not believe it's reached an end. Several of the communication benefits in America, such as 4G, are becoming increasingly popular in China. I believe a company such as this has substantial upside in a large market with much less competition.

Electric Utility companies are usually a safe pick in all markets because of the limited stock movement and consistent dividends. But I believe that Duke Energy and The Southern Company are among the best in an industry loaded with great stocks. The Southern Company has been trending higher for the last 30 years while always increasing its dividend. Duke Energy has gained over 30% since January of 2009 and pays one of the best dividends within the industry.

Both stocks are trading near 52-week highs with a strong possibility to create new highs with strong earnings. Both stocks are consistent, and while Duke pays a higher dividend, Southern operates in 4 Southern states with little chance of experiencing power troubles from snow storms. Yet I believe that both stocks will see moderate gains over the next 6 months, and with a strong dividend, that should provide consistent returns for investors.

Dollar Tree is the only stock on this list that does not pay a dividend, because I believe its fast-growing pace is enough for large returns during an uncertain economy. Dollar Tree provides the consumer with a large selection of household goods, food, and decorative items for the low price of only $1. The company is growing at an incredible rate, opening 159 new stores during the first half of 2011. Despite the high cost of development, the company grew EPS by more than 20% for the 10th consecutive quarter during its most recent earnings report.

What's even more impressive than the company opening a new store every day, and 20% EPS growth, is that it continues to keep total debt at the same levels, which are very low. I believe the company continues to grow -- with success anywhere it opens a new store -- because in this economy the consumer seeks value, and I can't think of any other store that provides more value for the dollar than Dollar Tree.

Disclosure: I am long T, BMY, DUK, DLTR.