My 3 Must-Buy Dow Stocks For 2012

Includes: DIS, DWDP, GE
by: Larry Meyers

I took some time over the holiday to scour through the Dow Industrials, searching for 3 stocks to add to my portfolio for 2012. For whatever reason, the start of a new year just gives me a certain clarity regarding where a company has been and where it's going. I didn't just want any three stocks, though. I wanted three stocks I could hold for at least five years and have reasonable confidence that they would double in that time. Here's what I found.

DuPont's (DD) outlook is pretty stellar, and it's close to my heart, given all the years I toiled in chem labs during and after college. I never looked very closely at the company, and didn't realize just how diverse their product stream is. The Agriculture & Nutrition segment makes seeds, grains, proteins and pesticides. The Electronics & Communications segment supplies materials and systems for printing and electronics. The Performance Chemicals segment offers specialty and industrial chemicals for many industries. The Performance Coatings & Materials segment supplies coatings and materials for automakers and parts, as well as for electrical, electronics, packaging, construction, oil, photovoltaics, aerospace, chemical processing and consumer durable goods. The Safety & Protection segment offers solid materials for all major industries. The Pharmaceuticals segment collaborates on antihypertensive drugs.

The stock is trading at 11.5x earnings which is also the long-term analyst-projected growth rate. It pays a 4% dividend, and pushes out well over $5 billion in cash annually. It remains a premier chemical player, even in the days of overregulation. I plan to reinvest dividends, so that coupled with its growth rate gives me an $88 target. That's the double I'm looking for.

I know, I know -- you are shrugging your shoulders at the mere mention of General Electric (NYSE:GE). But let's face facts -- it's still the Dow juggernaut. It may seem expensive on 2011 earnings -- trading as it does at 13x. Yet the long term projected growth rate is 15%, arguably making the company undervalued even at this level. When you add in the 3.8% yield, and the $138 billion in cash (really), and regular free cash flow of $25 billion or more, I see a five-year target of $39, for a double.

What better way to round out all this fun with the most fun stock of all, Walt Disney (NYSE:DIS)? I loved the company's purchase of the Marvel and Pixar brands, which continue to provide solid box-office and merchandising revenue -- and will do so for some time. Once again, we're looking at 15% annualized long-term growth, plenty of cash and cash flow, and a company much better positioned than any of its rivals. A 15x target plus reinvested dividends gives a five-year target of $74, just under that double I seek.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.