11 Stocks Poised for Gains in 2011 and Beyond
In an uncertain economic environment, your best investment opportunities are in the stocks of solid companies with proven business models, strong balance sheets and steady profits.
Even after the market's gains from the March 2009 bottom, many stocks remain attractively priced and yield more than the 10-year Treasury bond's current yield of 3.3 percent.
With most of the world's growth currently coming from outside the U.S., it's best to invest in companies that derive a major part of their revenues overseas. Developing nations are the fastest growers, so companies expanding in emerging markets should generate superior profits and offer the best opportunities for capital appreciation.
Despite a challenging environment for restaurants, McDonald’s continues to boost sales and generate excellent returns with the rollout of new products, such as smoothies and a line of specialty coffee drinks. The Oak Brook, Ill., fast-food giant has significant bargaining power over its suppliers, so it can keep costs low.
Its strong brand name, convenient locations and international expansion opportunities should drive growth for years. Analysts see earnings rising 9 percent in 2011. Over the past five years, McDonald’s has boosted its dividend at an annualized rate of 29 percent. The stock, at $77.56, yields 3.1 percent and trades at 15 times 2011 profit forecasts. (All prices and related numbers are as of market close on December 10, 2010.)
Oil giant ConocoPhillips is in the midst of a restructuring program that includes the sale of low-returning assets, including a nearly 20 percent stake in Russia's Lukoil. The Houston-based company will use the proceeds from the sales to trim debt and finance the capital investments needed for long-term growth.
As global economic conditions improve, demand for oil will increase, boosting its price and Conoco's profits. Already, crude's price has jumped 12 percent since August. Moreover, because oil is priced in dollars, crude will probably rise should the greenback continue to slide. At $64.58, Conoco trades at ten times estimated 2011 earnings (a low figure relative to its peers) and yields 3.4 percent.
Polo Ralph Lauren
Polo Ralph Lauren , the New York City-based designer of luxury lifestyle products and apparel, is expanding into emerging markets, with stores in Chile, China, South Korea and Malaysia. Yet with only 40 stores outside North America, Polo has a lot of room to expand internationally, especially among China’s growing middle class.
Because newly affluent people in emerging markets want to buy luxury goods with strong brand names, the company should be able to boost prices pretty easily. Polo is also extending its product line beyond clothing into such things as watches, jewelry and sunglasses. At $112.99, Polo trades at 21 times estimated 2011 earnings, which are expected to be up 13 percent from 2010.
A domestic play, electronics retailer hhgregg is jumping into the void left by Circuit City's demise. Having doubled its store total, to 173, over the past three years, the Indianapolis-based retailer hopes to become a 500-store national chain by decade's end. Capitalizing on the downturn in commercial real estate, the company locked in low rents on the more than 90 stores it has opened since 2008. Analysts expect profits to jump 30%, to $1.34 a share, for the fiscal year that ends this March. The stock trades at $25.72. Unlike Best Buy, which pays its salespeople by the hour, hhgregg hires commission-based salespeople who can negotiate prices. Just the kind of store you want when times are tough.
Discovery Communications, the leading producer of nonfiction content on cable TV, is focusing on expanding overseas. Best known for the Discovery Channel, TLC and Animal Planet, it's launching the Oprah Winfrey Network in 2011. The Silver Spring, Md., company has the ability to broadcast the same programs across many markets, and that is spurring growth. Discovery receives a steady revenue stream from subscription fees, which account for 49 percent of total sales; advertising makes up 43 percent. With its networks distributed in 180 countries, foreign lands provide 33% of revenues, and about 40% of that comes from emerging markets. Analysts expect earnings to rise 19.9 percent in 2011, to $2.11 a share. The stock trades at $42.48.
In a challenging economy, companies don't want to hire, but they're willing to spend on technology that can boost productivity. After its 2009 purchase of Sun Microsystems, Oracle looks poised to capitalize on that strategy.
Combining hardware and software, Oracle's new Exalogic Elastic Cloud seeks to be the premier system for cloud computing, the trend of using the Internet to maintain applications and data. Analysts expect the Redwood City, Cal., company's profits to climb 18.6 percent, to $1.98 a share, for the fiscal year that ends this May. At $29.95, the stock trades at 15 times that number. Oracle, which instituted its first dividend in 2009, yields just 0.7 percent, but it has the muscle to easily boost the payout.
Genuine Parts Co.
Sluggish demand for new autos suggests that many drivers will be holding on to their old cars for at least another year, and maybe longer. Meanwhile, the recovery in the manufacturing sector has boosted industrial spending. Both trends bode well for Genuine Parts Co . The company, a supplier of replacement parts for both the auto and industrial markets. Car parts account for half the sales of this Atlanta-based company, which operates stores under the NAPA name. Analysts expect earnings to advance 10.9 percent, to $3.25 per share, in 2011. At $50.55, the stock, which yields 3.2 percent, looks attractively valued at a price-earnings ratio of 15, on the lower end of its historic range. Genuine Parts has boosted dividends 54 straight years.
Freeport-McMoran Copper & Gold
Freeport-McMoran Copper & Gold, the world’s largest publicly traded copper miner, is a play on surging demand for minerals in emerging markets—especially in China.
Copper prices are volatile, but the slowing rate of new copper discoveries, the decline in average ore grades, and concern that many mines will be depleted by 2021 mean that the metal’s price should stay high. With copper prices currently near record highs and demand expected to outstrip supply in 2011, Freeport’s profits are expected to grow 17 percent for the year. The Phoenix, Ariz., miner brings in so much cash that in October it boosted its dividend by 80 percent, to an annual rate of $2 a share. At $112.87, the stock yields 1.8 percent and trades at 11 times expected earnings.