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David Dietze – 10 from 10 for '12: PFE, C, E, BAC, INTC, TEVA, LMT, SI, MSFT
Posted by: David G. Dietze, JD, CFA, CFP (IP Logged)
Date: January 4, 2012 05:27PM
How to come up with investment ideas? One approach is to look for the top 2012 picks from recognized investment experts. We selected ten, and used their picks as initial screens. We researched the picks, selecting one from each expert. Below are the results, a diversified portfolio of names we like for 2012.
1. Barron’s: Daimler (DDAIY)
Barron’s magazine has a long history of providing value oriented investing ideas, focused on low P/E ratios and good dividend payers. Daimler is one of its ten 2012 picks. European based, it may be oversold as many have dumped European stocks en masse without considering that much of their business is outside the continent. Cyclicals, particularly auto related, were pounded in 2011 amid fears of a global economic slowdown; Fidelity’s mutual fund dedicated to auto related stocks dropped over 26% in 2011. Daimler looks attractive, down over one third since last May, trading at just 6 times earnings, with a 6% dividend, low debt, and with a stable of high quality brands like Mercedes.
2. Dogs of the Dow: Pfizer (PFE)
The “Dogs of the Dow” is not really an investment expert, but rather a strategy made famous by Michael O’Higgins in his book Beating the Dow. It calls for investing at the start of each year in the ten highest yielding Dow stocks and holding for a year. Over a 23 year period ending in 1996, this approach improved returns over the Dow by 3% annually; last year it delivered a total return of 16.7% versus 8.4% for the Dow overall. The theory is that high dividend payers are out of favor, and thus cheap, but since they are in the Dow they have the resilience to bounce back. Despite being up over 28% in 2011, Pfizer among the 2012 Dogs looks like a solid bet to outperform, as this industry leader boasts a dividend of 3.7%, trades at less than 10 times earnings, and is still more than 20% below its five year high.
3. JP Morgan Research: Citigroup (C)
JP Morgan recently published a report identifying 65 stocks to outperform in 2012, including 28 that had 30% plus appreciation potential. JP Morgan is generally bullish, forecasting a near 14% rise in the S&P 500 in 2012.
Its research identifies Citigroup as having upside potential of 82%, arguing that the stock is overly beaten down due to concerns over Europe and emerging markets. I agree that this stock looks too cheap, at just 40% of book value and trading at 6 times earnings. This international franchise can scour the globe in an effort to grow its loan portfolio, benefiting potentially from overseas interest rates higher than prevailing in the US.
4. Fidelity Investments Research: ENI (E)
Fidelity does not publish an annual top picks list. However, insight can be gleaned from the top ten holdings of its mutual funds. One of its best performing funds, Fidelity’s Low-Priced Stock Fund, has returned nearly 6% annually more than the S&P over the last ten years, although it did underperform the S&P in 2011 by 2%. A review of its top ten holdings reveals a new addition, ENI, the integrated energy giant based in Italy. It’s 20% off its high of last May, dragged down by the travails of Europe. However, as the owner of energy infrastructure and proven fossil fuel reserves, you can take comfort that these tangible assets should survive Europe’s crisis. While you wait, enjoy the near 5% dividend, more than double Stateside’s Exxon.
5. Warren Buffett: Bank of America (BAC)
Warren Buffett, arguably the most successful investor ever, does not publish an annual list of top picks. However, a study of recent purchases indicates what names he might choose. At the top must be Bank of America; Mr. Buffett invested $5 billion into it last August, and the current stock price is materially below the price then. Buffett actually invested in a BAC preferred stock yielding 6% annually, while the common has little yield. Moreover, he also has a right to convert into the common at a price of $7.14 per share, well above the current price, arguably indicating he sees the common as having appreciation potential to that point.
Yield seekers can imitate Mr. Buffett by buying publicly traded BAC convertible securities (BACPRL), yielding 9.2%. We like BAC, and think it cheap; there’s room for cost cutting given that its employee compensation costs in 2011 exceeded all of the profits of such industry leaders as Wells Fargo!
6. Value Line Research: Intel (INTC)
Value Line, a venerated newsletter researcher, does not have formal yearly lists, but does maintain a model portfolio for income and potential price appreciation. Intel is a very attractive name included in its year end edition. This tech leader holds 80% of the market for microprocessors. Intel sports an above average 3.6% dividend, trades at a low 9.6 multiple of earnings and receives Value Line’s highest ranking for safety and financial strength. Intel also appears on a number of other year end lists, including the 2012 Dogs of the Dow.
7. Kiplinger: Teva (TEVA)
This personal finance magazine/website is well known for its sound, long term, value oriented approach. Annually it publishes a list of investments it believes will serve investors well in the year ahead. Teva, one of the eight members of the 2012 list, has historically been a pricey stock, and for good reason, as it’s the largest generic drug company. However, it’s dropped over 30% from its 2011 high, as investors shun international stocks (it’s based in Israel) and fret over one of its non generic drugs. But, with a 2%+ dividend, trading at under 9 times earnings, and with 50% of its sales in this country, we agree with Kiplinger that it’s a buy for 2012.
8. CNN/Money: Lockheed Martin (LMT)
The publishers of Money, Fortune and CNN have a long track record of providing sensible, conservative advice to their readers. Indeed, their picks for 2012, reflecting extreme caution, are designed not only to have high dividends, but to also have “P/E ratios that are not just low but so unjustifiably low that the odds seemed stacked against their underperforming the S&P 500.” Of their picks, we like Lockheed. The article rightly points out that defense budget cuts pose a risk, but cite its $73 billion order backlog and skepticism that spending cuts will really happen in an election year as reasons for optimism. The shareholder friendly management, 5.1% dividend, and sub 10 P/E are additional positives.
9. Smart Money: Siemens (SI)
The editors of the magazine/website Smart Money are part of the Dow Jones group of media companies, and reliably serve up sound investment picks. Amid the expected volatility; their 2012 annual picks article chose thematic investments, identifying companies with a global edge poised to take advantage of long term trends. We are in agreement with their pick of Siemens. Smart Money, too, wants to take advantage of the selloff in world class European exporters. Siemens is the GE of Europe, but operates in 190 countries. It’s a leader in medical diagnostic equipment, factory automation systems, and gas turbines. The stock is cheap, down a third since May, and sporting a 10 P/E and 2.8% dividend.
10. Forbes: Microsoft (MSFT)
Forbes prepared its 2012 top ten list by asking 10 different Wall Street veterans to identify the one stock they’d buy if they could only buy one and then would have to hang on the entire year. The reasons for Microsoft include it’s a cheap stock at just 8 times earnings and a 3.1% yield. While watchers do worry about the impact of cloud computing on MSFT’s fortunes, its healthy balance sheet and big stock buybacks comfort. Upside surprise could result if the Forbes analyst’s prediction comes true that Skype (a Microsoft owned internet based telephone system) could replace all smart phones in five years.
By David G. Dietze, JD, CFA, CFP™
Founder, President and Chief Investment Strategist
Point View Wealth Management Inc.
January 2, 2012
Stocks Discussed: DDAIY, PFE, C, E, BAC, INTC, TEVA, LMT, SI, MSFT,