By Catherine Holahan, MSN MoneyWhen I was about 5 years old, my grandparents gave me the worst gift ever: a stack of U.S. Treasury bonds. To a kindergartner, no present was more boring. They may as well have stuck coal in my stocking.
Over time, however, my appreciation of the gift grew along with its value. By the time I reached college, those boring bonds had matured, providing a sizable chunk of my college tuition and, later, the rent on my first apartment.
This year, for the holidays, I'm taking a page out of my grandparents' book. Except I don't plan on giving Treasury bonds. With the rate of return on a 10-year bond now less than 3% and barely keeping up with inflation, bonds definitely fall into the coal category.
Instead, I'm giving stock in medium to large U.S. companies. With the market down 40% this year, some big-name stocks look like bargains. Over time, many of these beaten-down blue chips should turn out to be gifts that keep on giving.
3 stocks we like
The easiest way to give stock is simply to buy it yourself, through a broker, and then get your broker to transfer it to the recipient's account. If the present is for someone under 18 who doesn't have an account, you can set up a custodial one. Online brokerages such as E-Trade and ShareBuilder have detailed explanations of how to set up custodial accounts on their sites. Typically, the work involved is limited to filling out a form, getting it notarized and mailing it to the company that will maintain the account. You can give up to $12,000 in stock without incurring a gift tax.
If you simply must wrap up a physical share, Web sites such as OneShare and GiveAshare.com sell single shares of more than 80 companies in personalized frames. But it will cost you: from $40 to $80 above the trading price, depending upon the frame.
Of course, the fact that the market is down doesn't mean you can buy just any stock. Some big brand-name companies may not even be around in five years. To ensure your gift grows in value and doesn't make your loved ones wish you had simply given a sweater, it's important to pick a company with long-term staying power, ideally one that could turn around quickly when the economy revives.
Three names I like for the long haul are Starbucks (SBUX, news, msgs), Citigroup (C, news, msgs) and News Corp. (NWS, news, msgs). Each was trading at less than $10 per share the last time I checked. All three were overwhelmingly rated as "outperform" by the investing community on MSN CAPS, which enables participants to see community stock ratings as well as make their own picks and predictions.
The very fact that these companies are well-known makers of familiar products will work in their favor when the markets begin to recover. As other investors follow the tried-and-true advice of "buy what you know," these global brands will benefit.
Plus, the universal brand recognition makes these stocks better gifts -- particularly for young investors -- than, say, shares of an obscure biotech firm.
Starbucks
Hard habit to break
Who hasn't had a cup of Starbucks coffee? Over the past 37 years, Starbucks has grown from a Seattle coffee shop to the largest coffeehouse company in the world. In the process, the company persuaded Americans to get serious about coffee, more or less eliminating the "instant" powders and freeze-dried nuggets in favor of the carefully brewed specialty drink that we all supersize in Italian.
Starbucks' grande growth has become a liability in recent years. The company suffered as consumers bypassed its suddenly too-efficient stores in favor of smaller coffee shops with a neighborhood feel or opted to brew their own lattes at home for less cash per cup.
That shift caught the company by surprise as it pushed forward with aggressive expansion plans. Now the company is cutting back. But so are consumers, who tend to see coffee from Starbucks as a luxury that's hard to justify in today's environment. Starbucks executives admitted as much at a recent conference with analysts, saying holiday sales would be slow.
"Five dollar coffee is the first thing to go in a recession," says Nicole Miller Regan, a senior research analyst at Piper Jaffray. "You see at-home coffee consumption going up for the first time in the decade."
Retrenching in a downturn is no easy task. That's one reason Starbucks stock has fallen around 60% in the past 12 months.
However, there's reason to believe Starbucks will ultimately be successful. The company is adjusting aggressively. Early in 2008, Starbucks brought back founder Howard Schultz and announced it would close hundreds of underperforming stores. Analysts who follow the company believe Schultz has the skill to resuscitate Starbucks' image as an affordable luxury brand.
"Starbucks is going to be there for our children and their children," says Cowen research analyst Colin Guheen. "It is a difficult time, and the stock has suffered because of it . . . but, for the longer term, you should accumulate brands that you believe in, and Starbucks is that brand."
News Corp.
77 and still savvy?
It's understandable why a company called News Corp. would have problems. The economics of the news business have been dreadful for years. Newspapers are failing as advertisers leave for the Web, billboards, even cell phones -- and the same trends have punished broadcast news. Recession-related cutbacks in advertising will only make things worse for companies such as News Corp.
"We believe significant exposure to advertising and foreign exchange fluctuations will affect results," wrote JPMorgan Chase analyst Imran Khan in a November note to investors. Khan has a hold on the stock.
But News Corp. and its founder, Rupert Murdoch, are not sitting still. They have made some aggressive moves in the past several years and are now as well-positioned as any media company, ready to recapture advertising dollars once the economy recovers.
In the past three years, Murdoch has expanded News Corp.'s empire to include MySpace, the largest U.S. social networking Web site, and The Wall Street Journal, the second-largest U.S. newspaper, after USA Today, and one of the strongest among newspaper-based Web sites. The $580 million Murdoch spent on MySpace quickly paid off. The site now brings in the majority of the nearly $1 billion that News Corp.'s Internet properties are expected to generate this year.
The $5 billion Murdoch spent on The Journal has yet to pay off in similar fashion, partly because Fox Business News, the new business TV channel that was to showcase The Journal's brains, has yet to gain significant traction. On the upside, viewership of Fox Business News is steadily growing. So it might be hasty to conclude that Murdoch's strategy won't work. After all, this is the company behind Fox News, which had more viewers than CNN and MSNBC during much of the presidential race.
Murdoch has sounded bullish about the media business lately, hinting at a $5 billion war chest that could be used to snap up struggling media properties at a discount.
Though he rates News Corp. stock a hold, Goldman Sachs analyst Mark Wienkes is optimistic about the company's long-term earning potential. In a recent note to investors, Wienkes wrote, "The stock is likely to be challenged by the unclear depth of declines at TV stations and newspapers . . . but upon stabilization, News Corp. could emerge as an early outperformer."
Citigroup
Feds won't let Citi fail
Citigroup is plainly a dog of the Dow. The bank's stock was trading at $3.05 a share last month, and, though it's now in the $7 range, it's still cheap. This year it has been one of the Dow industrials' ($INDU) worst performers. Its dividend also offers investors a high yield, which makes the stock a shoo-in for the dog-of-the-Dow stock screen.
Investors may want to discount the importance of the screen and focus on the government's insistence that this bank cannot fail. In November, the federal government gave the bank $45 billion in exchange for a mix of preferred and common stock. That's quite a stake. And in today's environment, it doesn't hurt to have Uncle Sam as a stockholder. No matter how much bad debt Citigroup has on its balance sheet, the government has a clear interest in keeping the bank afloat.
Citigroup has a number of problems. Aside from making bad bets on mortgage-related securities, the bank's management let the institution grow too big, buying businesses such as Ameriquest Mortgage in 2007.
"Citigroup has long been known as a company that is much more bloated than its peers," said David Ritter, a senior bank analyst at Argus Research, in a November conference call. "I think it is really a crisis of confidence as much as anything."
Now the bank is slimming down, laying off more than 50,000 employees. A leaner Citigroup should eventually be able to restore investor confidence and return fat profits.
Produced by Darragh Worland
Published Dec. 15, 2008
