For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"McGraw-Hill (NYSE: MHP) is my top conservative pick for 2008," says Nathan Slaughter, editor of Half-Priced Stocks. "If you want to beat the market in 2008, then you might start with the one company that actually owns the market, or at least the S&P 500 Index; McGraw holds the keys to the widely used stock barometer, as well as other benchmarks from the ubiquitous Standard & Poor's family.
"From futures contracts to ETFs, there is a staggering $5 trillion of investable assets linked to these indices -- which generate piles of recurring royalty and licensing revenues.
"Elsewhere, the firm is also a leading provider of textbooks and other supplemental learning materials. There are roughly 55 million students enrolled in grades K-12, and state governments currently spend more than $8,500 per student each year -- a total that is forecast to hit $11,000 within the next seven years.
"Finally, the company is also a dominant player in the credit-ratings business. Thanks to government-regulated barriers to entry, McGraw-Hill handles about 92% of all debt volume issued in the US and has issued ratings on $34 trillion in outstanding debt in over 100 countries worldwide.
"Over the past few months, the deterioration of mortgage-backed securities and other related fears have battered financial stocks like McGraw-Hill almost indiscriminately. However, the big picture outlook remains compelling as debt issuance in overseas markets swelled around 30% last year.
"Once the credit markets stabilize, McGraw-Hill will go on converting its rich abundance of competitive advantages into a mountain of cash flows -- most of which is funneled into the pockets of shareholders through dividends and share repurchases.
"Meanwhile, the stock, which typically garners a premium multiple, is now trading at an attractive discount to the broader market for the first time in over four years."
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