It's that time of year when I start thinking about my 2011 stock picks, and enough folks have been nudging me that I might as well get on with it. The list will not be finalized until the end of the month. During the interim time I will take readers through a number of possibilities, explaining the rational for my suggestions along the way and adding and subtracting until I get the list down to ten.
Today I will start by reviewing opportunities discussed in another post and determine which of these stocks might provide the best value. The list was originally cast as a globally diversified, large cap, dividend paying and relatively stable group of companies that would likely weather any storm. See: Chasing Value: Bonds, Gold, Stocks and Capital Flight
Jumping right in with the most often used metric, we check out the price-to-earnings ratios in order of best to worst and find only Telefonica SA (TEF) stands out. Novartis (NVS) and Teva Pharmaceuticals ADR (TEVA) are merely noteworthy.
- Telefonica SA (TEF) -- Spain: 7.06
- Novartis (NVS) -- Switzerland: 11.14
- Teva Pharmaceuticals ADR (TEVA) -- Israel: 11.81
- Johnson and Johnson (JNJ) -- United States: 13.19
- Royal Dutch Shell (RDS.A) -- The Netherlands: 14.10
- General Electric (GE) -- United States 15.32
- Diageo plc (DEO) -- United Kingdom: 17.65
- China Life Ins. Co Ltd. (LFC) -- China: 23.96
Examining the price-to-sales ratios is mixing things up a bit. There are many studies that have concluded that the P/S is a better metric than P/E over the long term because top line gross receipts can not be "managed" like the bottom line earnings can. It looks like Telefonica is still looking good as are Shell and GE. The rest fall into a very common range for the overall market. Diageo stands out at the bottom.
- Royal Dutch Shell (RDS.A) -- The Netherlands: 0.55
- General Electric (GE) -- United States 1.03
- Telefonica SA (TEF) -- Spain: 1.29
- China Life Ins. Co Ltd. (LFC) -- China: 2.26
- Novartis (NVS) -- Switzerland: 2.47
- Johnson and Johnson (JNJ) -- United States: 2.90
- Teva Pharmaceuticals ADR (TEVA) -- Israel: 2.9
- Diageo plc (DEO) -- United Kingdom: 2.94
Among the reasons for selecting this group in the first place was that they all pay dividends. Again, TEF is on top paying the highest dividend yield. All but Teva are paying above market average rates.
- Telefonica SA (TEF) -- Spain: 7.06%
- Royal Dutch Shell (RDS.A) -- The Netherlands:4.7%
- Johnson and Johnson (JNJ) -- United States: 3.37%
- Diageo plc (DEO) -- United Kingdom: 3.18%
- Novartis (NVS) -- Switzerland: 3.1%
- General Electric (GE) -- United States 2.53%
- China Life Ins. Co Ltd. (LFC) -- China: 2.27%
- Teva Pharmaceuticals ADR (TEVA) -- Israel: 1.40%
I will be continuing this process using other metrics and different considerations to whittle the list down. In the mean time I am going to add three very strong candidates to the list that I think all have a very high probability of beating the market over the course of 2011.
Nobody should be surprised to find me adding "my pal Warren's" company Berkshire Hathaway (BRK.A and BRK.B) to the mix. The company has become such a large conglomerate that many might question this pick as the stock resembles an index fund. The interesting thing is that I have included it for this reason. My rational is that you could invest in the overall market through an index fund, however, in Berkshire you have something similar with the exception that Mr. Buffett hand picked each stock in the "fund". I think that makes it superior.
The next selection I can tell you now has a 99% chance of being one of my picks for 2011. This is my 5th year doing this and the first time I will include a stock three years running. It outperformed in 2009 and in 2010 and I am very confident it will do so next year as well. It is one of my largest holdings. You can see why I favor EZCorp (EZPW) in the following recent story. Chasing Value: Apple's Great, but This Stock Is Better!
The last stock under consideration at this time is Apple Inc. (AAPL) even if I do like EZPW better. It seems to me that if Apple produces no new products whatsoever in 2011 it will outperform the market by a wide margin based on what we already know: iPads. Macs, iPhones, and iTunes are all still flying off the shelves and the soon to be introduced Verizon (VZ) version of the iPhone is sure to be a hit too.
So there you have it. We are on our way to another rewarding year -- I hope ;-)
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. and is on twitter: Tenetic Disclosure: He owns shares or options in BRK.B, DEO, EZPW, GE, JNJ, NVS, RDS.A, and TEF.