Legendary investor Sir John Templeton said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Skepticism remains thick, and we’re far from seeing optimism or euphoria. Hence, more bull ahead. And if I’m wrong and a bear lurks soon, mega-cap stocks will drop far less than more speculative smaller stocks.
Just as I advocated year after year here in the late 1990s, you should be able to beat the market simply by concentrating on the largest stocks. If you want to do some picking within that group of big names, here are five stocks I like now, all with market caps greater than $100 billion–three from the U.S. and two overseas. They pretty much make up their own globally diversified portfolio of five.
Intel (INTC, 25) is a low-risk growth giant perceived as high risk. This creates upside potential. Yes, the world’s largest chipmaker is vulnerable to any recession–semiconductors always have been–but Intel is keeping Moore’s Law alive, assuring long-term growth as the chipmaker gets into more phones and tablets and reduces dependence on personal computer microprocessors. This well-managed, leading-edge company is too cheap at 10 times 2012 earnings and 2.6 times revenue, with a quenching 3.6% dividend yield.
As a kid I learned that whenever a stock sells for a P/E at or below the firm’s growth rate, buy it. That’s PepsiCo (PEP, 72) now. It should earn over $7 billion in 2013 and grow long-term at 15% annually with a P/E of 15. Pepsi is half food, half drink. Its brands are all global leaders. It’s vertically integrated in bottling, another growth business. PepsiCo trades at 1.7 times sales with a dividend that yields 3%.
Exxon Mobil (XOM, 87) has lagged the market all year on fears of limited upside with many of the world’s untapped resources owned by crazy governments (sorry for the redundancy) and downside with consensus calls for falling prices that will squeeze margins. This oil supermajor sells at 80% of annual revenues and less than ten times 2012 earnings. As the world’s dominant energy producer and marketer, Exxon should be just fine, and the stock should improve, too. While the dividend yield is only 2.6%, note that it pays out only about 20% of earnings and has room to give back more.