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NEW YORK (CNN/Money) -
The stock market has made little headway since the year began. In fact, the Dow is up only 26 points from its 2004 close. The chief reason is that investors are uncertain about the economy.
GDP growth last quarter is estimated at around 3.5 percent. And economists expect that growth will match or exceed that level in 2005. Nonetheless, there are concerns that such projections may be too optimistic. One recent sign: Leading indicators declined slightly in January.
Investors are also afraid that inflation will revive. Testifying before Congress last week, Federal Reserve chairman Alan Greenspan suggested that inflation might accelerate because of slowing productivity and a weak dollar. He also implied that the Fed might have to keep raising short-term interest rates to prevent such a pickup in inflation.
Following his testimony, investors got more bad news on inflation -- the core Producer Price Index (with volatile food and energy costs removed) posted its biggest gain in six years.
None of these developments means that GDP growth and corporate profits will fall short of current projections. But many investors are becoming more cautious.
Minneapolis investment advisor Steve Leuthold recently put together a basket of 40 large stocks chosen from sectors that have held up especially well during market declines back to 1987. Of the stocks that are on Leuthold's list and also in the Sivy 70, there are seven companies that have solid fundamentals and get good ratings from analysts. Here's quick look at them:
Abbott Laboratories (Research) outperformed much of the drug sector in 2004. In addition to pharmaceuticals, the company sells diagnostic products, cardiovascular devices and nutritional items. Compound annual growth is projected at 11 percent over the next five years. At $46.40 a share, the stock yields 2.3 percent and trades at 18 times estimated earnings for calendar 2005.
Colgate-Palmolive (Research) raised its dividend 21 percent last week. The company, which plays David to Procter & Gamble's Goliath, is well along in a restructuring plan that would emphasize Colgate's strongest product areas -- chiefly oral care, soap and deodorants. At $53.20, with 10 percent projected annual growth and a 2.1 percent yield, the stock trades at a 20 P/E.
Johnson & Johnson (Research) has been outpacing the Dow for almost a year. Fourth-quarter results looked weak, chiefly because of nonrecurring factors, especially a tax adjustment. But sales were up an impressive 13 percent for the quarter. And J&J remains one of the best diversified health-care companies. At $65.43, the stock has an 11 percent core growth rate and a 1.7 percent yield, and trades at a 19 P/E.
Pepsico (Research) is enjoying steady growth in both its beverage and snack-food businesses. In addition to Pepsi-Cola, the company sells noncarbonated drinks such as Gatorade and Tropicana juices. The snack business, which includes Frito-Lay, is also performing well. In addition, growth is strong internationally. At $54.20, with 10 percent growth and a 1.7 percent yield, the stock trades at a 21 P/E.
Procter & Gamble (Research) is acquiring Gillette, which will further entrench P&G's dominant position. The merger will add five billion-dollar brands -- including Gillette razors, Oral-B toothbrushes, Braun appliances and Duracell batteries -- to P&G's roster of 16 blockbuster product lines. At $53.50, the stock has 11 percent projected growth and a 1.8 percent yield and trades at 20 times earnings for calendar 2005.
Sysco (Research) is a leading distributor of food and dining supplies, chiefly to restaurants, lodging companies and other institutional customers. Products include frozen foods and prepared vegetables and desserts, as well as disposable tableware. At $34.78, the shares offer 13 percent growth and a 1.7 percent yield and trade at 22 times earnings for calendar 2005.
Walgreen (Research) is the largest U.S. drugstore chain. The company is enjoying impressive sales growth because of strong gains in same-store sales, rapid new store openings and success with digital photo processing. At $42.88, the stock boasts 15 percent projected growth and trades at about 26 times earnings for calendar 2005.
Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Monday.
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