Springtime Budget-Busters -- Savings Experiment
Midday Market Minute: Average 401k Balance Reaches Record High
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.
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Reader Comments (Page 1 of 1)
12-02-2010 @ 7:22PM
william lindblad said...
I wish that I could say that 2011 looks bright.
From my view I see a double dip - as a 100% certainty.
Relaince on data is what caused the problem in the first place and it's happening again. If everyone took the time to disseminate truth potential within reports there would be less exhuberance. Truck and car sales are up. I believe that one, but will the truck sales continue? I think not as I believe that was due to over inventory, cheap prices and cost effectiveness - and the buying was mostly fleet purchases. Cars - unknown, but if it continues over the winter months, it's a plus. The NAR report on "pending" homes sales is a report that is not worth the paper that it is printed on. This has been fudged in past and therefore has a tainted track record.
The only ones that count are "closed". There is the issue of the debt package, both here and abroad. I fully expect the EU and the UK to get their houses in order much sooner than we will and this will push the Euro up and the dollar down. Oil is already on an upward spiral and since it is traded in dollars, 4.00 at the pump will be on the agenda. Guess what that will do to food prices?
The people on the Hill have the same problem that Franklin spoke about - "we agree to dis-agree" and consequently, they will remain only a few pegs above worthless. There are good points and one is the lessening of credit card use. Trouble is the reason is hard to define as it could be a more aware consumer, or just one that has run out of money. Data always has at least two interpretations and while I wish all of the optimists well and really hope that they are correct, I am choosing the negative view and unfortunately, I will prevail.
In the past two years there have been bright spots but the lights cannot manage to stay on. There remains such a myriad of loose ends that nothing positive is going to grow. It is as the job market report. It looked good but was this the result of temporary seasonal hiring? Obviously some was, but how much? The markets keep accepting this information at face value and continue to push upward. If the information turns out to be misleading the fall will be great and the mess will get a new lease on life.
Happy new year.
12-02-2010 @ 7:37PM
Sheldon L said...
Will,
Thanks for usual inspired commentary.
You need to define double-dip. If you mean that the DJIA will sink 10% to 15%, I would not consider that a double dip. For me it would have to drop 2000 points in a short period and I do not see that happening.
The most important reason there is no double dip is that much of the liar loans, extended credit, bank leverage, credit swap leverage etc. cannot be done now. Also housing is down but is not going much lower -- it will just stay at current depressed levels. If the reasons for the initial calamity are gone so is a repeat performance.
My biggest fear is energy prices and black swans, otherwise I will paraphrase Ben Franklin since you brought him up...
When asked if he was an optimist or a pessimist he responded "I am an optimist, for it is of no value to be anything else.
Peace