3 Must-Buy Dow Stocks For 2013

Includes: BAC, DIS, MCD
by: Larry Meyers

Last January 3, I pickeDupont (DD), General Electric (NYSE:GE), and Walt Disney (NYSE:DIS) three must-buy Dow stocks for 2012. Disney was the best performer, beginning at $38.31 and closing at $49.15 on 12/29. Add in the $0.75 dividend, and you would have had a 30% return. It was the 3rd best performer in the Dow in 2012. GE came in second, starting at $18.36 and closing at $20.44 on 12/29. With the $0.70 in dividend payments, you would have had a 15% return. Dupont started at $46.51, ending at $44.71 as of 12/29. If you add back the $1.72 in dividend payments, you were essentially flat.

I believe 2013 will be a challenging year for the stock market. There is significant uncertainty surrounding Obamacare's taxation impact, businesses remain reluctant to commit capital, and consumer confidence continues to wobble.

Nevertheless, I'm going to repeat my selection for Disney again this year. Disney's empire is unrivaled. It owns all the ABC networks, the ESPN family and 46 radio stations. It owns popular Internet virtual world ClubPenguin.com. Of course, it has its famous theme parks, resorts, cruise line, conference centers, campgrounds, golf courses, ESPN restaurants and merchandising of all of their characters. The company produces live stage shows, direct-to-video content and television shows of their own. Disney is wrapped into the DNA of popular culture across the world. Just here in America, if you walk into a home with kids, you will unquestionably find Disney products.

Leading the charge is the movie division. Never mind the acquisition of two powerhouse brands that mint money: Pixar and Marvel Entertainment. Now Disney also owns LucasFilm. The $4 billion purchase will prove to be cheap. The merchandising alone, along with three new Star Wars films, will pull in way more than four lousy billion. With LucasFilm out of George Lucas' creative hands, you can bet the quality control will vastly improve, and rival that of Pixar's - the ultimate in film quality control.

Indeed, Pixar is indeed one of those exceptions to the rule that you cannot predict success. Their movies always are successful because they understand good storytelling. Likewise with Marvel - besides understanding how to tell a great story, Marvel has a definitive and large fan base that will see any movie with Marvel's name on it. As this list shows, animated films in particular make a fortune. Marvel films do, too. So will LucasFilm's. Including dividends, the company is pegged to grow 15% annually over the long term….and trades at 14x earnings.

I was very down on Bank of America (NYSE:BAC) for a long time, but now I've wised up. I was needlessly worried about liquidity, but there are no issues here. Any toxic assets have been pushed into a subsidiary where they are insulated, which used to be my major concern.

The big winner regarding BofA's business is that it services 80% of the country's mortgages. BofA's fire-sale purchase of Countrywide put it in this position. The bank isn't exposed to the mortgages themselves. It just collects the fees for servicing those mortgages. No risk, all upside. Additionally, the bank is getting tough on foreclosures. The bank is ramping up more aggressive actions to get rid of people sitting rent-free in houses. The bank is also shutting down unprofitable divisions, the most recent being the international credit card operation. BofA is looking at new products to generate new revenue, such as reorganizing its account structures to enhance fees.

Finally, I'm predicting a recession for 2013. In good times, McDonald's (NYSE:MCD) does well. In bad times, McDonald's does great. I know folks have been concerned over that blip in same store sales, but I suggest it's a temporary thing. Remember, the company is under new management. A new CEO brings adjustments to the entire corporation, but this is no outsider. CEO Don Thompson was Chief Operating Officer and has been with the company for 22 years. Folks, this is the guy who, at the launch of the company's coffee initiative, hung a massive billboard outside the HQ of Starbucks (NASDAQ:SBUX) declaring "four bucks is dumb" with a picture of a cup of coffee. By the way, the reason for that drop in same store sales a couple of months ago? McDonald's is pushing big-ticket items as opposed to dollar menus and coffee drinks. This leads to lower volume but higher profit margins.

To that end, McDonald's is trading at about $87.58, off its high of $102. Analysts see 12.3% compounded growth over the next five years, including dividend reinvestment. I give the company a premium because of its balance sheet and incredible cash flow. With a 14x multiple, fair value for ext year is $81. So yes, I'm suggesting McDonald's will still outperform despite how expensive it is. But in tough economic times, people buy cheap food.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.