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There are several stocks to choose from when trying to add value to your portfolio, I have found that adding stocks from different sectors offers a good hedge against risk. I have identified four stocks that have either outperformed their peers, or are trading at a heavy discount in comparison to their peers. These four stocks have strong fundamentals and 5-star S&P ratings. Having researched them closely, they now have my endorsement. Each stock is in a different industry and subsector, which as stated previously offers a great hedge against risk and market fluctuations.

I feel this is very important because investing can be very emotional, especially when your portfolio is losing money. If you own stocks in just one industry you are bound to perform like that sector, and will more than likely see violent swings in your portfolio. Throughout history the markets have shown us that when certain stocks go down others still rise (hence there are luxury goods for good economic times and “recession” products that perform well in market drops). My four “5-star” picks for a good diversified portfolio are as follows:

1.) PNC Financial Services Group Inc (NYSE:PNC) operates as a diversified financial services company. The company offers retail banking, corporate and institutional banking, asset management, and residential mortgage banking services. Current stock price is $49.01 with a 1 year price target of $64.2 (an amazing 31% upside potential). More good news is the fact that PNC pays 2.70% dividend yield compared to its direct competitors; Wells Fargo (NYSE:WFC)'s 1.8% and Bank of America (NYSE:BAC)'s 0.6% yield. I feel this stock is heavily undervalued, and belongs at its 52-week high of $65.19. PNC has a diversified revenue base with a significant amount of fee income, which could help PNC perform better than its peers during a flatter yield curve environment as it has already been. PNC has solid asset quality, and healthy loan growth is expected to continue. With a pattern of increasing sales in conjunction with a rising EPS (currently at 6.8), it is no wonder this stock is rated a "strong buy" or "buy" by 25/33 analysts, and holds a 4-star S&P rating. ROE has been 12.1% for the trailing 4 quarters, with no signs of slowdown. Based on forward PEG, PNC is currently trading at a 39% discount to its bank peers, and on average the company has traded at a 49% discount over the past five years. Overall, I feel this is a great stock to own at the current discounted price with huge upside potential.

2.) Walt Disney Co. (NYSE:DIS) together with its subsidiaries operates as an entertainment company worldwide. The current stock price is $33.39 with a 1 year price target of $41.42, which signals a 24.05% upside potential, not to mention a current dividend yield of 1.16%. DIS is significantly stronger fundamentally than the broadcast and entertainment subsector, which is part of the reason I am so bullish about DIS. I also like its strong management team, which has shown the ability to identify and develop new entertainment franchises and effectively distribute those franchises across multiple platforms in domestic and international markets.

The acquisition of Marvel is another reason why DIS is a smart buy. This acquisition helps Disney re-accelerate growth in the long term, and further diversifies Disney’s licensing revenue, housed in the Consumer Products segment. DIS has a forward PEG at the lower end of its 5-year range of 0.7 - 3 (currently at 0.8). Also DIS has a trailing P/E of 13.2x, which represents a 19% discount in price to its 5-year average of 16.2x, not to mention DIS, over the past 90-days has been less volatile than the overall market. S&P has a 5-star rating on this stock, and I would agree this is a strong buy.

3.) Dell Inc. (NASDAQ:DELL) provides integrated technology solutions in the information technology (IT) industry worldwide. Current price is $15.97 with a 1 year price target of $17.56, which shows 9.96% upside potential. Over the past 4 quarters DELL had 4 positive surprise earnings, with an average “surprise” of 29.6%. Current EPS is 1.87 with a P/E of 8.53x (near its 5-year low). Based on trailing P/E, Dell is currently trading at a 59% discount to its computer hardware subsector, and DELL's forward PEG of 1.2 represents a 7% discount to its 5-year average of 1.3. Dell is currently trading 10.9% above its 50-day moving average of $14.75, 7.5% above its 200-day moving average of $15.22, and is not showing any signs of a slowdown. S&P has a 5-star S&P rating, and I agree this is a staple in any portfolio.

4.) FedEx Corporation (NYSE:FDX) provides transportation, e-commerce, and business services in the United States and internationally. Current share price is $73.97 with a 1 year price target of $97.04, which shows a 31.19% upside potential. On 09/22/11, the company announced quarterly earnings of 1.46 per share, relatively in-line with the consensus 1.45. FDX's current quarter consensus estimate has decreased over the past 90 days from 1.64 to 1.50, a loss of -8.4%, and the consensus estimate for the Delivery Services Subsector has moved down 6%. Despite lower estimates, FDX’s gross profit margin has been higher than its subsector average for each of the past five years, and of the 8 firms within the Delivery Services Subsector, FEDEX is among the 5 companies that pay a dividend (currently at 0.7%). Another factor that makes FDX a good buy at the current price is the forward PEG, which is currently at a 24% discount to its subsector. Also, Based on Trailing P/E, FDX currently trades at a 6% discount to its Delivery Services Subsector peers, which shows a lot of room for growth. The current S&P rating is 5-stars, and I would agree this is a good buy at the current price.


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

Source: 4 Strong Buys For Your Diversified Portfolio