Check Out Our Top Eight Stock . . .

12/21/2009


We buy stocks for different reasons. Both IBM ($128; IBM) and NII Holdings ($33; NIHD) are fine stocks and components of our Focus List. But the companies are quite different — a huge, steady technology conglomerate and a small provider of wireless-telecommunications services in Latin America.

While both IBM and NII represent attractive holdings, we understand that investors with varied motives may not like one stock as much as the other. With those differences in mind, we present a few ideas for the year ahead. In the following paragraphs, you will find stocks with particular appeal to investors with five different goals.

… for income

All eight of the stocks at right pay dividend yields of at least 2% and have grown their dividends at an annualized rate of at least 7% over the last five years. No single eight-stock portfolio provides enough diversification on its own to stand alone, but income-oriented investors may want to start out with the companies listed above.

Company
Dividend
($)
Yield
(%)
5-Yr. Div.
Growth
(Annual.)
(%)
Aflac
1.12
2.4
23
AstraZeneca (e)
2.09
4.5
7
Baxter Int’l
1.16
2
15
Chevron
2.72
3.5
12
Gen’l Dynamics
1.52
2.2
16
Gen’l Mills
1.96
2.8
10
John. & John.
1.96
3
11
Wal-Mart
1.09
2
15
(e) Dividend and yield estimated.

… to start a portfolio

The stocks at left are all large, well-known industry leaders — core holdings. Such stocks can serve as strong pillars for any portfolio. All eight of the stocks have stock-market values of at least $25 billion. They also come from seven different industry sectors, representing a portfolio about as diversified as you can get with such large stocks. The only sector represented by more than one stock in the portfolio is technology — the largest sector in the market as measured by capitalization.

Company
Stock-
Market
Value
($Bil.)
Sector
Chevron
155
Energy
Comcast
51
Consumer Discret.
Gen’l Dynamics
27
Industrials
IBM
172
Technology
John. & John.
181
Health Care
Microsoft
270
Technology
Travelers
28
Financials
Wal-Mart
208
Consumer Staples

… with operating momentum

All eight of the stocks at left earn Quadrix® Momentum scores of at least 70 and have delivered excellent per-share-profit growth over the last year. Operating momentum can be hard to find during an economic downturn, and all of the companies have demonstrated an ability to grow the bottom line in a difficult environment.

—— EPS Growth ——
Company
Quadrix
Momentum
Score *
Last
Quarter
(%)
Last 4
Quarters
(%)
Amerisource
88
13
18
BMC Software
85
38
26
Cognizant
95
18
22
Comcast
73
27
39
Gen’l Mills
88
56
20
Hewitt Assoc.
92
38
33
Hospira
84
51
27
TJX
92
42
17
* Percentile ranks, with 100 the best.

… with share-price momentum

These eight companies earn Quadrix Performance scores of at least 70 and have delivered solid three-month and 12-month total returns. On average, stocks going up tend to continue going up, and all of the stocks above have superior capital-gains potential despite their recent run-ups.

—— Total Return ——
Company
Quadrix
Performance
Score *
3
Months
(%)
12
Months
(%)
Accenture
80
18
43
Amerisource
80
20
48
Cognizant
93
16
150
DirecTV
82
30
40
Dolby Labs
75
19
48
Hospira
84
19
78
Microsoft
80
20
53
NII Holdings
81
18
72
* Percentile ranks, with 100 the best.

… with attractive values

Our Quadrix Value score has proved very effective at identifying stocks capable of outperforming the market. All eight of the companies at left earn Value scores of at least 85 and also trade at a discount to their five-year average trailing P/E ratios.

——— P/E Ratio ———
Company
Quadrix
Value
Score *
Trailing
5-Year
Average
Aflac
92
10.1
16
AstraZeneca
92
7.5
13.3
CVS Caremark
91
12.5
19.3
GameStop
99
9.6
23
National Oilwell
95
10.1
20.5
NII Holdings
88
16.8
27.2
Transocean
97
6.5
20.5
Travelers
90
8.7
10.4
* Percentile ranks, with 100 the best.

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