Fortune's stock picks for 2012

Most of the magazine's picks will sound familiar to investors -- and there's a reason for that.

By Kim Peterson Dec 8, 2011 4:25PM
Image: Dice on stock listings (© Kate Kunz/CorbisFortune magazine has released its top 10 stock picks for 2012, and most of the names aren't new.

From Apple (AAPL) to Caterpillar (CAT), the picks rely on stable income stocks that Fortune says are undervalued. "Times are uncertain," the magazine says. "Stocks are moving in lockstep. Reliability and income matter more than ever."

When stocks move in lockstep, it's very difficult to pick ones that can rise above the rest of the action. Did Fortune make the right choices? Let's go through the picks:

1. Apple. Too easy. It's hard to find someone who isn't bullish on Apple these days, particularly after the stock's price-to-earnings ratio has fallen to around 10.

Add to that the company's dominance in the tablet market, its Black Friday performance, its mountain of cash and its sky-high potential in China next year, and there isn't much to criticize. Analysts think 2012 earnings per share will rise 30%, Fortune reports.

2. Caterpillar. Again, China is coming into play here as part of a host of emerging markets needing mining and machinery equipment. CEO Douglas Oberhelman has set his sights on 15% to 20% growth rates through 2015, Fortune reports. And that $29 billion in back orders is nothing to sneeze at.

3. Enbridge Energy Partners (EEP). The company is the U.S. branch of Canada's Enbridge, a pipeline company, and is organized as a master limited partnership. Enbridge Energy has a 7% yield, says Fortune, and payouts have risen by 5% a year on average since 1992.

4. Goodyear Tire (GT). This one seems a little iffy to me. Goodyear has been up and down all year, and is now coming up from a low of under $10 in October. Fortune acknowledges that demand for tires is cyclical, and you have to time this stock just right. On the plus side, auto sales are starting to get hot again as people replace their aging vehicles.

While Goodyear can rely on replacement-tire business, the economy is too fragile to make a big bet on autos. There's a reason Goodyear Tire is only trading at five times projected earnings.

5. Halliburton (HAL). Fortune rightly points out that Halliburton is a good way in to the growing shale gas and oil industry in North America. The oilfield services company is a leader in some of the techniques used in shale gas production, which the U.S. government expects will triple by 2035.

6. Intel (INTC). Another iffy one. Fortune says Intel's free cash flow next year should generate dividends and buybacks. But there's no guarantee. Our own Jim Jubak recently pointed out that PC growth is slowing in a stumbling economy and a shift from PCs and laptops to tablets and smartphones.

Intel's price-to-earnings ratio is cheap, Jubak notes, "but with developed economies showing strong signs of slowing, I think the risk in these shares outweighs the reward at this share price."

7. Johnson Controls (JCI). I've seen more enthusiasm for Johnson Controls lately than just about any other stock. Fortune points to the company's three prongs of growth: Auto parts, heating and air conditioning systems, and a new battery for "micro-hybrid" cars in Europe and soon in the U.S.

But note that the stock is on a huge decline from over $40 this summer to around $31.53 Thursday. Time to buy? You can read more about Johnson Controls here.

8. Lockheed Martin (LMT). A big hang over this stock is the expected cut to the U.S. defense budget. We know it's coming, the question is how much. But Fortune doesn't think the cuts will be that bad in an election year. And the company has a $73 billion order backlog plus expected earnings growth of 2% next year and 10% in 2013.

9. Microsoft (MSFT). The price of this stock has gone nowhere for years. Why does Fortune think 2012 will be any different? The magazine thinks the real story here is the dividend payout, not the stock price. With double-digit earnings growth, $57 billion in cash and significant short-term investments, the dividend is poised to increase further. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

10. Royal Bank of Canada (RY). A bank stock? Are you serious? Canada's economy has fared better than that of the U.S., with a 2.4% gross domestic product growth rate. The stock has a 5.1% yield, and earnings rose 13% last quarter, Fortune reports.


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4Comments
Dec 9, 2011 11:43AM
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I laugh a little everytime I see these articles. If you look at all the "top 10 picks" for the upcoming year by all the major publications as well as most analysts these picks always just perform at an average rate. There ends up being 2 very solid performers 3 -5 average and 1-2 poor performers. Don't take my word for it pull the last few estimated top 10 for the next year lists. Also, the "experts bottom picks usually end up fairing just as well as an average. The only time this does not sometimes happen is when you follow some of those "insider" publications that cost hundreds a year to subscribe to.  They do usually do a bit better. Finally make the bulk of your stock picks "solid stocks".  Companies that don't have excessive exposure to only one cycle of the economy or only an economy of one country. They should also produce a lot of product that will always be needed or in demand and finally a decent dividend. If a stock like this drops on you, your are still getting payed a dividend and the stock will comeback. Not all, but quite a few older Americans that lost their retirement had mostly good quality stocks that came back. But these people panicked and sold and lost almost everything. It is funny how no one talks about that phenomenom. And again, I am not saying all retirees. Some got completely screwed with **** bank stocks and tech stocks. However, why invest in something you don't understand. Just my thoughts.
Dec 8, 2011 8:15PM
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All the experts keep banging the drum about how wonderful the world economy is and how we must participate, and how much better it will make our country. In my opinion, those people that said how wonderful it would be was out to line their pockets. The world economy has done nothing for me except lower my net worth and now all of Europe will make me loose more. We need to remove ourselves situation when another country can effect  our own fainancial stability. Those that say that can't happen are either fools or on the take. They cetainly aren't worried about the standard of living for most Americans. How many of those talking heads on TV are really part of the working middle class. How many of the working middle class do you thing would agree with those talking heads right now. To me its all BULL and we would have probably survived fine without NAFTA and ASEAN and the UE. It's about the rich getting richer and leaving 99% of America behind.

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up & down, up & down just like a yo-yo. if it's not our economy dragging down the stock market, it's someone overseas. Before long, you won't even be able to pass gas without it affecting the stock market. Some of us small time investors like myself who are just beginning to start investing in the market are watching the market just wondering if it is worth taking some of our money and investing it.I, like everyone else would like to see the market at least stabilize, if not do a lot better than it is.Come on Europe, pull youselves together and lets get all get things rolling in the investment world.
Dec 9, 2011 1:38PM
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just like always,  the wall street bandits contiune to 'churn' the marketplace by inducing the public into buying and selling based on "tips", rumors and fear, and no matter what  you do - buy or sell,  wall street continues to make more money, of course the big fund holders...insurance compaines and the such are also to blame for the constant fluctuation of the market...if anything is clear after the last 2-3 years it's that there really isn't any safe bet stocks no matter what anyone tells you..
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