Inside Wall Street: Savvy Stock-Pickers' Buy-and-Hold Favorites for 2010
Here they are:
Ford (F), Midas (MDS), Best Buy (BBY). Apple (AAPL), Johnson & Johnson (JNJ), Chevron (CVX), Bank of America (BAC), Medco Health Solutions (MHS), CF Industries Holdings (CF) and CSX (CSX). The common thread among them: They've proven their mettle over the years but are trading below their highs even as their business fundamentals have improved despite the recession.
And here's the reasoning behind six of the stock-pickers' standout choices:
Ford: Never before has Wall Street been so enthusiastic about an auto stock as it is now about Ford. It share price had collapsed to as low as $1.16 a share on Feb. 23, 2009, from nearly $9 in 2008. But against all odds, the stock rumbled back and closed on Feb. 23 at $11, after striking a 52-week high of $12.14 on Jan. 11, 2010.
Despite the spike, William Harnisch, president of investment firm Peconic Partners (which owns shares) expects it to ramp up to at least $15 this year, based on his earnings forecast of $1.15 a share for 2010 and $1.50 in 2011. Even analysts who are still wary of the auto industry acknowledge Ford's amazing recovery. Says Standard & Poor's analyst Efraim Levy: "We have become more confident in Ford's ability to bring successful vehicles to market. . .and also see progress in bolstering the company's image."
Midas. One of the world's largest brand-name providers of automotive aftermarket services, Midas will benefit strongly from the the auto industry's woes, including the expected closing of some 2,000 General Motors and Chrysler dealerships over the next few years. "Midas is well positioned to pick up some incremental business from the closings," says Mark Boyar, who heads Focus Asset Management (which owns shares). Now at $8, Midas shares will also continue to gain from the aging cars on the road and the economic pickup.
Midas is worth $13 based on prospects for improved sales and earnings, says Boyer. One significant hidden factor: Several large investors are building up stakes in Midas, including influential investor Mario Gabelli, who has accumulated a 21% holding, and Keeley Asset Management, which now owns 10.6%. Midas's underpriced assets, notes Boyar, include its 2,500 owned, franchised and licensed shops in 17 countries. It has 1,700 in the U.S. alone.
Johnson & Johnson. A global brand name, "JNJ is the quality stock to own in health care, whose large diversified array of products including pharmaceuticals, medical devices and health-related consumer items, continue to attract new customers," says Carl Birkelbach, president of Birkelbach Investment Securities (which owns shares). Now at $63, J&J has performed strongly, up from its 52-week low of $46 on Mar. 9, 2009. But the stock should perform even better over the next 18 months, he says. Birkelback expects J&J to hit $80 based on his earnings forecast of $5.40 a share for 2011 from $4.93 in 2010. J&J earned $4.40 in 2009.
Chevron. With oil prices staging a comeback, Chevron stands to attract renewed investor attention, says Andrew J. Silverberg, portfolio manager at investment firm Fred Alger Management (which owns shares). He expects the global integrated oil company to increase operating earnings sharply in 2010 due to cost-cutting and an improving economy. The stock, which hit a high of $104 in 2008, has slumped to $74, as demand for oil products weakened during the recession. But Silverberg says Chevron is the stock to ride as demand starts to revive, given its depressed valuation and the company's robust three-year reserve replacement rate.
Best Buy. After the consumer electronics retailer cratered from $45 a share on Dec. 14, 2009, to $36 on Feb. 19, dedicated fans started buying. "Demand for consumer electronics will be stronger in 2010 than many analysts expect," says Larry Haverty, who heads Gabelli Global Multimedia Trust (which owns shares). Same-store sales (sales at stores opened a year or more) in November were impressive, says Haverty, so he expects fourth-quarter results to surprise on the upside. The stock is cheap, based on current earnings estimates, and he sees it hitting $50 this year.
Analyst David Strasser of investment firm Janney Montgomery Scott, who upgraded his rating on Feb. 5 to buy from neutral, says the sentiment on Best Buy has "gotten overly negative, and fears about anticipated gross margin declines are simply misguided." The stock, he asserts, is attractive based on his estimated fiscal 2011 earnings of $3.35 a share. "Much of the product-cycle weakness is behind us, and there is increased visibility into the 2010 product cycle," says Strasser. Best Buy earned $2.39 a share in fiscal 2009 that ended Feb. 28.
Apple. How much more growth can the dazzling, hard-driving technology leader achieve? The vote here is that the continuously innovative company led by the now-legendary CEO Steve Jobs will continue to positively surprise. On Wall Street, analysts have little doubt about what to expect. According to Bloomberg, of the 46 analysts who track Apple, 41 continue to recommend buying it, four are neutral and only one -- Per Lindberg of MF Global Equities in London -- rates it a sell with a price target of $100. The stock, however, continues to defy and is now at $200 a share.
The highest price target is $285, hoisted by Benjamin A. Reitzes of Barclays Capital. "There's pent-up demand" for Apple's new iPad tablet computer, notes Mike Abramsky of RBC Capital Markets. Data he has gathered suggest sales of 5 million iPads in 2010, indicating to him that it may have a greater impact than many expect.
It's worth repeating that forecasts on where the market is headed in 2010 are far from unanimous. Indeed, it's anybody's guess. But investors should be prepared for either a bull or bear case. Astute, research-driven stock-picking skills could make the difference.