The long-term investor, writes Matthew Coffina in Morningstar, has little interest in 'Hot Stock Tips for 2008', which characteristically recommend those companies that will somehow weather the difficult 12 months ahead. Such short-sightedness is "borderline backward-looking" according to Coffina. So, instead, he recommends taking advantage of the current market conditions to snap up five stocks with solid long-term value:
1. McGraw-Hill Companies (MHP):
Standard & Poor's shares a toll-collecting duopoly in credit rating with Moody's and has significant international growth prospects, as public debt markets begin to displace bank loans as a primary funding source. We also like McGraw-Hill's textbook publishing business, which benefits from economies of scale and limited competition in the elementary- and high-school markets.
2. Cemex (NYSE:CX) has expanded internationally, and, as is traditional among cement manufacturers, often enjoys a local monopoly status, according to Coffina. When all is said and done, building requires cement, and when the U.S. economy is back on track, Morningstar expects Cemex to capture that growth.
3. Amgen (NASDAQ:AMGN), a global biotech company, saw its stock suffer in 2007:
Safety concerns over the company's best-selling anemia drugs led to strict Medicare reimbursement restrictions and plummeting sales. We think the company's wide moat is intact and will persist through the next decade. Amgen has best-in-class research, sales, and manufacturing capabilities, which give it a significant advantage when in-licensing new drugs from smaller competitors or developing treatments in house.
Furthermore, Amgen has plans to fill the anemia drug gap, and, as Coffina predicts, will surely benefit from the aging population of the U.S., Europe and Japan.
4. Western Union (NYSE:WU) has had recent troubles, from falling employment in the construction sector and competition from new technologies, reports Coffina. However, despite the setbacks, the company has continued to grow, particularly in China and India.
We think Western Union's vast agent network, economies of scale, and recognized brand will keep competition at bay, while its customers' reliance on cash implies that technological obsolescence still lies far in the future. With only a 17% share of a growing market for remittances, Western Union's growth prospects over the next 10 years are robust.
5. Asset manager Legg Mason's (NYSE:LM) stock was driven down by the market's disappointment with the performance of the company's equity mutual and money-market funds. Morningstar though remains confident for the company in the long term:
We think this wide-moat asset manager will survive these setbacks relatively unscathed and prosper over the coming decade. With sticky assets, fat operating margins, scale advantages, and market returns providing a natural impetus to high, sustainable revenue growth, asset management is one of our favorite businesses.