Chasing Value: Ten stocks for 2010 -- Part 6

Current Contenders

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

Brown-Forman (BF.A) was founded in 1870 by George Garvin Brown, who decided to sell top-grade whiskey in sealed glass bottles. The Brown family controls more than 70% of the voting shares. Brown-Forman is one of the largest producers of spirits and wines in the world, with popular brands including Jack Daniel's, Canadian Mist, Southern Comfort, Early Times Kentucky Whiskey, Korbel champagne, Finlandia vodka and Bolla wine.

Last year I felt Diageo was a good bet heading into a year of great uncertainty. This year some confidence has developed in the market, but I am not sure how much more certainty. Given the turbulent times, perhaps it is only fitting that the company that makes a product called Southern Comfort actually does so because on November 16 it raised its dividend 4.3% to $0.30 per share. Stockholders of record on December 7, 2009 will receive the cash dividend on January 4, 2010. This is Brown-Forman's 64th consecutive year of quarterly dividends and the 26th consecutive year it has increased the annual dividend -- now that's comforting. The yield based on the new payout is 2.23%.

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.

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

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

Exxon Mobil (XOM) is the largest non-government owned oil company in the world and the largest capitalized of any publicly held company. I almost feel like an outcast dolt to write off Exxon for 2010. Barron's just gave it their unequivocal endorsement with a substantial amount of supportive data. Somehow, I just don't think it will outperform many smaller companies.

It may beat the major indexes, but it's lacking from my perspective because major finds or any deals it does are only likely to bring incremental growth. If it had all the same characteristics of strong balance sheet, top notch management, long-term (15-year) reserves, focus on profits and return-on-equity, but was smaller, then it would be a steal and be among the top performers. Exxon Mobil may actually end up being one of the top acquirers in 2010. In this respect, Anadarko, which remains a contender, might end up in their sights. In a one-year test, the acquired, at a premium price, usually end up better off.

Johnson & Johnson (JNJ) is one of the finest companies there is, period. Almost all of the positive characteristics of Exxon Mobil can be reiterated about Johnson & Johnson, and more. Although this is another large-cap stock that may beat the market next year, I do not expect it to beat the market by much. It does pay a solid dividend and I have recommended it before, most recently in Where should granny put $50,000? Johnson & Johnson has relatively low debt and a high return on equity. If you are building a long-term portfolio, it should be a core holding, and I own it in my Roth IRA. I just think that the picks list of only ten bets for the year should include even more upside.

Much has been written lately promoting the idea that 2010 will be the year large-cap stocks return to favor, and I believe that. I just don't believe they have to be the largest cap stocks.

Links to the series: 2010 picks: Part 1 / Part 2 / Part 3 / Part 4 / Part 5

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: Among the positions discussed in this post I own shares of JNJ.