The best stocks to buy now
Our picks are designed to help you weather the market's wild swings and build long-term wealth.
By David Stires, FORTUNE writer

NEW YORK (FORTUNE) - The market soars! The market plunges! About a month before we began putting this Retirement Guide to bed, the market was racing ahead. With the Dow just 145 points shy of its all-time high - 11,722 - one veteran analyst told USA Today, "There is a ton of mojo in the market right now."

See the FORTUNE 40

Then talk of "market mojo" suddenly turned into cries of distress. As inflation fears spooked investors around the globe, the Dow suffered five triple-digit losses, dropping below 11,000 and leaving investors rattled. In early June one of the most popular stories on Morningstar.com was titled "How to Cope With Financial Anxiety."

The FORTUNE 40
Picks to help you weather the market's wild swings.
Retirement investing the easy way: diversified choices for long-term growth. (more)
Some of last year's FORTUNE 40 have risen so much they're off the list -- and some have dropped precipitously. (See the list)
Will aging boomers pull their money out of the market at retirement -- and cause an asset meltdown? (more)

We have our own way of coping with financial anxiety: the FORTUNE 40, a portfolio we designed to help you weather the inevitable market swings while building long-term wealth. Despite the recent uncertainty, we're pleased to report that the FORTUNE 40 turned in a stellar year. From June 24, 2005, to June 2, 2006, our diversified group of small, midsized, and large domestic and international equities returned 17 percent. The S&P 500 gained 10 percent over the same period. (See details on how 2005's picks fared.)

Given the success of last year's portfolio, we used largely the same methodology to choose this year's stocks. We followed the strategies of five top investors and market scholars whose work and thinking we admire. In essence, we've created five miniportfolios, each inspired by one expert, which collectively make a well-rounded portfolio.

For growth and income stocks, we relied on research conducted by Wharton finance professor Jeremy Siegel, author of Stocks for the Long Run. The bargain growth portfolio reflects the insights of Peter Lynch, who became a legend managing Fidelity Magellan. We adapted techniques developed by Benjamin Graham, the father of value investing, to find our deep-value stocks. Our small-cap stock portfolio is based on the strategies of Charles Royce, founder of Royce Funds and a pioneer in small-cap investing. And we created the foreign portfolio using some of the criteria of Sir John Templeton, who established the Templeton mutual funds and was one of the first U.S. investors to look abroad. (Siegel approves of the stocks we uncovered using his findings. It's impossible to know what Graham would buy today, since he's no longer alive. Through spokespeople, Lynch, Royce, and Templeton declined to comment on our selections.)

Of last year's 40 picks, 21 still make the cut this year, joined by 19 newcomers. We began our search by running stock screens based on each expert's methods. We then looked for companies whose shares appear most attractively priced in relation to their long-term prospects. We scoured SEC filings, read research reports, and interviewed Wall Street analysts and money managers.

We favored stocks that are owned by fund managers with proven track records. To have conviction about what we're recommending, we wanted to know that some successful pros already have serious money at stake.

On the following pages you'll read more about the philosophy behind the five portfolios, as well as a detailed discussion of one stock in each. For data on all the picks - and more explanation of the screening techniques we employed - consult the tables at the bottom of each page.

Next: Growth and Income Top of page

The FORTUNE 40

YOUR E-MAIL ALERTS
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.