Daily Gains Letter

Top Stocks to Watch This Decade

By for Daily Gains Letter |

280213_DL_clarkThere is a lot of investment risk in the global marketplace, not to mention the risk of policy action by the Federal Reserve, lack of policy action in Washington, and slow economic growth in many mature economies. Yet, with all the doom and gloom, corporations are reporting very good numbers, and many are doing great on the stock market.

Action in the U.S. economy is going to be low and slow for the next several years. This is a pretty decent bet. It’s also a decent bet that the M2 money supply (which includes all money in circulation plus savings deposits, balances in money market mutual funds, and deposits) will continue to rise, and we’ll have artificially low interest rates and underreported inflation. But, this doesn’t mean that corporations can’t grow their earnings and because stock market valuations are reasonable, it also doesn’t mean that share prices won’t go up.

Here are several corporations that I think can serve as an example of what could make for a solid equity portfolio going forward: PepsiCo, Inc. (NYSE/PEP), Johnson & Johnson (NYSE/JNJ), Chevron Corporation (NYSE/CVX), Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL), Bank of Montreal (NYSE/BMO), The Procter & Gamble Company (NYSE/PG), and Union Pacific Corporation (NYSE/UNP).

Naturally, with the stock market at a five-year high, most of these corporations are also trading right near their highs. That’s not a problem. I think stock market investors looking to take on new positions over the coming quarters will be much better off sticking with the stock market’s existing winners, rather than trying to buy value or a turnaround opportunity.

The reason for this is the slow growth economy. Real economic growth is scarce these days, and the stock market is rewarding consistency—consistency in earnings growth, dividend payments, stock market performance, and valuation. Corporations don’t need to outperform or bring high growth to the marketplace; corporations need to provide consistency and investors will follow.

It is more ideal to buy stocks when they’re down, and many of the corporations mentioned above have come off their highs, often before earnings season. But this is a market that is very fickle because companies are having a tough time growing their top- and bottom-lines. Those that are doing so are the cream of the crop, on the stock market and in the economy.

Right now, the stock market is in a big consolidation after a very strong start to the year. It will likely stay this way until first quarter earnings season begins.

Corporations are doing the same thing they did the last three earnings seasons—they are being extremely conservative with their guidance. But, dividend payments are going up and share repurchase programs continue to be significant. The healthiest players in today’s economy are corporations with strong cash balances and cheap debt financing. And the reason why unemployment remains stubbornly high is because corporations aren’t investing in new plant, equipment, and so on because they don’t need to.

As a new buyer, I’d stick with the stock market’s existing winners over the coming quarters. I don’t have a sense as to where the stock market will end up this year, but corporations are the key market participants, and for the most part, business conditions for them aren’t that bad. This is especially the case among the large, dividend paying blue chips that control the economy.

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