Chasing Value: Ten stocks for 2010 -- Part 5

Contenders

• American Eagle Outfitters (AEO)
• Anadarko Petroleum (APC)
• Anglo American (AAUK)
• Berkshire Hathaway (BRK.B)
• Diageo (DEO)
• EZCorp (EZPW)
• E-Trade (ETFC)
• Grubb & Ellis (GBE)

Abbott Laboratories (ABT) has to be considered for 2010 and it could be said, given its long-term performance, that it should be considered every year. It has been on my watch-list for some time. Indeed, if you have been keeping up on your reading, you may have taken notice that Abbott is on just about every 2010 pick list, and all 17 analysts currently covering the stock uniformly (meaningless herding) have given it a buy rating. If anything makes me think twice, it is following the herd.

The company is paying a 3% yield and has increased distributions regularly for 20 years, quintupling them over that period. It's 52-week range goes from $41.27 to $57.39. Oddly the low was in May, not March like the majority of the market. It closed at $53.64 last Friday. The stock might be a good investment even though others are cheaper. Abbott can brag of a 27% return-on-equity while having a below-market P/E of 15. If the stock creeps up to its recent high and you add the 3% yield, an 11% gain in an unpredictable 2010, obtained with relatively low risk, seems like a nice reward.

Naked Puts (Sell to Open Put Options)

See Chasing Value: Ten stocks for 2010 -- Part 4 for the analysis of these options:

• E-Trade (ETFC) -- April 2010 puts (EUS-PY) with a strike price of $1.50 are offering 30 cents a share.
• EZCorp (EZPW) -- March 2010 puts (ULP-OC) with a strike price of $15.00 are offering $1.55 a share.
• Ford (F) -- January 2010 puts (F-RK E) with a strike price of $8.00 are offering 91 cents a share.
• Wells Fargo (WFC) -- April 2010 puts (FHU-PA) with a strike price of $27.00 are offering $2.85 a share.

On the Fence

• FedEx (FDX)
• Ford Motor (F)
• General Electric (GE)

Microsoft (MSFT) is also on a lot of recommendation lists, but unlike Abbott it has gained 50% over the past 52 weeks, and after dropping in March it is up over 100%. When it was down, I recommended it myself and bought shares and did naked puts as well, making money both ways. I have since sold. Although all signs indicate that Windows 7 is a hit and there is a tremendous amount of latent demand to upgrade software, I think it is hard to know how much of this is built-in to the stock price. Windows 7 has been pretty well broadcast.

Out of the Running

• American Oriental Bioengineering (AOB)
• Annaly Capital Management (NLY)
• Avi BioPharma (AVII)
• Intuitive Surgical (ISRG)
• Wells Fargo (WFC)

Tupperware Brands (TUP) would have been a spectacular pick-up a year ago, but today I am not so sure. I remember reading an article about it in Barron's recommending the stock, which has expanded its traditional wares to include upgraded products suitable for table service. It also has a growing cosmetics line that was generating over a third of its income.

The metrics are a bit inconsistent to me. It has a lower-than-average P/E and very low P/S under 1.0, but the P/CF is wild at almost 13. A price-to-book of 4.0 is too rich also. In any event, the stock is trading near its 52-week high, which by itself would not disqualify it. What does bother me is that insiders have been selling all month. Some are "planned sales," but the plan does not have to be set too far in advance. Options awards are also being dumped as fast as they are issued, and then there is just plain selling. I understand that the stock is way up and folks want to see some of their just rewards. However, with the year end so near why don't they wait for January to save or at least postpone capital gains taxes for a while?

Links to the series: 2010 picks: -- Part 1 / Part 2 / Part 3 / Part 4

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: At time of publication, I do not own shares or options in any of positions discussed in this post.