Something happened Monday night that had not happened in 23 years. At one point I thought it never would be Drew Brees. The quarterback for the New Orleans Saints broke Dan Marino’s long standing record for passing yards in a season and still has one game left to play. Not only that, but he stands to break his own record not only for touchdown passes, but also completion percentage. But do you know what is the most remarkable of all of this, he is not even considered the best quarterback in the league, and possibly not even the second best. As great of a season as he’s having, he likely will not even win the league’s MVP award – an honor that is likely to go to Packers quarterback Aaron Rodgers.
I started to wonder how Brees would feel about not being considered the best in a league of 32 quarterbacks while having the spectacular season that he’s having. It sort of reminded me of my stock portfolio as well as several stocks on the market that I don’t own but wish I did. Brees possess all of the qualities of a great equity. He’s a winner by virtue of his Super Bowl victory two years ago.
He produces great returns in his TD passes and win total, has an excellent balance sheet, offers a great dividend and he produces high growth relative to his peers. It sounds like a “Cramer-esque” type of stock and like several utility companies such as Duke Energy (NYSE:DUK), a stock that has gained almost 25% so far this year and one that should have been in every portfolio, he’s under-appreciated. As are several other names that have more than outperformed the S&P 500. Names such as Southern Company (NYSE:SO) as well as PPL Corporation (NYSE:PPL) have surpassed the performances many of the stocks in my portfolio such as Sirius XM (NASDAQ:SIRI), Cisco (NASDAQ:CSCO) and even Oracle (NYSE:ORCL) – and several others that come with more fanfare.
Although you would not be able to tell from his statistics, Drew Brees is not a flashy quarterback and does not come with all of the IPO hype as we saw with Pandora (NYSE:P). He’s humble, he’s all about the team concept and simply goes about his business in a quiet but dominant way. A couple of weeks ago I mentioned several stocks that are likely to rebound in 2012 and suggested that they might be considered “Cinderella stories” – to steal another sports reference. I think another key for a successful 2012 will also be to look for Brees-type stocks that are relatively unknown or have fallen out of favor (for whatever reason) but posses all of the qualities that present value and pay a dividend.
Microsoft is interesting because although I have been extremely critical of the company, I also considered it a Cinderella candidate for 2012. Its major challenge continues to be overcoming the many doubters and skeptics that have grown frustrated of its recent lack of innovation. The reality is, Microsoft is no longer a growth story. I realize that this is not breaking news, but it needs to be appreciated for what it is – and I know this is easier said than done.
The smart phone and tablet market have replaced what the PC market used to be, and as a result, the company has fallen behind Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) on the dominant scale. Making matters worse is the fact that cloud computing has also taken a big chunk out of its enterprise leverage. But in spite of all of that, the company is heavily embedded in thousands of other companies and not easily replaced. Microsoft will most likely never grow again in a way that resembles the mid to late 90s but that does not mean it does not have life. It has been considered the sleeping giant and remains only one good idea away from being awakened.
In a recent article, I talked about how I regretted not having invested in the healthcare sector for any of 2011. In 2012, that is going to change. The reality is healthcare appears to have grown at a faster rate than the economy and seems poised to continue to do so. Furthermore it seems that the more established names within the sector routinely post excellent returns on capital. So it stands to reason that this fits the criteria of a Drew Brees-type industry.
Abbott Labs (NYSE:ABT)
Abbott Labs obtains a great portion of its profits from pharmaceuticals. Nevertheless, this is a company with excellent long-term growth characteristics and compelling drivers for future growth. The company's new stent platform is capturing share from the rest of its peers and I believe many investors under-appreciate the quality and growth potential of Abbott's diagnostics franchise. With a solid long-term record of cash flow growth, a good return on capital, no major patent issues and manageable debt, I believe dividend-seeking investors stand to benefit a great deal from the standpoint of excellent income and tremendous growth.
The company recently announced plans to split into two separate public companies, with one focused on pharmaceuticals and the other on medical products. Abbott plans a tax-free distribution of shares of the pharmaceutical company to existing shareholders by the end of 2012. The businesses that are staying with Abbott are projected to have approximately $22 billion in revenues in 2011. These include medical devices, nutritionals for both children and adults, diagnostic products and generic pharmaceuticals sold outside the United States. The company is targeting double-digit annual earnings growth once the separation is complete and an even more ideal reason that it should be considered going into 2012.
Another name that continues to get overlooked is ever dependable king of retail. It has that same Microsoft syndrome of being slow moving and slow growth over the past 10 years. Outside of a few excursions, the stock has stayed relatively steady between $45 and $55 for most of the past decade. During that same period, though, the shares have returned nearly $7 in dividends, so long-term investors are not exactly empty-handed.
Wal-Mart is not likely to ever excite anyone with its growth again, but the company is caulking up some of its gaps. The company is working to repair relationships with suppliers and pay a bit more attention to what customers would like to see in the stores. At the same time, it is expanding relatively aggressively overseas. With a shockingly consistent record of mid-teen returns on total capital, a large foreign opportunity and a nearly 3% yield, Wal-Mart can be a core holding in conservative portfolios.
Some of the improvements I will strive to make in 2012 include taking less risk and appreciating value for what it is. This will require focusing on some of the less sexier names and paying more attention to companies that (while not flashy) produce excellent returns whether via dividend or outperforming its peers.
Some of the new standards that I plan to apply will include companies having a quality brand with focused managers - stocks that can deliver double-digit growth in earnings and or dividends over a long stretch of time. Conservative investors can nevertheless look to these names as quality cornerstones in an income-oriented portfolio.
Disclosure: I am long SIRI, AAPL, MSFT, ORCL, CSCO.