After a volatile 2011 and with an uncertain economic outlook in mind, investors need stocks for 2012 that will not only capitalize on further bull market gains as the economic and corporate outlooks continue to improve, but also be able to hold up as safe investments with a good margin of safety in the unlikely event of another recession. The odds of continued improvement in the economy versus slipping into recession are probably around 4 to 1. With the following 10 stock picks, however, investors need not guess or try to time the market. These 10 stocks are all high quality dividend stocks, large and prominent in their respective industries, and conservatively financed. Most of these stocks are now selling at single digit P/Es and well below their historic norm, giving enough margin of safety in this topsy-turvy world. Five of the ten are international stocks, reflecting better valuations abroad. These ten stocks hail from each of the ten major sectors, so they can form a well-diversified portfolio for 2012 and beyond.
Please note: as much as I try to be as objective as possible, these stock picks are my personal opinion only. While these stock picks represent my best ideas, and I fully expect them to beat the market in 2012, they may lose money. Investors are well advised to do due diligence before investing in any stock. These stocks are intended to be held for the long term and may lose money in the short term. All data on these stocks are obtained from google.com/finance and money.msn.com. For further guidance on picking stocks, read Security Analysis, by Graham and Dodd.
1. AstraZeneca (AZN). Recent price: $46.34. With a P/E around 6 and a dividend around 6%, and a long history of consistently growing earnings and dividend, this big global pharmaceutical company is one of the safest and cheapest drug makers on the market. This company has low debt-to-equity (D/E ratio only 0.39) and high return on equity (ROE) averaging 39% over the past 5 years. 5-yr average sales growth is above 6% and 5-yr average earnings growth is above 11%. Its products, which include Nexium, Crestor, Seroquel, and Symbicort, will find themselves in increasing demand with the aging population in developed countries. And as a defensive stock in the Healthcare sector, it should hold up well even in a recession.
2. Wal-Mart (WMT). Recent price: 59.83. The biggest discount from this discounter is in its stock price. Its P/E of 13.47 and P/S of 0.47 are at multi-year low. With low debt (D/E = 0.73), high interest coverage of 11.6, and high ROE of 21 averaged over past five years, this company should be able to weather any economic conditions. Five-year average earnings growth is around 6%. This multinational is still expanding its market shares in emerging markets. Despite its big market cap, this stock is significantly under-owned, with only 31% institutional ownership. Although its stock price has gone up a bit in recent months, this dividend aristocrat remains a good buy at the current price and the price momentum is likely to continue in 2012.
3. Total (TOT). Recent price: $50.66. The demand for oil is unlikely to diminish in the near future, and energy sector stocks like Exxon Mobil (XOM) and Chevron (CVX) are all selling at reasonable prices. What distinguishes and recommends Total is its low valuations (P/E only around 7) and high dividend yield above 6%. Total is a consistent dividend grower, with dividend growth averaging 7% annually over the past 5 years, an impressive feat given the severe global recession. This stock can easily double when the European financial crisis resolves, and should hold up well even if we slip into into a recession.
4. AFLAC (AFL). Recent price: $43.30. The financial sector has been hit hard this year relative to the rest of the market, as many of the risks in financial stocks become increasingly brought to light. Aflac, however, is the classic baby that got thrown away with the bath water. Its financial conditions are exceptionally strong, with debt-to-equity ratio only 0.26 and interest coverage of 34.6. It has no preferred stocks, and consistently buys back its own stock instead of diluting like many financial companies do. As a dividend aristocrat with a current yield above 3%, and at a current P/E around 11, this stock will likely reward investors in the years to come.
5. Harris Corp. (HRS). Recent price: $36.99. This mid-cap company is a healthy pick in the information technology sector. It is a rapid growth stock, with 5-year sales growth around 11% and earnings growth around 19%, and 5-year average ROE greater than 20%. Despite this rapid growth, it is selling at single digit P/E around 8, and P/S is less than 1. With a dividend yield above 3% and a long standing history of consistently increasing dividends, investors will be well rewarded to buy at current price.
6. Elbit Systems (ESLT). Recent price: $43.43. This mid-cap defense electronics company is based in Israel but operates throughout the world. It is conservatively financed, with interest coverage 15.9 and debt-to-equity 0.65. ROE is above 20 and the company is growing at a rapid pace, with 5-yr sales growth around 20% and earnings growth around 41%. With a dividend yield of 3.32% and P/E around 11, this company should do well as it continues to expand.
7. China Mobile (CHL). Recent price: $47.77. This telecommunication stock is a safe emerging market play at the currently depressed price. With almost no debt on its balance sheet, its five-year average ROE of 24.4 is truly impressive. Both sales and earnings are growing at double digit rates, yet the stock still sells at single digit P/E. With a history of growing dividends, and a current yield of 4.27%, this stock offers a great opportunity now.
8. Exelon (EXC). Recent price: $43.68. With a 4.8% dividend yield, P/E of 12, ROE above 20, D/E below 1, and interest coverage above 5, this is one of the strongest and cheapest stocks available in the utility sector. Its five year average earnings growth of 22% far exceeds its peers in the utility sector. This defensive stock should weather any market turbulence well, and its low valuations combined with high ROE and growth should allow it to outperform in a booming economy as well.
9. Hasbro (HAS). Recent price: $32.14. This mid-cap company in the Consumer Discretionary sector sells all kinds of children toys and games. Its 5-year average earnings growth is around 13 and 5-year average ROE exceeds 20% with low D/E of 0.87. With a long standing history of consistent and growing dividends, the stock is a great value at a dividend yield of 3.7% and P/E only 11. The current stock price is temporarily depressed, and should bounce back strongly as the economy continues to improve and consumers open their wallets for their children.
10. BHP Billiton (BBL). Recent price: $58.23. This major diversified natural resources company is selling at historically low valuations, with a P/E of 6.8 and dividend yield around 3.5%. Unlike many stocks in the Materials sector, this stocks is exceptionally high quality, with consistently growing earnings and dividend, low D/E ratio only 0.28, high interest coverage 129, and high 5-year average ROE of 36. As economic conditions continue to improve, this stock will likely significantly outperform.
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