Walmart's New Health Food Push: Is It Too Hard to Swallow?
Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger"In volatile times, keep it simple," instructs Richard Moroney. "For us, simple is stocks with strong fundamentals and solid growth prospects that trade at attractive valuations."
In his Dow Theory Forecasts, the advisor profiles IBM (NYSE: IBM) and PepsiCo (NYSE: PEP), each of which is involved in large share buybacks.
Moroney explains, "IBM competes in mature industries but continues to drive double-digit profit growth, developing software products and targeting fast-growing niches in the services business." In addition, he adds, IBM is expanding in such emerging markets as Brazil, China, India, and Russia.
Moroney states, "Reflecting the strength of its software and services businesses, IBM recorded 16% growth in per-share earnings for the first nine months of 2007. Services contract signings, a key indicator of IBM's future growth, jumped to $11.8 billion in the September quarter, up 12% from year-ago levels.
"Cost-cutting efforts have boosted profitability in recent quarters, a trend likely to continue. Share repurchases are also boosting results. IBM completed a $12.5 billion accelerated share-repurchase agreement in May, reducing the share count by 8%.
"Per-share earnings have risen at least 10% in each of the last eight quarters, and continued double-digit growth is likely. Consensus estimates project per share- profit growth of 15% for 2007 and 14% for 2008. IBM appears to have broken out of its cycle of sporadic growth, and the shares earn a Buy and Long-Term Buy rating.
The advisor also recommends PepsiCo. He explains, "International operations at PepsiCo have delivered consistent double-digit sales and profit growth in recent quarters, and the company continues to expand overseas. In the September quarter, PepsiCo expanded its partnerships with Unilever and Starbucks and completed the acquisition of Ukraine-based Sandora Beverages."
He continues, "Unlike many rivals, PepsiCo has been able to offset higher corn-syrup costs through price increases and cost reductions in other areas. Revenues grew 10% and core per-share earnings jumped 14% in the first nine months of fiscal 2007. September-quarter per share profits rose 11% to $0.99 excluding special items.
"The international segment led all other business units with 20% sales growth during the nine-month period. PepsiCo plans to boost North American sales by introducing several new products for its Tropicana unit in early 2008 and extending its highly successful Gatorade product line with new products.
"PepsiCo expects to generate at least $7 billion in cash from operations this year and return much of that cash to shareholders. The quarterly dividend jumped 25% in May, and the company plans to repurchase $4.3 billion in shares this year.
"Per-share profits, up in each of the last nine years, are expected to climb at least 10% this year and next year. PepsiCo is a Focus List Buy and a Long-Term Buy."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
11-09-2007 @ 10:38AM
david gennoe said...
Interesting comments on PEP and IBM....I suppose I am biased, since they are two
of my favorites...plus the fact that I was employed by one of the above for over thirty
exciting years and have found the other one to be my favorite soft drink for over
60 years, add to that the fact that both of their stocks have been (and are) quite
profitable in my portfolio.