The following two-part article puts forth ten stock ideas that I believe would be better off in your investment portfolio than one comprised primarily of Certificates of Deposits (CDs) or bonds, or even government treasuries. This is not to say that CD's do not have value or offer some level of security, but they are long term losers.
A basket of high yielding-high quality stocks can offer a higher return, better tax advantages, and the potential of significant appreciation for those with a long time horizon. Five year CD earning 4%, or a utility stock? I pick the utility every time.
My wife sent me the following quote from Ambrose Redman that I thought would be worth sharing with readers: "Courage is not the absence of fear but rather the judgment that something else is more important than one's fear."
It seems that might be extended to one's view on investing as well. What is really important, the short term or the long term, growth or value, the promise of riches or the hope for stability? In each case I would favor the latter over the former and this brings to mind one of my pal Warren's lessons: Do not buy a stock unless you would be happy to own it even if the market was closed for ten years.
Berkshire Hathaway (NYSE: BRK.A and BRK.B) is certainly a candidate. Take a look at last week's Chasing Value: Considering Berkshire Hathaway... again. However, it does not pay a dividend. The following five quality stocks do:
General Electric (NYSE: GE) - Many investors have been griping that GE has not done very well in the last ten years, and in fact, if you would have bought in at the high you would have been under water for most of that time. However this triple A rated company is worth a look anyway. At Friday's closing price of $29.12 and paying a 4.3% yield you would be buying a great balance sheet with great products and services near the stock's ten-year low. This one is ready to rock for the next ten years. Serious Money: Has General Electric (GE) hit bottom?
Huaneng Power Intl ADS (NYSE: HNP) - Chinese stocks are down 50% or more and HNP is no exception, but at Friday's closing price of $28.36, paying a 6% yield I think the the largest power company in China is a steal. Chasing Value: Huaneng Power odds & ends
JPMorgan Chase (NYSE: JPM) - A shrewdly managed establishment in very treacherous times indeed. I wrote JPMorgan's $10 offer for Bear still too cheap! because I think it played white knight at the government's request when it was really the fox guarding the hen house. While it looks like it took on risk, I think it will turn out in the foreseeable future JPMorgan made a fortune from Bear's repriced assets. At Friday's closing price of $37.67, paying a 4.4% yield and down with the rest of the financial sector the fear factor may be overdone.
Merck and Co. (NYSE: MRK) - This superbly managed company has survived several years of legal expenses and bad publicity while maintaining great cash flow and a strong balance sheet. It has a decent pipeline of products as well. At Friday's closing price of $35.27, it was paying a 4.3% yield and in a very tough market. See why I think Merck is holding up just fine
Keep reading: In my next post I list five more stocks that I think make better investments than CDs right now.
I do not think my picks for the next decade will surprise the shrewder investors among my regular readers. They have already read similar posts like Serious Money: How safe were BRK, BUD, PG, SO, & UPS? and one of my most important ever from last November Serious Money: Electric utilities are the place to be. Readers who heeded that advice are laughing at the market and all the prognosticators since.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of GE, HNP, JPM & MRK. I may own DEO soon.
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Reader Comments (Page 1 of 1)
8-25-2008 @ 4:38PM
Glenn said...
The stock market is a suckers bet. It is foisted on the working class as a good investment. I purchased 140 shares of GE in July 2000. It is now worth over three thousand dollars less than when I bought it. A CD would have at least show a return in that period of time. Not a rather large loss. Hey let us look at almost all mutual funds of that period of time. Of course, I guess 8 years is not a long term investment. Or the mutual funds that I have had since the early 90's that have returned a total of maybe 14% over that period of time. 14% total.
8-26-2008 @ 3:54PM
Sam said...
Right now CD's for me baby !!! Short term.