Chasing Value: 10 Stock Picks for 2010

Posted Dec 29th 2009 4:40PM by Sheldon Liber
Filed under: International Markets, Forecasts, Competitive Strategy, General Electric (GE), Home Depot (HD), Berkshire Hathaway (BRK.A), Archer-Daniels-Midland (ADM), Options, Bargain Stocks, Chasing Value™, Raytheon Company (RTN), E*TRADE (ETFC), EZCORP (EZPW), Williams Companies (WMB), Brasil Telecom (BTM) , Grubb and Ellis Co (GBE)

To arrive at this years ten picks I scoured business journals and editorials, online and off. I also ran through a series of stock screens repeatedly over the last few months filtering for five primary value metrics identifying stocks worthy of further consideration.

The 5 data points were price-to-sales (P/S), price-to-book (P/B), price-to-cash flow (P/CF), dividend yield and return-on-equity (ROE). I did look at other things but these were the subject of my initial focus.

Many of my ideas leading to the final stocks selection were reviewed in a recent ten part Chasing Value series. Still other possibilities came up that I did not have a chance to review but did make it to the final list. In each and every case I excluded stocks that I would not invest in myself. Some I already own. Some were recent acquisitions or added to my personal watch-list.

This years picks are less exotic than years past with the exception of #10 -- the stock option. The theme this year is back to basics: energy, water, food, communications, household needs, and the immediate cash to buy them (note: the following links become active as the stories are posted over the end of year week).

In each of the posts I outline my thoughts on the stock pick, the specific relevant data and the closing price on December 28, 2009 which I will use as the starting point for tracking each quarterly review.

Using the closing prices from Monday December 28, 2009 I will also track the Standard & Poors 500 Index (1,127.78 close), the Dow Jones Industrial Average (10,547.08 close), and the NASDAQ (2,291.08 close), using them as the stalking horses.

Happy, Healthy, and Prosperous New Year!

Disclosure: Among the positions discussed in this post I own shares of BRK.B, GBE, EZPW, WMB, GE, RTN and ETFC options.

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.

Tags: 2010, ADM, archer daniels midland, ArcherDanielsMidland, berkshire hathaway, BerkshireHathaway, brasil telecom, BrasilTelecom, BRK.B, BTM, chasing value, ChasingValue, ETFC, etrade, ezcorp, EZPW, GBE, GE, general electric, GeneralElectric, grubb and ellis, GrubbAndEllis, HD, home depot, HomeDepot, raytheon company, RaytheonCompany, RTN, sheldon liber, SheldonLiber, value investing, value stocks, ValueInvesting, ValueStocks, williams co, WilliamsCo, WMB

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Reader Comments (Page 1 of 1)

12-30-2009 @ 8:48PM

dj said...

I discovered your blogs a couple of weeks ago. Really terrific work. The majority of value investing blogs out there seem too abstract to me, they don't talk about individual stocks, and they don't have skin in the game. So kudos to your blog on all these fronts.

I was looking through your picks from last year trying to piece together the metrics you used to make selections. Thanks for including them in this post. I was wondering if you could comment here or maybe in a future post about these metrics. I am still a novice value investor so I would be interested in your thought process on four of the metrics you list: price-to-sales (P/S), price-to-book (P/B), price-to-cash flow (P/CF) and return-on-equity (ROE). On the fifth metric I think I have yields down pretty well. I'm curious as a value investor what should I be looking for in these four metrics. I would also be interested in the larger picture they create. A lot of times you seem to hate a stock based on one of its valuations but it seems to be compensated by its valuations in one of the other categories. Just trying to understand this a little better. Thanks again for the great posts.

12-30-2009 @ 9:34PM

Sheldon L said...

dj,

Thanks for "tuning in". I will try and address some of your questions in future posts. While the various data points are a good foundation from which to build, there are three other things to consider.

1) Value investors hope to benefit and be protected by the principal of reversion to the mean. If you buy at a price below long term price points then you can make money by things just getting back to normal.

2) There is no way to protect yourself from outliers and "black swans". Remember that even insiders make bad bets or have a clouded view of things to come in their own companies.

3) Everything else aside, you have to be in the game to learn to play the game, and this means losing sometimes. I have lost and learned from it. You must develop street smarts...not just Wall Street, but Main Street and Mean Street too.