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7 Equities for the Next Decade

2012 will likely be a very tumultuous year for investors as the world digests the sovereign debt crisis and a slowing global economy. While the near-term will likely be volatile the long-term thesis for equities remains intact. With interest rates in the developed world at record lows and central bankers focused on fueling inflation I am hesitant about holding long duration bonds despite their strong performance throughout the crisis.

While the economic environment is poor, equities are relatively cheap. The S&P500 (NYSEARCA:SPY) is trading at a modest 13.0x price to earnings ratio. The equities below have been able to increase cash flow, earnings, and dividends over the last decade. I expect the management team’s to be able to increase dividends over the next decade due to the wide moats of their business models.

Screen Criteria

  • Price to Earnings less than 18.0x – focused on relatively inexpensive equities.
  • Dividend Yields greater than 10 Year Treasury - focused on equities that will provide cash income greater than the 10 year Treasury. While the equity price (principle value) might fluctuate due to market condition, holders can count on the cash flow from dividends.
  • Low Debt to EBITDA ratios – focused on equities with modest debt relative to cash flow. EBITDA (earnings before interest, taxes, depreciation and amortization) is a proxy for cash flow. Banks and finance
  • Market Capitalization greater than $5 billion – focused on large capitalization equities which generally have better access to capital markets and have more durable business models.

Medtronic Inc. (NYSE:MDT)

Price to Earnings: 11.9x

Dividend Yield: 2.6%

Debt to EBITDA: 1.8x

Market Capitalization: $39.9 billion

Bristol-Myers Squibb (NYSE:BMY)

Price to Earnings: 18.0x

Dividend Yield: 3.9%

Debt to EBITDA: 0.7x

Market Capitalization: $59.5 billion

Johnson & Johnson (NYSE:JNJ)

Price to Earnings: 16.1x

Dividend Yield: 3.5%

Debt to EBITDA: 0.9x

Market Capitalization: $180.1 billion

Molson Coors Brewing Company (NYSE:TAP)

Price to Earnings: 13.5x

Dividend Yield: 2.9%

Debt to EBITDA: 3.5x

Market Capitalization: $8.1 billion

Waste Management, Inc. (NYSE:WM)

Price to Earnings: 15.9x

Dividend Yield: 4.3%

Debt to EBITDA: 2.9x

Market Capitalization: $15.0 billion

The Coca-Cola Company (NYSE:KO)

Price to Earnings: 12.9x

Dividend Yield: 2.7%

Debt to EBITDA: 2.4x

Market Capitalization: $158.9 billion

Pfizer, Inc. (NYSE:PFE)

Price to Earnings: 15.1x

Dividend Yield: 3.7%

Debt to EBITDA: 1.5x

Market Capitalization: $167.9 billion



Source: 7 Equities For The Next Decade