In contrast, Josh Peters, director of equity income strategy at Morningstar, is wary of REITs and utilities, for the most part. He does, however, like Public Service Enterprise Group, the New Jersey utility, and the company's shift toward the steady, regulated part of the business, as opposed to wholesale generation. "My only qualm is valuation, and it's certainly not unique to them" among utilities, Peters said. Nonetheless, he plans to hang on to the stock.
Peters also likes and holds some big multinationals, such as General Electric, which has faced headwinds because of its exposure to the energy sector. Chief Executive Jeffrey Immelt's strategy of slimming down the company's financial services operation and building up its industrial and infrastructure businesses is well known, but Peters believes investors have yet to wake up to it. He thinks the stock is currently worth $30 on the basis of Morningstar's long-term forecast, a sizable premium to the current price, and the yield at about 3.8 percent is also attractive.
Coca-Cola is another global player Peters is somewhat bullish on.
"Far and away the biggest headwind to earnings is currencies," he said. "I don't know when it's going to turn around, but eventually it's going to." In the meantime, Coke has its global distribution channels, usable even as consumers' tastes shift. Peters does not expect a big dividend increase this year, and he currently views the stock as "a little expensive," but over the long run he expects 7 to 8 percent dividend and earnings growth.
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Altria is another Peters holding. Currency exposure is less of a concern for the company, he said, and cash flow is steady. The tobacco names, he said, "have functioned and acted like the utility stocks." But when the interest rate environment shifts, he warned that "at some point the capital appreciation potential disappears."