Streetwise
Lauren Rudd
Sunday, December 7,
2008
The End Game - Part II
Thanksgiving dinner is but a pleasant memory and the world
has officially kicked-off the holiday shopping season. It is also a time of
little cheer for many investors, so here are a few kind words. Wall Street has
nothing against you personally. It does not know if you have been naughty or
nice, nor does it care.
On a more serious note, I recognize that greed, ignorance and
stupidity on a cataclysmic scale have led to an economic and investment
environment that shows no mercy. Yet, the warning flags were flying well in
advance of the storm.
Last January 13, I again warned adamantly that we were facing
a serious recession, my mantra since mid 2007. Unfortunately, the idea of a
recession was considered hearsay, given little credence and was unequivocally
denied by the White House. Now the National Bureau of Economic Research has
finally stated that we are in a recession...since last December! If it walks
like a duck and talks like a duck, guess what.
Nonetheless, a prudent selection of stocks will still enable
you to exceed the annual performance of the S&P 500 index by about 3 to 5
percentage points. Longer term, you should be able to exceed that same index’s
40-year average rate of return of 10.8 percent.
However, trying to swing from the rafters is a pastime for
monkeys, not investors. Your investment priority should be to look for dividends
first and capital appreciation second. The latter will come but it may take 12
to 18 months and you want to be paid while you are waiting.
For those of you needing a little help or motivation to get
started, each year at this time I provide you with a dozen possible research
candidates that lend themselves to the current Wall Street milieu and whose
performance I then review the following year.
As I mentioned last week, rather than discourage you with the
toll the market extorted on last year’s selections, we need to recognize that
nearly every stock has suffered some damage over the past year and therefore you
should start with a fresh outlook and perspective on prospective additions to
your portfolio.
So which companies should we select from the cornucopia of
investment opportunities? Last week the suggestions were Best Buy (BBY), Hasbro
(HAS), Hewlett-Packard (HPQ), Intel (INTC), Procter & Gamble (PG) and Clorox
(CLX). If you missed last week’s column because of the holiday, it can be found
on my website, www.RuddReport.com.
This week, we will lead off with Briggs & Stratton (BGG), a
small cap company that offers up a dividend yield of 6.9 percent. When the
economy turns around, a company like Briggs & Stratton should have a greater
upward potential than those that suffered less. I would also consider
Harley-Davidson (HOG), a long-term favorite of mine, with a 9 percent yield.
Although I have not been thrilled with its management or
growth potential, the 8 percent dividend being paid by General Electric (GE)
cannot be ignored. It is the holiday season and toy stocks are doing well so I
am going to add Mattel (MAT) with its 6 percent yield to the list.
Being a firm believer in tech stocks, I will add Microchip
Technology (MCHP) with its 7.9 percent yield. The final selection is the company
that brought you the Snap, Crackle and Pop elves, Kellogg (K) with its 3.3
percent dividend yield.
This latest group of six has a combined average dividend
yield of 6.9 percent and we have not reached for the stars. Nonetheless, there
is never a guarantee against a dividend being cut, especially if the recession
should go beyond my forecast of mid-2010.
All twelve companies, except Briggs & Stratton, have an intrinsic value well in
excess of their share price. Nevertheless, they are not an instant portfolio
where you just add water and stir. They are investment suggestions designed to
keep you busy and away from the eggnog.
