Beating the market is almost an impossible dream. But it's no secret that some savvy investors have managed to do so over the long term. The key, of course, is to skillfully pick the stocks that have the fundamental stamina and resiliency to weather economic storms when things go awry.
Indeed, it can be done. Here are five stocks that, had you bought at the beginning of 2009 and held all year, would have had you singing all the way to the bank:
Liberty Media Holding Corp. Interactive (LINTA), which rocketed to $10.58 a share for a stunning 12-month gain of 245.8%.
Wyndham Worldwide (WYN), which raced up to $21.20 for a 226.2% advance.
Discovery Communications (DISCA), which leaped to $31.42 for a yearly return of 126%.
American Express (AXP), which advanced to $41.27 for a gain of 118.4%.
Limited Brands (LTD), which spirited up to $18.98 for a yearly return of 104.1%.
These five were among the 40 stocks that investment manager Mark Boyar picked out of his 250-stock universe that he believed would outperform the Standard & Poor's 500-stock index. Every year, Boyar selects 40 stocks, which he calls the "Forgotten Forty" because Wall Street tend to neglect them, as part of Boyar & Co.'s "Asset Analysis Focus" service for its clients.
The Forgotten Forty stocks, which have outperformed the market consistently in the past decade, chalked up a gain of 43.65% in 2009 (from Dec. 18, 2008 to Dec. 16, 2009) vs. the S&P 500's 25.29% advance. And over the past 10 years, they demonstrated a compound yearly growth rate of 4.12% vs. a loss of 2.93% in the S&P 500. Those five stocks were 2009's super-winners.
How about this year? Which of the 40 stock picks for 2010 will the likely stellar outperformers for 2010? Here are Boyar's top-five picks (current prices are as of March 5's close) :
Bank of New York Mellon (BK), a global financial services company, which is trading at $29.70 a share, down from its 52-week high of $33.62.
Bristol-Myers Squibb (BMY), a major drugmaker whose stock has climbed to $25.28 a share, up sharply from its 52-week low of $17.23.
Comcast (CMCSK), the largest U.S. cable operator, now at $16.68 a share, off slightly from its 52-week high of $17.04.
Home Depot (HD), operator of a chain of 2,200 stores that sell a variety of home-improvement products, whose stock has leaped to $31.80 a share, up sharply from its 52-week low of $17.49.
Western Union (WU), a leader in consumer money-transfer services, currently trading at $16.31 a share, down from its 52-week high of $20.56.
Why pick Bank of New York Mellon among the financials? It operates quite differently from the rest of the banking crowd: It provides an array of services, including securities lending and private banking, which enable individual and institutional investors to manage their assets in more than 100 markets worldwide. Boyar figures the stock is way underpriced and puts its intrinsic value at $40 a share. A faster economic recovery or another merger deal could drive the stock above his current estimated value, says Boyar.
The appeal of Bristol-Myers is related to the rising mergers-and-acquisition activity in the pharmaceutical industry, including Pfizer's (PFE) acquisition of Wyeth and Merck's (MRK) takeover of Schering-Plough. Those deals have rekindled speculation that Bristol-Myers could become the next target, says Boyar. Now trading at $24 a share, the stock is worth $30 to $35 a share, he figures. But in a deal, Bristol-Myers could fetch a higher price.
Comcast, which has agreed to acquire a controlling stake in NBC Universal, is a leader in the cable-TV industry, which represents 80% of its operating cash flow. "When investors turn their attention back to Comcast's core cable operations, which generate an enormous amount of free cash flow, we would not be surprised to see the company's shares approach our $30 estimate of its intrinsic value," says Boyar.
Home Depot looks like a big winner to Boyar because it should be able to generate significant free cash flow regardless of the speed of the housing industry's recovery. Boyar says the company's cost-cutting efforts, lower interest expense and share buybacks will help rekindle its earnings growth. He puts Home Depot's intrinsic worth at $41 a share. Boyar notes the company's real estate holdings alone are worth roughly 50% of the company's enterprise value.
What about Western Union? The company provides customers with fast, reliable and convenient ways to send money worldwide, and that makes it a strong cash-flow generator. Boyar says its vast global distribution network of more than 400,000 agent locations in 200 countries accounts for the company's growth. He puts Western Union's intrinsic value at $27 a share, based on strong cash flow, a dominant franchise and a fast growth rate.
Boyar, a dedicated value investor who started his own investment business in 1975, believes stocks will maintain their upward bias as the economy continues to recover. Assuming he's right, investors could simply take advantage of Boyar's comprehensive analyses and conveniently pack their portfolios with his favored choices for 2010.