Aon (AON) is the largest insurance broker in the world. They're brokers, not underwriters, so as the price to insure a building goes up, they'll make more money on their commission. The pricing for their products is relatively soft right now. At some point that will change and—given stable pricing and their cost-savings program—we'll make good money. We think interest rates are rising, which would be good for Aon. They have a ton of cash on the books that can be reinvested at a higher rate.
They're a large exploration and production company. It's a business we like because it will benefit from oil being worth more in the future. It's really that simple. Every year you pull oil out, you're depleting your reserve. You then have to buy oil to replace it. Five years ago the oil companies said they'd have X amount in reserves in 2010. Occidental Petroleum (OXY) is the only large oil company that has actually met their projected reserve replacement—the goals that they laid out for themselves.
CVS CAREMARK (CVS)
U.S. health-care spending is likely to grow faster than gross domestic product for the foreseeable future. Big chain pharmacies should continue to take market share from independent drugstores. We like CVS's (CVS) integrated model—it's a pharmacy and a prescription benefits manager. Prescriptions for generic drugs are increasing at a rate faster than branded drugs, and that's more profitable for pharmacies. CVS's valuation seems reasonable at less than 11 times its expected earnings for 2011.
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