The stock market has had a pretty disappointing year. Several stocks with high leverage and high betas took big plunges for the year including Bank of America (BAC) (59 percent loss), AMR Corporation (AMR) (92 percent loss), and Netflix (NFLX) (57 percent loss). The 2011 market truly exemplified why all investors should have well diversified portfolios regardless of what the investor’s investment motives are. In this article, I list seven high cap stocks, their 2011 dividend adjusted growth, and a description of why each stock is great for portfolio investing. These are stocks that can not only help diversify a portfolio in 2012, but should have very strong performance as well.
Nike, Inc. (NKE) 2011 Growth: 13.5%
With a P/E ratio around 21, Nike looks like an overpriced stock at first. However, it has been an underestimated value buy for quite some time. In the last 5 years, shares have doubled in price and revenue stayed flat around $20 billion during this time. Now Nike is expected to have strong earnings growth over the next 2 years. In its FY 2012 ending in May, Nike is expected to have 13.67 percent earnings per share growth and in FY 2013, EPS is expected to grow by 15.43 percent. Expect Nike shares to continue to be bullish over the next year or two.
Starbucks Corporation (SBUX) 2011 Growth: 36.9%
2011 has been a great year for Starbucks as shares rose 37 percent and its quarterly dividend increased from 13 cents per share to 17 cents. Starbucks also announced plans to enter the juice business. Expect Starbucks to become more aggressive in the home brewing space and take away a lot of Green Mountain’s (GMCR) market share. The company has a lot of upside potential. Earnings per shares are expected to increase by about 20 percent per year for the foreseeable future. Starbucks is a stock with a lot of upside and very little downside and is a good addition to any portfolio.
Lowe’s Companies (LOW) 2011 Growth: -1.6%
A lot of investors have been bullish on home improvement stocks recently as they have a very large reach and appeal to a large range of consumers. Lowe’s increased its dividend in 2011 from 11 cents to 14 cents and investors should expect another dividend increase in 2012. Despite some Lowe’s stores closing recently, I still believe the company is poised for earnings growth. Retailing is a cut-throat industry and Lowe’s will continue to be one of the better investments in retail for years to come.
MasterCard Incorporated (MA) 2011 Growth: 65.7%
I am a big fan of credit card networks because they continue to grow as the go to payment option. As payment options become more high tech and streamlined over the next few years, MasterCard (and also Visa (V)) will be the stocks to reap the benefits. MasterCard shares increased by about 65 percent this year and should continue to be bullish in the future. MasterCard and Visa are good ways to get into the financial industry without being exposed to a lot of risk.
Kimberly-Clark (KMB) 2011 Growth 10.9%
Having a strong household goods stock is essential to any portfolio. Kimberly-Clark has a higher P/E ratio than Procter & Gamble (PG) and Johnson & Johnson (JNJ), but also has a higher dividend yield. The company is also expected to have 8.9 percent earnings growth in 2012, which is better than both P&G (8.6 percent) and J&J (5.4) percent. Don’t expect to gain huge returns, but Kimberly-Clark can enable investors to sleep at night.
Kraft Foods Inc. (KFT) 2011 Growth: 15.6%
Although Kraft is expected to split in 2, buying shares now is a good move. Investors remain very bullish on the stock as share price has increased by over 15 percent so far this year. For a stock with a 0.56 beta, that’s a lot of growth. Its decision to split in two is a very good strategic move and being invested in both sides will be a good idea. I believe that its decision to split in two will allow Kraft to beat earnings consistently next year and grow in adjusted price even more.
FirstEnergy Corp (FE) 2011 Growth: 19.3%
Energy companies are always good to have in a portfolio because of their consistent earnings, low volatilities, and high dividend yields. FirstEnergy shares grew by nearly 20 percent in 2011 and still have a dividend yield of 5 percent. There are plenty of energy companies out there to choose from, but FirstEnergy is a good example of an energy stock that can be very valuable in a portfolio.
A portfolio with equal amounts of these 7 stocks would have gained 22.9 percent so far in 2011, pretty good considering that the S&P 500 LOST 1.7 percent so far this year. This kind of return is similar to what an all-star hedge fund manager would achieve. More amazingly, this was done with low volatility stocks. Unfortunately, we can’t profit on the past and knowing how these stocks will perform in the future is what’s most important. I’m not certain these stocks will return 22.9 percent again in 2012, but I think they will continue to outperform the market. The main point I want readers to take away from this article is that investors can make sound, low risk investment decisions and earn high returns as long as they look at the value of what they are buying and stay patient.