Mature Investments: How to Put Some 'Peyton' in Your Portfolio

Peyton ManningIt happens to investors all the time. Sell a stock. Watch it go higher. Initiate the self-kicking process.

The Indianapolis Colts did exactly that in releasing future Hall of Fame quarterback Peyton Manning a few weeks ago. He signed a five-year, $96 million contract with the Denver Broncos on Tuesday.

Football analysts aren't necessarily faulting the Colts. The team owns the first overall pick in the draft in a year when Andrew Luck -- the Stanford quarterback that many call the best prospect out of college since Manning himself -- is available. Given Manning's age, recent injuries, and expensive contract, moving on to the younger and cheaper Luck makes sense. As investors, how often have we sold a stock simply because a better opportunity presented itself?

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However, several teams showed heightened interest in Manning -- with four of them going as far as publicly courting the older and more expensive pigskin hurler over their own younger and cheaper starting quarterbacks.

The jury's still out on Indy's decision to go younger, but analysts now have heightened expectations for Denver this upcoming season.

Manning up your Portfolio

You'll find plenty of Peyton Manning stocks. There is no shortage of mature companies that investors have largely abandoned -- even though they still have intellectual and talent advantages over the younger and nimbler stocks that the market's bidding up these days.

Let's take a closer look at a few companies that may have been superstars in their prime but are sorely underestimated at this point in their growth cycles.

  • Microsoft (MSFT): The world's largest software company has been a bit of a dud on this side of the millennium. Mr. Softy is the poster child for "the lost decade" for investors, with its stock languishing since the burst of the dot-com bubble. It's not fair. Yes, PC sales have stalled over the past year, but Microsoft is still finding ways to grow through its Office productivity suite and its server software business. Android and IOS are the mobile operating systems of choice, but Microsoft is paying Nokia (NOK) billions to champion its Windows Phone platform. There's also the surprising success that Microsoft has had with the Xbox, surpassing the PS3 and Wii to become the country's top console in recent months.
  • eBay (EBAY): It's easy to dismiss eBay. The website that launched cottage industries a decade ago feels stale these days. We live in an age of free Craigslist ads and Facebook referrals. Do we really need eBay? Well, the surprising nugget here is that eBay's online marketplace is in fact growing. This is truly a global business these days. We also can't dismiss that eBay owns PayPal, the wildly popular Web-based transaction platform that is starting to pop up at some brick-and-mortar chains.
  • Cisco (CSCO): If Microsoft and eBay have had it bad, Cisco has had it worse. The networking gear behemoth's stock may be hitting new 52-week highs this week, but the shares are still trading 73% off their all-time highs. A lot has changed since Cisco's stock peaked a dozen years ago. Cisco has had its recent consumer market misses, including the Flip camera and Umi videoconferencing system. However, Cisco finally began shelling out a quarterly dividend a year ago. Analysts see revenue and earnings growing 7% and 14%, respectively, in its current fiscal year, and things will get even better if the global economy bounces back and companies begin ramping up their IT budgets again.
  • IBM (IBM): There was a time when IBM was such a big player in the PC space that early personal systems not made by the company were simply called IBM-compatible machines. IBM retreated from PC hardware when the market became too cutthroat, but investors have been rewarded by the company's outside-of-the-box thinking. IBM may have been the original tech stock, but it hasn't gone away. It has been excelling in the higher-margin business services realm for years. IBM has rarely disappointed investors. You have to go all the way back to 2007 to find the last time it didn't beat Wall Street's quarterly profit target.

Winning the Game

These were winning tech stocks a generation ago. Like Manning, these companies may not have the same zip on the ball that they used to, but they're finding new and smarter ways to score.

Don't abandon stocks just because they seem to have exhausted the scintillating part of their growth cycles. Under the right circumstances and investing climates, they can still win plenty of big games in your portfolio's future.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Cisco Systems and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, eBay, and Nokia. Motley Fool newsletter services have recommended writing puts on eBay and creating a bull call spread position in Microsoft.


The S&P 500's 10 Best-Performing Stocks of 2012 (so far)
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Mature Investments: How to Put Some 'Peyton' in Your Portfolio

10. CA (CA)

Performance: up 26%

Company profile: CA is one of the largest independent providers of IT management software. Revenue from its core mainframe segment represents about 60% of total sales.

Investor takeaway: Shares jumped late in January after the company reported third-quarter earnings rose 32% and announced plans to raise its annual dividend five-fold to $1.

9. Owens-Illinois (OI)

Performance: up 27% (but still down 20% since the end of 2010).

Company profile: Owens-Illinois is the world's largest manufacturer of glass bottles, with operations in 21 countries.

Investor takeaway: For 2011, the company earned $2.37 per share versus $2.60 in 2010. However, it also took a $640 million charge for a variety of reasons in the quarter that resulted in a loss of $4.71 per share on a GAAP accounting basis. It is covered by two analysts, resulting in ratings of one "buy" and one "hold."

8. Freeport-McMoRan Copper & Gold (FCX)

Performance: up 27% (but still down 23% since the end of 2010)

Company profile: Freeport-McMoRan's mines produce more copper and molybdenum than any other company in the world. It also produces gold.

Investor takeaway: Metals mining have historically been highly volatile. Analysts give Freeport-McMoRan eight "buys" and one "hold," according to Morningstar. Two weeks ago, the company reported that fourth-quarter net profit was $640 million, down from $1.5 billion in same period of 2010, but full-year earnings hit a record $4.6 billion.

7. Bank of America (BAC)

up 29% (but still down 47% from year-end 2010)

Company profile: Bank of America is one of the largest financial institutions in the world, with lending operations in the consumer, small business, and corporate arenas as well as asset management and investment banking divisions. It just reported net income of $85 million, or 1 cent per share, for 2011, roughly in line with analysts' expectations.

Investor takeaway: The bank faces lots of challenges before it returns to solid fiscal health, but investors apparently think they can be met, given the share-price rise. It was trading at half of book value late last year, so investors may think it hit bottom.

6. Eastman Chemical (EMN)

Performance: up 30%

Company profile: Eastman Chemical is a global producer of chemicals, plastics and fibers, with manufacturing sites in seven countries.

Investor takeaway: During January, the company announced the $4.7 billion acquisition of Solutia (SOA), another chemicals and plastics-making firm, which may have contributed to the price pop. Although it has a diverse international customer base, some of its biggest customers are in the cyclical auto and construction industries. S&P has it rated "buy" and its $60 price target is a 20% premium to the current price.

5. LSI Corp. (LSI)

Performance: up 30%

Company profile: LSI is a maker including of specialized circuits that support applications in enterprise storage and networking.

Investor takeaway: Although it reported a fourth-quarter loss two weeks ago, LSI gave an upbeat outlook for the current quarter, saying it expects revenue in the range of $550 million to $590 million, far ahead of analysts' $511 million, according to data from FactSet Research. S&P's review of analysts' ratings found six "buys," two "buy/holds," five "holds" and one "weak hold."

4. First Solar (FSLR)

Performance: up 31% (but still down 66% from year-end 2010)

Company profile: First Solar manufactures solar modules and turnkey solar systems. It has a competitive advantage due to its technology.

Investor takeaway: The company likely got a boost when, late in January, the MidAmerican Energy unit of Warren Buffett's Berkshire Hathaway (BRK.B) said it has started a new company to oversee a variety of solar, wind and other renewable-energy projects. In December, MidAmerican said it would buy a $2 billion California solar farm from First Solar, lending support to the outlook for the whole industry.

3. Sears Holdings (SHLD)

Performance: up 39% (but still down 40% from year-end 2010)

Company profile: Sears Holdings is the parent to Sears, Sears Canada and Kmart stores and the fourth-largest retailer in the U.S.

Investor takeaway: This troubled stock rose on speculation that its primary shareholder, hedge fund manager Edward Lampert, may seek to take it private. Everything else seems to be going against Sears, including steadily declining earnings, but it does generate significant cash flow, which it has used to buy back shares and pay down debt. But a Morningstar analyst recently wrote that "we don't forecast much growth for Sears, but we do see the potential for a marginal improvement in operating results in 2013-2014 if the appliance market can rebound off current lows."

2. Textron (TXT)

Performance: up 39%

Company profile: Textron's wide-ranging business interests span the aerospace, defense, financial and industrial markets. Its Cessna is the leader in business jets, while its Bell unit is a popular maker of helicopters.

Investor takeaway: Textron is in many cyclical businesses and its defense sector is vulnerable to Congressional budget cutting. For 2012, its management is targeting an 11% improvement in sales, driven by further gains at Cessna and Bell, and $1.80 to $2 per share in earnings, about 35% to 50% higher than 2011's adjusted earnings. Since the end of 2010, its shares are up 8%.

1. Netflix (NFLX)

Performance: up 77% (but it's still down 29% from the end of 2010).

Company profile: Netflix operates a fast-growing DVD rental and video streaming service and its customers are transitioning from DVDs to digital streaming content.

Investor takeaway: Down 60% in 2011 after gaining 219% in 2010, this stock is not for the faint of heart. Recent moves by the management team, specifically trying to raise rates by a huge amount, have added uncertainty to what is already a challenging market for the company as digital service takes over its industry


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