The continuing global sovereign debt crisis and the weakening U.S. economy are likely to result in a highly volatile and uncertain equity market in 2012. Investors should focus on large capitalization equities with strong global brands and wide economic moats.
Investors should be highly focused on capital preservation in 2012. Due to the significant risk surrounding the global economy, U.S. equity prices are vulnerable to large pullbacks in 2012.
If the U.S. economy faces a sharp decline due to global banking system problems, as many hedge fund managers are warning, these equities will be able to withstand a volatile economy better than the overall market.
Yum! Brands, Inc. (YUM)
Market Capitalization: $26.9 billion
Price to Earnings: 22.9x
Dividend Ratio: 1.9%
Thesis: YUM provides investors access to higher growth markets including China, Indonesia, Malaysia, Vietnam, and India. Management has done a good job returning cash to shareholders through buybacks and dividends.
Molson Coors Brewing (TAP)
Market Capitalization: $7.9 billion
Price to Earnings: 13.4x
Dividend Ratio: 2.9%
Thesis: Due to global consolidation, TAP provides investors a domestic pure play to the stable beer industry. Molson Coors is the second largest brewer in North America.
Kraft Foods Inc. (KFT)
Market Capitalization: $65.8 billion
Price to Earnings: 20.3x
Dividend Ratio: 3.1%
Thesis: KFT is one of the largest packaged food company in North America. Food should offer a stable reprieve to investors in a volatile market.
The Home Depot Inc (HD)
Market Capitalization: $64.9 billion
Price to Earnings: 18.1x
Dividend Ratio: 2.8%
Thesis: Despite a very weak housing market, consumer spending on maintenance and improvement projects has remained.
Market Capitalization: $96.7 billion
Price to Earnings: 9.5x
Dividend Ratio: 3.6%
Thesis: COP has ownership in various transportation assets including pipelines, which offer stable cash flow.
Chevron Corporation (CVX)
Market Capitalization: $219.8 billion
Price to Earnings: 8.2x
Dividend Ratio: 3.0%
Thesis: CVX has ownership of refineries in Asia offers access to higher growth markets.
Eli Lilly and Company (LLY)
Market Capitalization: $48.4 billion
Price to Earnings: 10.0x
Dividend Ratio: 4.7%
Thesis: LLY has a pipeline of drugs that provides strong cash flow and healthy dividends.
Disclosure: I am long COP.