Growth and income
The 'tried and true' choices sustained better-than-average earnings growth.
NEW YORK (FORTUNE) - Here we look for what Jeremy Siegel calls "corporate El Dorados" - those titans that rack up long stretches of solid profitability. In his latest book, The Future for Investors (Random House, 2005), the Wharton finance professor shows how companies that have marketed "tried-and-true" products for decades in slow-growth or even declining industries have superior returns to firms that develop "the bold and the new." Overall, our 2005 growth-and-income choices trailed the market last year, returning an average of 5 percent. The laggard was Pfizer, which tumbled 12 percent. Pfizer (Research) failed to make the cut on this year's screen because its profits are no longer projected to grow faster than the average company's, one of our key requirements.
But we still like the seven others and are including them again. Among them: Colgate-Palmolive (Research), whose stock climbed 22 percent since we recommended it. Its four-year restructuring effort kicked off last year and has started to pay off. The consumer products giant delivered an impressive first quarter, setting revenue and earnings records. The company has grabbed market share in China, Latin America, and most of Central Europe. It also bought Tom's of Maine, a natural-products company, marking Colgate's entrance into a fast-growing segment of the market. Smart product innovation, increased ad spending, and additional cost cuts stemming from the restructuring should keep Colgate on a steady double-digit growth path for some time. The stock sells for 22 times earnings and yields 2.1 percent. The stocks
Criteria include long-term earnings growth equal to or greater than the S&P 500's estimated 8% rate, dividend yield greater than the S&P 500's 1.8%, and P/E ratios below 27. *Wall Street estimates for the next three to five years.
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