I have written numerous articles on retirement and retirement strategies as well as putting together a core portfolio that both myself, and our readers designed. (Review here.) We have also written about adding to our core portfolio when there are significant dips in the share prices as well as a basic options strategy for enhanced returns. (Review some here.)
This article will focus on 2 stocks that I feel every portfolio should have today, and be held for the long term (18-36 months). They are significantly undervalued in my opinion. Both are enormous corporations that have been stellar achievers in the past, both have faced strong headwinds, and both will continue to face challenges.
General Electric (GE)
Price: $16.61/share, Dividend Yield: 4.0%, ESS Rating: Bullish
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1) GE has just announced an increase in its dividend of 2 cents per share (16.5%).
2) GE will continue its share “buy back” plan into 2012.
3) They have beaten earnings estimates in 3 of the last 4 quarters and have increased forward guidance for earnings per share into 2012.
4) They have a 20 BILLION dollar cash flow to be used for a variety of ways to enhance shareholder value.
5) The company is in better cash position than it has been for a very long time.
6) As the major conglomerate in the world for all intents and purposes, GE is poised to have significant top and bottom line growth as the global economy emerges from its issues; such as the eurozone realization that it must save itself (they have also taken steps to give themselves time to do just that).
7) A renewed promise by top management to increase shareholder value.
1) GE has been the company that investors love to hate as perception became reality in its PPS.
2) The belief that Jeff Immelt has not been an effective leader.
3) The under-performance of various units which has affected GE as a whole. They have simply not fired on all cylinders yet.
4) The general consensus is that GE leans to the left politically which seems to have turned many investors away from owning its shares.
5) Finally, its ongoing failure to reward shareholders with its more than lackluster performance.
Let’s face it, GE is not the darling of Wall Street that it might have been at one time, and even when they do the right things it somehow does not show up in its share price or dividend yield. Unlike an AT&T (T) which now gives a 6% dividend yield to wait for the capital appreciation, GE has had a 3.6% yield, until just the other day.
I believe that those negative days and negative perceptions will change in 2012 mainly for the reasons I mentioned, but also because as the global economy crawls out of its mess, GE happens to be extraordinarily well positioned in so many aspects of all of the world's basic requirements that at some point, it will be reflected in significant capital appreciation, from MY vantage point anyway.
Price: $20.86/share, Dividend Yield: 4.2%, ESS Rating: Bullish
1) PFE just raised its dividend by 10% (2 cents per share) back up to 4.2%, which is more than many of its main competitors.
2) It has allotted an additional 10 billion dollars of share buybacks which further enhance shareholder value.
3) Its cash position is obviously secure just by making the 2 moves mentioned above.
4) Management's commitment to enhance shareholder value with capital appreciation and increased dividends even further.
5) PFE's quiet move into the biotech sphere which is not quite obvious as of now, but being that a cut back in R&D spending of about 2 billion dollars has been slated for 2012, it makes one think of the redeployment of those funds.
6) With 18 buy recommendations and 5 holds, no sells, no under-performs, it appears that many analysts favor PFE.
1) The Lipitor patent has expired and has yet to be replaced with another blockbuster drug.
2) Cutbacks in R&D for 2012 (Yes, the same cutback I also see as a potential positive) if nothing is done with the cost savings.
3) A lower profile pipeline of new drugs right now (this could change at any time in my opinion).
4) A PPS under performance that has lingered during the Lipitor expected expiration for this entire year.
5) Reluctance of institutions and mutual funds to increase PFE holdings during the past year.
Pfizer has certainly struggled to replace an almost impossible blockbuster drug in Lipitor, and it appears that they have finally accepted the inevitable. It simply will not happen that soon.
The steps that management has taken to increase shareholder value with dividend increases, and share buy backs, are obvious efforts to gain shareholder confidence and increase investors appetite to purchase its shares.
In my opinion, this strategy will begin to pay off in 2012. PFE is also reducing costs, and potentially redeploying the savings into other areas such as biotech. Its ongoing pipeline of drugs might not be of the Lipitor blockbuster caliber, but of the steady stream of solid revenue producers; I believe this stock is a buy right now.
I have stated before that I already own both GE and PFE and believe in them for my own core portfolio holdings. I also believe that given the sentiments I have outlined, both of these stocks can offer very positive returns, for both income investors as well as for anticipated capital appreciation portfolios.
I have already gone out on a limb by naming AT&T as my stock pick of the year for 2012 (Review here) so what are another two stock picks for folks to throw tomatoes at me if I am wrong?