Stocks and mutual funds to own now

SocialTwist Tell-a-Friend
Kathy Kristof

With debt woes slamming Europe, firms that sell mainly in the U.S. and in emerging nations look especially attractive. Here are a selection of stocks and funds considered to be smart picks for 2012 by Kiplinger’s Personal Finance:

Chevron (symbol CVX, $97). A spike in oil prices last summer helped the company report blockbuster third-quarter earnings. At today’s lower oil prices, analysts believe Chevron’s earnings will drop about 7 percent in 2012. But even at that level, the stock sells at bargain-basement prices and pays an annual dividend of $3.24 per share that’s easily supported by the cash it generates (the stock yields 3.5 percent).

Microsoft (MSFT, $25). Value-oriented stock pickers are now pouring money into this company, drawn by its great cash-generating ability and the prospects for Windows 8 — the upcoming version of Microsoft’s personal-computer operating system, which will contain features aimed at smartphone and tablet users. Meanwhile, Microsoft’s gaming and business-services units are vibrant. The shares sell for 9 times estimated year-ahead profits and yield 3.3 percent.

Dover Corp. (DOV, $53). Knowles Electronics, a unit of this little-known conglomerate based in Downers Grove, Ill., makes the tiny microphones used in cellphones and tablets from Apple, Nokia and Sony Ericsson. But that’s not all. Refrigerated display cases in grocery and convenience stores are made by Hill Phoenix, another of Dover’s 33 subsidiaries.

Better yet, the company is increasingly integrating related businesses, cutting costs and cross-marketing, which should boost profit margins. The stock sells for 11 times estimated 2012 profits and yields 2.5 percent.

Schnitzer Steel Industries (SCHN, $43). The company has been able to grow rapidly by selling recycled scrap to businesses in developing nations, such as China, Malaysia and Thailand. Meanwhile, the company has been investing in technology to cut costs and improve efficiency. With analysts forecasting annualized earnings growth of 15 percent over the next five years, and the stock selling at just 10 times estimated year-ahead profits, Schnitzer looks like a steal.

Lockheed Martin Corp. (LMT, $77). Lockheed is the lead contractor on a multiyear contract for F-35 fighter jets that could be worth some $382 billion, and the Department of Defense said it’s now willing to let the company compete for India’s $11 billion fighter-jet contract, too.

The company, based in Bethesda, Md., also has a lucrative satellite business that can help sustain growth when defense spending slows. Its stock sells for just 10 times estimated 2012 earnings and yields a robust 5.3 percent.

Express Scripts (ESRX). This company, a pharmacy-benefit manager, is positioned for gangbuster growth thanks to an aging population and increasing drug sales. Earnings for the company, which also owns 60,000 pharmacies, have increased 28.4 percent annualized for the past five years and are projected to grow 17.3 percent a year for the next five years.

Mutual fund choices

These three funds are tops in their categories.

Dividend payers: Vanguard Dividend Growth (VDIGX). No matter how the market moves, manager Don Kilbride sticks to his investing approach. He hunts down undervalued companies with growing dividends, producing what he calls a high-quality portfolio that currently delivers a 2 percent yield. This year, that quality helped keep the fund even through early October, despite the lashing that affected Standard & Poor’s 500-stock index.

Low-minimum funds: Amana Trust Income (AMANX). If you’re looking to tap into the stock market with a low-minimum, top-quality fund, this is it. This large-company stock fund requires a minimum investment of $250, or just $100 if it’s in a retirement account. Each additional investment can be as low as $25. That hasn’t hurt its performance: It gained 4.2 percent annualized over five years, which beat the S&P 500 by an average of five percentage points per year.

One-stop funds: Vanguard Wellington (VWELX). A fund that offers both growth and relative safety with stocks and bonds in a single portfolio can be a tonic in a tumbling market. Over the past 10 years, the venerable Wellington fund gained an annualized 6.0 percent, outpacing 96 percent of its balanced-fund peers.

But more important, the fund shed just 11.9 percent from late April to early October, while the broader market dropped 13.5 percent. Wellington has a 2.9 percent yield.

Send your questions and comments to moneypower@kiplinger.com. For more on this and similar money topics, visit www.Kiplinger.com.
© 2011 Kiplinger’s Personal Finance