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- Buy $10,000 worth each of Dolby Laboratories (DLB, news, msgs), Qualcomm (QCOM, news, msgs), IBM (IBM, news, msgs) and Johnson & Johnson (JNJ, news, msgs) at the open.
Strategy Lab is MSN Money's stock-picking challenge. To learn more about the game and the contenders, click here.
As my strategy statement spells out, I don't think most individual investors should buy individual stocks, and those who do should use only 10% to 20% of their investable assets to buy them. The other 80% to 90% of your portfolio should be in broadly diversified stock, bond, real estate and commodity mutual funds or ETFs. That's your "core."
Having said that, you can make extra money and boost returns by wisely using the "explore" part of your portfolio. I usually do that with ETFs in my own investing. But as I said in my first journal, and given my outlook for the next six months, this is an extremely difficult time to play sector or country ETFs.
We're still in a bear market, waiting for the new bull to begin. We face a major presidential election, and the economy is going in all different directions. I agree with Andrew Horowitz that energy and commodities have had their run for a while, but I'm not ready to take the plunge on the financials, homebuilders or other beaten-down sectors tied to the consumer or the availability of credit.
That's why (although I'm amazed I'm writing this) some well-chosen individual stocks may actually be better, less risky bets than ETFs for the next few months. But those stocks need to be solid, insulated from the credit crisis and the struggling consumer, well-priced and have strong momentum.
I've found four stocks, all well-known names, that meet the criteria. They lean to the growth side of the spectrum and have held up well in the bear market. They're all market leaders with strong franchises, solid balance sheets and good growth prospects.
All of them get "A" grades from Louis Navellier's PortfolioGrader Pro rating system (which combines momentum and fundamentals) and "buy" recommendations from MarketGrader's fundamental ratings. The best of both worlds, in other words. Here they are, in no particular order:
IBM
IBM (IBM, news, msgs) has been one of the few stars of the Dow Jones Industrial Average ($INDU) of late, gaining nearly 20% this year, easily beating Wall Street's earnings estimates for the recent quarter and boosting its guidance for the future.International sales account for a majority of revenue, its software and services businesses are growing at a double-digit pace, and even mainframe computers are holding up well. IBM's secret: It isn't tied to the consumer, and the services and products it sells to businesses make those enterprises more efficient. That's helped IBM's revenue growth move up sharply, into the midteens (though half of that gain is because of the weak U.S. dollar). Meanwhile margins of all kinds are growing, and return on equity was a whopping 36.6% in 2007, according to Standard & Poor's.
The powerful second-quarter report prompted analysts to boost their estimates. Big Blue should be able to earn almost $9 a share this year and 10 bucks in 2009. Changing hands at around $128, near its 52-week high, IBM is still trading at only 14 times this year's projected earnings and 13 times next year's. Clearly this stock has the wind at its back. I'm investing $10,000 in it for Strategy Lab. (Full disclosure: My wife has a small position in the stock.)
Johnson & Johnson
One of the world's great companies, Johnson & Johnson (JNJ, news, msgs) offers a diversified mix of products that consistently deliver earnings growth. A great product mix (split among pharmaceuticals, medical devices and consumer products) and a smart, disciplined management has helped its stock thrive. It's up 7.6% this year, while most big drug stocks languish.Rate this Article
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