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You CAN Profit in the Current Environment
Despite the negative returns in the broader market, money can be made in this environment.
The trick is in owning the right stocks. That is why quality stock picking is at an absolute premium. Own the wrong stocks, and your portfolio will sink along with the rest of the market.
Wall Street is in disarray amidst a banking crisis and asset deflation not seen since the Great Depression. Such a state explains why many investors prefer the mattress over the market. But I’m here to tell you to resist that urge to be overly cautious. There are opportunities out there if you know how to find them.
For example, I provided my Top 10 Stocks for 2009 at the end of last year. If you recall, fear was high at that time as well, but for those looking for short-term profits, these stocks fit the bill.
The results so far are stunning with four of the 10 stocks in positive territory when the entirety of the market is down. Given that I expect the weakness in the early part of the year to yield to positive returns, the outlook for this list is bright, but what about the long term? Are there any stocks that you can buy today and forget about?
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Buy-and-Hold is Weathering the Storm
It used to be that investors could buy stocks of solid companies and forget about them for many years. But the buy-and-hold approach has been really put to the test during this bear market. In fact, many now state that buy and hold as a strategy is forever antiquated.
Sure, buy-and-hold has seen better days, but to say that the style is dead is over the top.
There are some great discounts in the market today, and with the recession more than a year deep, we are closer to the end than the beginning.
I have five stocks that you should consider owning in your own buy-and-hold portfolio.
These names are companies with products that dominate their industry. They are well capitalized to withstand a prolonged downturn, and they are positioned to take advantage of weaker competitors. For these companies, a recession can actually be a positive.
Eventually the storm clouds will clear, and these five companies will thrive for the long term.
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Stock #1: Abbott Laboratories ()
It is common wisdom that the health care sector offers investors a safe haven, but this downturn has proven to be difficult even there. Many stocks, including Merck (), Pfizer () and Medtronic (), have been crippled since the market collapsed in October.
One of the few bright spots in the group has been Abbott Laboratories (). At $54, shares trade for slightly less than the peak of just above $60 reached last January. The company makes a ton of money and has consistently delivered double-digit growth.
Based on current estimates, you can buy that growth for a mere 15 times earnings. That may sound expensive in this environment, but is cheap historically. Unlike its competition, ABT has a diversified product line with a stable of promising new products that should drive earnings for years to come.
Own this stock and sleep well. ABT pays nearly 3% in dividends, which means investors get paid to wait for the stock to appreciate. Recession or not, ABT is a winner.
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Stock #2: Johnson & Johnson ()
Another name to consider is Johnson & Johnson (). Although shares of JNJ could not escape the carnage of the fall, the company is one of the best in the industry and is likely to stay that way for some time.
Some of the selling pressure may be attributed to Warren Buffett reducing his position in the company. Recently, in an end-of-year filing, Buffett’s Berkshire Hathaway stated that it had shed a number of JNJ shares.
With all due respect to the Oracle of Omaha, what was he thinking?
The guy deserves all the respect in the world, but that doesn’t mean he won’t make mistakes occasionally. He’s making one here, and I’ll simply assume that his selling was done for reasons other than underlying belief in the future of the company.
Even after the sale, he does still own a significant number of shares. You should do the same.
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Stock #3: Apple ()
Are there names today that you simply have to own no matter the economic conditions? I think there are two and they are both in the technology sector.
At the top of the technology food chain is Apple (). With a lineup of winning products, including the iPod, iPhone and Mac notebook computers, the future is bright even after all these years.
Recently, speculation regarding the health of CEO Steve Jobs has put a damper on valuation. Such a state is an opportunity for investors to buy quality at a discount.
There is a ton of growth with existing products, so with or without Jobs, AAPL will do well for years to come.
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Stock #4: Google ()
The other technology name to own and forget about is Google (). The online search giant is in a spot similar to Microsoft in the 1980s.
For 20 years MSFT was a stock to own. Now the same is true of GOOG.
Google was a winner before the recession, but the company is showing how valuable it can be during difficult times. Companies are seeking to maximize advertising dollars, and GOOG has proven to be an effective advertising partner.
Its algorithms help buyers and sellers meet on the Internet in a most efficient way. Add in software products, and the future is bright for GOOG.
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Stock #5: Potash ()
The final stock to own in a long-term portfolio is fertilizer company Potash ().
Shares of POT were victimized by large bouts of forced selling during the last half of the year. Hedge funds had piled into the stock when the global growth story was at a peak.
Redemptions and leverage calls required managers to raise cash, and they did so by selling stocks like POT. Shares have doubled since bottoming but still trade for a single-digit multiple to earnings.
Demand for food will be one of the few certainties in the future. You don’t have to worry about consumers suddenly fasting like Gandhi. It won’t happen.
Instead, population across the globe will require agriculture to explode. Fertilizer increases yields. It is an easy formula for stock growth that will keep POT an investor favorite for many years.
If you ignore the noise in the market, you will find many companies worthy of consideration for a long-term portfolio. These are five you can buy now and forget about. And in this environment, that is a very good thing.
And don’t forget to check out:
