A last minute thank you and gift for friends. On this last trading day of 2011, I’d like to thank all of you for reading and responding to my many posts. You make what we do worthwhile. Thank you.
For many years, I have selected and invested (personally) in ten of the stocks we follow and hold them for the full year. I thought you might like to see this year’s names. Last year’s list lagged the S&P, so there are NEVER any guarantees. Investment success depends a lot on discipline, so I will continue to be diligent.
Please keep in mind that results have been good in some years and not as good in others. I will sell my 2011 names and buy the following list this afternoon. These are not recommendations to buy or sell securities. There is always a risk of losing principal. Past performance is no indication of future results. If you are interested in any of these names, please call us or your financial advisor to discuss. All prices are as of 12/29/11 closing.
Danaher (DHR - $47.48)
Danaher is a globally diversified manufacturer of professional, medical, industrial and commercial products and services. While the company is heavily dependent on acquisitions for its growth, management has a clearly-defined and proven process for the identification and integration of acquisition targets. The combination of solid organic sales growth, acquisitions, and margin expansion has enabled the company to post an annual growth rate of 17% in earnings-per-share over the past 10 years. Looking forward, our analysis of Danaher’s end markets suggests that the company should be less sensitive to a slowdown in domestic consumer spending in the future. In addition, we expect earnings growth to benefit from the recent acquisition of Beckman Coulter – the largest acquisition in the company’s history. The combination of a highly visible and defensive earnings stream and a reasonable valuation of 14.5x the consensus estimate for 2012 make Danaher attractive for 2012.
Wal-Mart (WMT - $59.99)
Shares of Wal-Mart are still trading at roughly the same level that they were ten years ago despite the company growing earnings-per-share at an annual rate of nearly 12% over that time. At current levels, the stock trades in line with the market multiple of slightly over 12x the consensus estimate for 2012. We believe the company is an above-average company and should trade at an above-average multiple. The company should continue to benefit from the US consumer's new-found frugality, which is a function of high unemployment, stagnant wages, income disparity, tight consumer credit and inadequate retirement savings. As investors begin to more fully appreciate the magnitude of our current economic challenges, we believe WMT's recent outperformance will continue. Furthermore, we believe the stock is relatively defensive. And finally, we are also attracted to the fact that about a quarter of company revenues comes from outside the US.
Goldman Sachs (GS - $91.01)
The trials and tribulations of Goldman Sachs have been well documented since the beginning of the financial crisis. And while we are not without our concerns, especially with regard to the company’s heavy dependence on proprietary trading, we also believe that the current valuation is far too compelling given the company’s status as best-in-breed investment bank. As such, we believe GS will be able to generate return on equity in the low- to mid-teens over a cycle – well below historical returns of 20%+, but still attractive. Given this level of profitability, we believe the shares are trading at an unreasonably low 77% of tangible book value. Moreover, the company has a very dynamic and flexible business model, extremely strong capital and liquidity levels, and a network of alumni that spans the political spectrum. Given these attributes, we are comfortable including GS in our top 10 for 2012.