1/11/2011 1:45 PM ET|
5 great companies to own now
You can try to outguess the market for great results in 2011, or you can simply buy companies you think will do great things. Here are several worth a look, including GE, AMD and 3M.
Investors face a quandary this year.
One way to deal with these ups and down, if you're not a professional like Doll with the trading resources of a BlackRock (BLK, news), is simply to buy the stocks of great companies likely to do great things this year, presuming the market will reward them.
To build my list of companies you want to own now, I consulted a brain trust of four money managers and analysts with records that beat the markets nicely over time. I also used my own system of selecting stocks, which has been producing good results by combining valuation and financial strength analysis with bullish insider-buying trends.
The results: I'm going with 3M (MMM, news) and the chip maker Advanced Micro Devices, Inc. (AMD, news). I'm also suggesting regional bank BB&T (BBT, news), General Electric (GE, news) and American Airlines parent company AMR (AMR, news), as some of the best stocks to own for 2011. Here's a closer look at what makes these companies stand out:
3M: Always searching for the next Post-it note
The main thing that makes 3M a great company is that it never skimps on the funding needed to create innovation. That's why it has given us ubiquitous products like Scotch tape and Post-it notes, both of which you probably have within reach right now if you're at your desk.
Behind the scenes, 3M offers a broad array of unique products, from adhesives, plastics and films to appliances, security systems and food-processing components. The company's products are used in your home, your office, your car, even your dentist's office. 3M has built a growing lineup of hit products because it regularly plows about 6% of revenue back into research -- more than $1 billion a year. As a result, around 30% of revenue in any given year comes from products released in the last five years.
As an investment, the St. Paul, Minn., company is more than just the quintessential U.S. tinkerer and inventor. It also has a big foreign presence, and 34% of revenue comes from emerging markets, where sales advanced an impressive 25% in the third quarter. Overall, 3M gets more than 60% of its revenue from outside the U.S., and about 58% of its employees work outside the U.S.
Despite being such a quality company, 3M's stock is trading for cheap right now. At $86 a share, it goes for just 14 times annual earnings, well below its historical average of 18 times earnings. Buying quality companies at low prices has helped money manager Larry Coats Jr. post a decent long-term record at the RS Capital Appreciation Fund (RCAPX) -- and 3M is one of his favorite stocks.
So why is the stock so cheap? A big part of the reason is that 3M sells optical films used in flat-screen TVs. Inventories in this sector piled up sharply last year, which dampened demand. But this problem will pass, sooner or later. "There's nothing here to worry about, other than letting time run its course," says Coats.
Morningstar analyst Adam Fleck thinks 3M can earn around $6 a share this year. If the stock works its way back to trades at 18 times earnings, the price would go to $108. The company also boasts a 2.4% dividend yield, so you get paid while you wait.
Advanced Micro Devices: The comeback kid
That will happen again in 2011, believes Patrick Dorsey, the director of stock research at Morningstar. AMD is launching new server chips called Interlagos and Valencia. These chips are based on AMD's Bulldozer technology, the company's first new chip architecture since 2003, when it ambushed Intel with a game-changing line of chips.
Bulldozer allows more processing cores to be packed onto a single chip. This is a big advantage in data centers, and AMD's new chips will help it steal significant market share from Intel in server processors this year and beyond.
The last time AMD outmaneuvered Intel was back in 2003, when it rolled out its Opteron processors. From 2003 to 2006, AMD took a fifth of the market for server chips, and its stock went to $40 from around $5, according to Morningstar. "We think something similar is going to happen this year," says Dorsey. He believes market share gains this time around could double AMD's earnings over the next year or two.
That should double the stock price, too, since most analysts still aren't expecting this coup, says Dorsey. Wall Street analysts have a median price target of $8 on the stock, according to Thomson Reuters, or well below its recent price of $8.90 a share. In contrast, Morningstar has a five-star rating on AMD, its highest rating. Five-star stocks tend to outperform over time.
BB&T: Superbank of the South
Unless you live in the mid-Atlantic states or the Southeast, you might not have heard of BB&T, even though it is one of the better-quality banks around. BB&T is a "super regional bank" with more than 1,800 branches, which provide the array of personal and commercial banking and insurance products typical of a local bank.
But unlike many regional banks, BB&T has solid financial strength. The bank has paid back its government bailout money, and CEO Kelly King says it has enough money to meet the new international capital standards soon to be implemented in the U.S.
This financial muscle positions BB&T to take advantage of weakness among some competitors by buying them, which will help boost growth significantly, believes Don Wordell, the portfolio manager of RidgeWorth Mid-Cap Value Equity Fund (SMVFX). Wordell knows about great companies. By owning them, his fund has beaten competitors by 5.3 percentage points a year over the past three years, according to Morningstar.
VIDEO ON MSN MONEY
I read the Washington Post everyday; in today's paper there is an article about General Electric company and how they make billions in profit every year, yet they don't, like many other companies pay taxes on it? why is that there is NOT that many people outrage about this? you read all the time how the IRS goes after so many individuals. how about going after all those companies and recover BILLIONS in taxes, that will help to pay for the national deficit.
to top it off there are some politicians asking to reduce the taxes that companies pay in their profits. well they don't pay any to star, we all should be more participant and complain to our leaders, about all this issues. how about the TV networks. why they did not put all this all over the news?
Wall Street is only interested in quick ROI, ride with the waves, and hype the market with all the bogus ratings. 95% of the Analysts and Financial Experts make the rest look bad.
It is hard for me to buy a stock with no future projection in the article. If the writer thinks these are good stocks to own then put in a 12 month projection on the stock price.
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Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
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