Capital-gains favorites for 2009

12/15/2008


After one of the worst years in stock-market history, many investors have given up on stocks altogether. Such resignation is understandable, as very few strategies worked in 2008 and all market sectors declined. But crises tend to end amid tremendous opportunities, which you are certain to miss if you disengage from the stock market entirely.

With profit prospects worsening and the primary trend in the bearish camp under the Dow Theory, holding some cash on the sidelines makes sense. For our money, keeping 25% to 35% of equity portfolios in a money-market or short-term bond fund seems prudent. But no matter how much money you have in stocks, you should be relentless in searching for the best ideas available.

Among our recommended stocks, the seven reviewed in the following paragraphs and listed in the table below have particular appeal for the year ahead. All seven earn strong scores in our Quadrix® stock-rating system and trade at modest valuations relative to expected profit growth. All seven, with sturdy balance sheets and strong cash flow, are well positioned to take advantage of growth opportunities.

7 TOP YEAR-AHEAD PICKS
Trailing
—— P/E Ratio ——
Quadrix
—— Scores * ——
Company (Price; Ticker)
Current
5-Year
Average
Value
Overall
Industry
Accenture
($29; ACN)
11
19
58
93
Technology Consulting
Airgas ($35; ARG)
11
20
65
86
Industrial
Gases
Biogen Idec
($47; BIIB)
17
37
59
95
Biotechnology
DirecTV ($23; DTV)
17
24
43
81
Broadcasting &
Cable TV
Harris ($36; HRS)
10
22
70
96
Telecom
Equipment
IBM ($83; IBM)
10
17
62
89
Computer
Hardware

St. Jude Medical
($30; STJ)

14
28
50
86
Health-Care Equipment
* Quadrix scores are percentile ranks, with 100 the best.

Accenture ($29; NYSE: ACN) entered the credit storm with two important umbrellas — strong cash flow and a debt-free balance sheet with nearly $6 per share in cash. In the year ended August, operating cash flow increased 7% as free cash flow climbed 9%.

The annual dividend, an indicator of the company’s confidence, was raised 19% in September. Yet the stock, near its lowest levels since 2006, trades at 10 times expected year-ahead earnings — well below its five-year average forward P/E of 22.

November-quarter earnings per share, due Dec. 18, are expected to be up 13% on a 6% sales gain. For fiscal 2009 ending August, consensus estimates project growth of 6% in per-share earnings and 3% in sales. While such growth rates would be well below the pace of recent years, the stock seems likely to rally if Accenture can sustain any growth over the next 12 months.

Clients are likely to pressure Accenture to lower its fees. But, as sales weaken, companies will look for other ways to remain profitable. Accenture, known for its consulting services, helps companies cut costs and improve business strategies. Accenture, capable of a year-ahead rebound to $35 or $40, is a Focus List Buy and a Long-Term Buy.


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