Stock Picks 2010: Undervalued Blue Chips For Soft Recovery

 Dawid Zagorski | Dreamstime.com
Dawid Zagorski | Dreamstime.com

Disclaimer

I am not a financial professional. I am merely an interested middle-class American. This article reflects my personal views. Please consult a professional for assistance with your financial portfolio.

What Factors Affect Economic Recovery?

The first tender green shoots of financial recovery have budded and flowered. Unemployment and job quality remain issues that still loom in the foreground and healthcare may be another looming issue in 2010, but the stock market is climbing back into positive territory. The S&P 500 gained 2000 points in 2009 and analysts suggested this was merely a modest correction. After such a colossal financial meltdown, are you ready for economic growth again?

My stock portfolio is! I'm perhaps one of the few remaining optimistic investors in the United States stock market. I've been picking off the last tasty morsels of undervalued financial stocks and looking to a gradually strengthening economy to drive my stock choices for 2010. Now that the word is out after President Obama's State of the Union Address, I feel that the nation may be realizing just how undervalued the big banks are. Before I share my picks, let me address some of the hot button issues that are driving stock prices into higher territory.

China

China has for several years been emerging with a new middle class that wants to consume like never before. To ignore the presence of this force on the world economy would be like the captain of the Titanic ignoring the iceberg in the front window. The impact of China's demand on the global economy for consumer goods, luxury items, and basic materials and durable goods simply cannot be underestimated. As China's economy continues to grow, I think we will also see a filter effect on China's nearby trading partners in Asia and elsewhere in the world.

Forbes.Com on Investing in China

Green Products and Energy

People are becoming more and more convinced that green products and clean energy are worthy of pursuit for social and fiscal reasons. My investment choices will be strongly influenced by a company's ability to adapt to a vision of a greener, more environmentally friendly world. You can even now invest in index funds of eco-friendly companies or trade in a speculative commodities market that sells Carbon Offsets to emissions-producing nations.

This commodity is the result of European Union countries and other participating nations' attempts to buy clean energy solutions to off-set their polluting activities at home. Most trading of carbon offsets occurs in London. I am no expert, and am learning about this still, but if people are trading in carbon offsets like it's real estate, then we've barely begun to see the effects of the green revolution on our market place.

Look for well-established companies that are investing research dollars into green products and energy production, and look for other green buzz-words like clean coal, green energy, and eco-friendly building materials.

Water

Water. It is a non-renewable resource that some day may be recognized as being far more precious than gold. Cleaning up polluted water sources and finding alternate sources of water will factor into the wealth picture of the future. However, I think water utility companies are presently taking a back-seat to sexier investment prospects. I think water is a no-brainer long-term investment.

Imminent Baby Boomer Retirement

The Boomer's are about to retire, and are going to be increasing their last minute investment activities to give a boost to their lagging stock portfolios. I expect to see increased activity in the financial services industry. Retirees will probably leverage their homes as the economy improves to buy smaller, less costly homes before inflation sets in. This could possibly point to a mini housing boom for low-cost communities that already attract retirees. Historically retirees have flocked to the sun belt, but this may or may not be the case as Boomers are already taking care of elderly parents in some cases. Still with Boomers leverage their homes to supplement their retirement expenses, I expect to see continued activity in real estate and mortgage industries.

Looming Changes in Healthcare

As the United States Congress attempts to address the problems of the struggling health care system, winners and losers will emerge as money is redistributed throughout this sector. But as the old saying goes, the more things change, the more they stay the same. What will not readily change is adult obesity, heart disease, diabetes, swine flu, and other major diseases. As always, big gains may be found in this sector, but investments in this area will probably be extremely volatile.

While I am no economist, nor am I a stock market expert, it is easy to conclude that the above areas will continue to have a strong influence on the future of the market. I can easily look to these areas to help me in my own individual stock purchasing plans.

President Obama on Green Energy

My Financial Strategy

I am an opportunistic buy and hold investor. What does that mean? As a general rule, I purchase stocks to hold for long periods of time, waiting for them to increase in value and income. My goal is to buy shares in solid companies or to use value investing principles to buy great companies on sale. As stock buyers go, I'm fairly conservative in my approach.

Income-generating stocks are the bread and butter of my stock portfolio. I still hold shares in a few REITS or real estate investment trusts (HRP is one of my favorites, though it isn't a popular choice among analysts right now). I also try to focus on buying stocks that pay a dividend. The nifty fifty stocks were well-known blue chips in the 1970s which developed a reputation as good stock portfolio workhorses, but not great moneymakers, but now are very deeply on sale. These stocks are the ultimate value stocks and I'm hoping to add some of these stocks to my portfolio too.

Why is this my particular investment strategy? I'm a very small-time investor who buys stocks as part of a retirement strategy. In my 401K portfolio I mostly hold shares of low-cost index funds. When I retire I will be required to start making minimum withdrawals from my retirement account. My goal at retirement is to hold investments that will pay me a quarterly yield that will not deplete the actual shares of stock in my portfolio.

My stock portfolio is much more aggressive, but it is a smaller portion of my overall retirement picture. 

Stock Picks

Some of my bets are with the battered an undervalued companies that have been particularly hard-hit during this recession.

General Electric (GE) has a financial products division that has helped to drag it's stock valuation into the mud during the last few years, but this company has a research division that is doing exciting things with water reclamation processes that combine the undervalued blue-chip element with green energy products and a limited future resource--water. This stock is at the top of my list of stocks to buy.

Coca Cola (KO) has been paying a dividend for over 100 years and its brand name and products are still growing. While Coca Cola has had a presence in the U.S. for a century, its presence in China will continue to grow, with the middle class consumers there. It is a strong, solid value.

Eli Lilly (LLY), the Indianapolis-headquartered big pharmaceuticals company, has also been paying a dividend for over 100 years. It develops healthcare products for diabetes and in early 2010, will be paying out a 5% dividend. In a good market this an impressive dividend.

Bank of America (BAC) This big bank is under fire for paying big bonuses, but it has paid back all of the bail-out money it loaned to the government. If you have the stomach to buy bank stocks right now, then this is one stock I would pick up on sale. I believe the markets are somewhat cyclical in nature, and this stock is well on the road to recovery. I expect it to continue to be "on sale" for the next year or two, and when the economy is in a full-fledged recovery, to make big on this particular stock purchase. Likewise, Wells Fargo (WFC) is a long-time favorite of famous investor Warren Buffet. I would continue to buy shares of this stock.


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Comments 20 comments

Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

A very interesting hub. Thank you.


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Thanks Hello, hello. I've always loved picking stocks and reading on the stock market. The information I'm sharing is generally well-known, though many folks I've talked with think bank stocks are not a good buy.

Gold may also be a good buy but it has been on a run-up for quite a while and I just think other things are deeply discounted and much more accessible to the small-time investor.


Ann Nonymous profile image

Ann Nonymous 6 years ago from Virginia

The topic subject is generally way over my head as I am not into stocks, but you wrote it so well I didn’t mind reading about financial issues! Nice analogy between China and the iceberg! That's exactly what I mean; your writing is easy to follow wannabwestern! Great hub!


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Ann Nonymous, I don't feel like I deserve your high praise, but I'll take it anyway! Thank you. Wishing you well!


Springboard profile image

Springboard 6 years ago from Wisconsin

I think you are absolutely right about China, and I've been making some investments there myself. One company, for example, on the cusp of some great things is China Tel Group (CHTL), which currently trades on the OTCBB—we're waiting for a certain deal to come through and the stock should move very much higher. This is a very speculative play, so not for one who has trouble sleeping at night. But generally speaking, I think the best play for China is to focus on strong American companies who already have a strong presense in China. They are best positioned to take advantage of a growing economy there, and in an increasing consumer base for their products.

I don't like GE at all, and for too many reasons to list, but I think your other picks are just fine—though I prefer TEVA over Eli Lilly. Generic drug companies have the benefit of the drug market without the risk and high cost of development of drugs. They also require no advertising dollars. BAC would rank higher on my list of banks to buy than WFC though.

Great analysis, BTW. I enjoyed reading.


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Thanks Springboard, I appreciate your in-depth commentary. I have a pretty strong stomach, but I do try to look before I leap. I'm interested in the CHTL stock. It looks like the makings of a great growth buy, but only for people who can afford to speculate. TEVA would be a great company to add to my pick list. It has a strong chart and great numbers. I agree Generics will always have a strong presence, especially with boomer retirements.

Eli Lilly, for what its worth, isn't so much a strong growth prospect as it is just a great workhorse. The company has been on the 100 Best Places to Work for families and has a strong research presence in diabetes. This disease is projected to increase dramatically during the next 30 years. It is currently paying out a 5.5% dividend and has a lower share price than TEVA, probably because it pays out more in dividends.

I have heard mixed reviews of GE, so I'm interested to hear more of your thoughts on that one. It appears to be doing a lot of things right, but some people don't like their management.


Dim Flaxenwick profile image

Dim Flaxenwick 6 years ago from Great Britain

Thank you for a down to earth, understandable hub on this subject. Not everyone understands the stock market,. All the best. dim


Pamela99 profile image

Pamela99 6 years ago from United States

Great hub with a lot of information to absorb. I have been afraid of doing anything in the stock market since it took a dive a couple of years ago. I will consider what you've written. Thanks.


emievil profile image

emievil 6 years ago from Philippines

Very interesting stock picks wannabwestern. I'm in no means an expert on stocks and right now, I don't have any solid strategy and not much funds either. But if I do have some, I'll go for the stocks that you recommended. I wish you good luck on your stock market activities :).


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Dim, Thanks, I'm glad to see you again! I try to go for familiar companies and brands that have a presence either in the U.S. or internationally. Best regards!

Pamela99, I understand where you are coming from. The stock market's reaction to the recession has made for one volatile ride. For people with a short horizon on their retirement, or for those who are already living on their retirement, this has been devastating. With 25 years before my retirement, I have continued to invest in stocks while they have been at all-time lows, so I believe my stock portfolio will eventually recover and make more money ever. Down markets are the best time to buy stocks, not when "everything's back to normal." When everything is back to normal, we will be paying premium prices on the same stocks that we bought during the last two years on sale.

@emievil: Please do what is right for your situation. About three quarters of my retirement savings are invested in no-load market-index mutual funds. That's boring stuff but it spreads the risk around. Cheers!


Springboard profile image

Springboard 6 years ago from Wisconsin

I'm glad you point out the charts on TEVA, because a lot of people look at the fact that TEVA trades at around 61 times earnings, and Eli Lilly only trades around 8 times earnings. Still, TEVA is a larger company, has a solid history for performance, and again, I like generics because they don't have the same overhead as pharma companies who have to come up with and research new drugs all the time—and who often times have to go through hoops to get past the FDA approvals and trials. This costs a ton of money. When exclusive rights on newly discovered SUCCESSFUL, and that's the operative word here, drugs expire, companies like TEVA get the benefit of the drug's proven track record, and the interest from consumers and insurers to pay less.

TEVA is a wonderful company, and among the generics, it's my favorite.


RNMSN profile image

RNMSN 6 years ago from Tucson, Az

well written and interesting hub wannabeewestern!! I dont do stocks myself ...at least thats what work tells me...it all goes into gauranteed mutual funds...no risk...low rate of interest but then again since I only startd in 2000 I didnt take the hit of the rest of my coworkers!! and with hopefully less than a decade before I can at least work just 2-3 times a week stocks will not be for me!!

but this was so well written I know you are very knowledgeable on this subject! way to go girl!!!


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Springboard, I'm glad you brought TEVA to my attention. It looks like a wonderful long-term investment. As long as there are consumers on fixed incomes and families paying more than 30% of their earnings into medical plans, generic drugs will be a crucial piece of the healthcare pie. I can see why it is your favorite. It's going to be on my list of stocks to buy when we convert our 403b to an IRA.

RNMSN, Stocks aren't for everyone. I think Suze Orman said that if an investment will keep you up worrying at night, then it is the wrong investment for you. I hope by the time I retire my stock portfolio will be big enough to pay me a fixed income and continue to grow. I wonder what kind of investments are in your mutual funds? You are too kind, though. I love your encouraging words!


dohn121 profile image

dohn121 6 years ago from Hudson Valley, New York

Like Emie, I'm still learning about the stock market and do not at the slightest, have much to invest! However, I am always open to the prospect of investing in stocks and building a portfolio. When I lost my first "real job" in corporate America, I had no choice but to cash-out my 401k money to pay back my outstanding debt and to live on! I am getting back on track now and this hub just might come in handy. Thank you again for sharing your knowledge on the matter.


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Dohn, we went through a fairly devastating job loss in 2001 and it took us several years to recover. I think many people face this dilemma. I like 401Ks for their pre-tax benefits and company matching, but I like having a ROTH IRA because that money can be withdrawn under certain hardship circumstances (and with no tax consequences after 5 years) or to buy a first home. Roths can double as an emergency savings fund in the worst of circumstances and that makes sense to me. I guess I should say here that I'm not dishing out financial advice, only saying what my next steps are going to be. One of the hot topics in retirement finance right not is ROTH IRA conversions.

As usual, thank you for your sincere comment!


susansisk profile image

susansisk 6 years ago from Georgia, USA

I also have GE. Just wish it wasn't so slow at making a comeback.


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Susan, my time horizon is about 22 years. But GE has a lot going for it. I hope to pick up more shares during the coming months. Its nice to know you have GE too.


PennyShares profile image

PennyShares 6 years ago from London UK

very nice hub, I have a couple of similar ones that are more focused to the UK as that is where I am based, if you are interested then have a look. Im going to follow your posts for a while


wannabwestern profile image

wannabwestern 6 years ago from The Land of Tractors Author

Thanks PennyShares. Investing is one of my passions, and I discovered it quite by accident. If I weren't expecting baby number 4 right now I'd be looking to reenter the workforce in this industry. I'll have to look at your stock picks too. I have a few non-U.S. stocks in my portfolio, but will readily admit my ignorance in this area. Thanks for your compliment.


james moylan 5 years ago

I have a web site where I research stocks under five dollars. I have many years of experience with these type of stocks. I would like to recommend a large cap stock I generally recommend stocks under five dollars but this is a really undervalued stock trading well above five dollars. so here it is the company Bunge Ltd.symbol{BG) engages in the agriculture and food businesses in approximately 30 countries. It buys, sells, stores, and transports oilseeds and grains; processes oilseeds to make protein meal for animal feed, and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat and corn to make ingredients used by food companies; and sells fertilizer in North and South America. The company was founded in 1818 and is headquartered in White Plains, New York. the stock trades around 74 dollars a share. I think the stock could get to 300 dollars a share over the next five years.

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