12/22/2010 1:00 AM ET|
10 picks for the epic bull market
Better than bonds: Utilities, staples and health care
For investors who don't think we're out of the economic woods yet -- but who are watching in horror as the recent bond market selloff ravages their "safe" portfolio of bond holdings -- Douglas Cliggott's team at Credit Suisse has put together a collection of stocks dubbed "Better than Bonds" that offer higher dividend yields as well as a "more attractive risk-reward profile than high-grade corporate and governments bonds over a 1-3 year time horizon."
The focus is on utilities, consumer staples and health care. In screening for opportunities, Cliggott focused on stocks offering dividend yields of at least 2.75% with low volatility and solid credit ratings. Standouts include power generator Duke Energy (DUK, news), drug-maker Eli Lilly (LLY, news), health insurer Humana (HUM, news), medical products provider Cardinal Health (CAH, news) and toilet-paper maker Kimberly-Clark (KMB, news).
Worth the risk: Technology and financials
Matthew Rothman, who heads up quantitative strategy research at Barclays Capital, knows that picking the stocks of companies engaging in stock buyback programs is as close to a free lunch as you'll get on Wall Street. Looking back over the past 60 years, he found that the shares of companies repurchasing stock over the previous three months outperformed those that didn't by an average monthly return of 1.5% versus 0.9%.
But buybacks are only one way companies can use cheap financing to boost shareholder returns. To look at opportunities more broadly, Rothman recently screened for stocks that have above-average cash reserves and earnings yields higher than their borrowing costs. Next, he focused on names that are considered high quality based on a number of factors including spending levels, return on capital and sales growth.
The results were concentrated in the financial and technology sectors. Included on the list were stocks like IT specialist BMC Software (BMC, news), semiconductor equipment maker Lam Research (LRCX, news), memory specialist SanDisk (SNDK, news), insurance provider Unitrin (UTR, news), and stock-exchange operator Nasdaq OMX Group (NDAQ, news).
All should perform well in 2011 as the great wealth transfer from bondholders to stockholders continues.
Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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[BRIEFING.COM] The S&P 500 (-0.1%) remains just below its flat line after surrendering its early gain that was driven by a better than expected GDP report for Q2 (4.0% versus Briefing.com consensus 3.2%) and a set of above-consensus earnings.
To that latter point, American Express (AXP 90.65, -1.06), Buffalo Wild Wings (BWLD 144.48, -22.78), and WellPoint (WLP 110.11, -2.44) all beat their estimates, yet the trio trades lower across the board. Also of note, ... More
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