Five U.S. stocks you could buy today
Using a system that puts stocks through an exacting financial test, this U.S. advisory has five stocks it tells investors they can buy now.
There’s always a system.
But there’s no magic formula. There are many technical tools that tell us where the stock markets are going, where energy or metals or financial stocks are going — and generally with commendable accuracy.
But ultimately, the only way to beat the stock market is to pick good stocks.
So any reliable system boils down to one simple question. Can a company keep on making enough money to make its shareholders happy?
Today we turn to an American advisory we frequently consult — because its system has turned up five U.S. stocks it tells its readers to “buy now.”
The advisory is Dow Theory Forecasts. The system is called Quadrix, and it measures stocks in six major categories — momentum, value, quality, financial strength, earnings estimates and performance.
While the advisory has been around for decades, it has used this system for 10 years. It has worked “admirably” if the advisory does say so itself, “with top-ranked stocks handily outperforming the average stock.”
Leaky or shipshape
This advisory has a chart showing just how handily its top stocks have done. The stocks it ranks in the top fifth have returned 225 per cent from 2000 through 2009 versus a loss of 38 per cent for the bottom fifth.
The top one-fifth has also outdone the average stock in 26 of the past 39 quarters, despite showing below-average volatility. In fact, these top performers have a tendency to row against the tide.
“The top one-fifth has delivered its best relative performance in down or flat markets, and its worst relative showings have come in periods when the markets rallied.”
This makes sense, since a rising tide tends to lift a lot of leaky boats to the same level as those that are shipshape. But only temporarily.
With unpredictable tides ahead, let’s turn to five stocks that earned above-average scores in all six categories the advisory values.
Thriving in Japan
The first is the insurance company whose mouthpiece is a well advertised duck — Aflac (NYSE-AFL). While this stock is a perennial winner in this advisory’s system, there is one caveat to be considered.
Aflac’s investment portfolio holds some hybrid European bonds that could affect its credit rating. But this is unlikely to lead to big losses. More will be known when fourth quarter results appear on February 2.
Meanwhile, the company continues to thrive in Japan, where it should generate higher sales thanks to its tie-ins with banks and post offices. Sales in the U.S. should hold steady until companies begin hiring again.
Total revenue is expected to climb 15 per cent for 2009 and another 6 per cent in 2010. Wall Street is looking for per-share profits to rise 10 per cent in this coming year.
At $49.14, Aflac is trading at less than 10 times forward earnings estimates and yields 2.2 per cent on its $1.12 dividend.
The ongoing and often bitter health care debate in the United States has not hurt drug distributor Amerisource Bergen (NYSE-ABC). Far from it. Its shares have risen 22 per cent since October.
And they’re liable to keep that up, since the company issued a strong first-quarter report for 2010 yesterday. Profits were up 36 per cent.
Located in George Washington’s turnaround town of Valley Forge, Pennsylvania, Amerisource is counting on higher prescription volumes no matter how health care reform turns out. The company has a target of 15 per cent per-share growth over the long term and lots of cash for acquisitions in the meantime. And it raised its dividend twice in 2009.
Despite the run-up, the shares still trade at a reasonable valuation. They stand at $27.08 and yield 1.2 per cent on the 32¢ dividend.
Mobile in Mexico
The consulting business would seem to be a sketchy place to be in this economy. But Hewitt Associates (NYSE-HEW) has done a good job of treading water until better days surface, according to the advisory. And new health care management services could be on the way.
It actually raised per-share profits by 50 per cent in the past fiscal year despite a 5 per cent fall-off in sales. Its largest unit, benefit outsourcing, held its ground to keep revenue from falling.
Hewitt gets high marks for Momentum and Value in the advisory’s system, and per-share profits are projected to rise by 10 per cent this year. It trades at $40.42 and does not pay a dividend.
NII Holdings (NASDQ-NIHD), formerly known is Nextel International, is a big name in the wireless communications market in Latin America. But it controls less than 8 per cent of the market in Mexico.
That could change when Mexico begins its spectrum auctions in March in an attempt to open up the mobile phone and Internet markets. NII has promised to use its ample stash of cash to build a network supporting high-speed Internet.
Meanwhile, the company’s shares nearly doubled in 2009 from their March low and have gained another 5 per cent this year. They still trade at a deep discount to their five-year average and the stock maintains a very bullish score in all categories. It trades at $34, but pays no dividend.
The fifth stock on the list, Stryker (NYSE-SYK) saw its shares rally in 2009 and early 2010. But this medical technology firm, which specializes in orthopedics, is facing a few legal and regulatory problems.
The federal government has charged it with promoting the use of bone-growth products that were not under patent. Management is working overtime to resolve this problem and come under compliance.
Yet sales keep on climbing. The company expects them to grow by 5 per cent this year, generating profits of 8 per cent. Wall Street pretty much agrees. The stock earns exceptionally high scores for Quality and Financial Strength, which should help withstand any legal backlash.
The shares now trade at $52 and yield a little over 1 per cent on a dividend of 60¢.
All you can ask of any stock-picking system is that it gives you solid and specific reasons for buying a stock — and an honest assessment of any problems that stock may face as well.
In investing, what you don’t know can hurt you, and probably will.
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