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Ten for 2010

By Tony Crowell

Stocks had a good year in 2009, anticipating the economic recovery that began in the fall. Both the stock market and the global economy will continue their comebacks in 2010, although a few lagging sectors will slow the pace. The ten picks below are all big enough to absorb irregularities and each is in position to report higher earnings for both the December quarter and for all of 2010.

XTO Energy-XTO $47). In this marriage of two “X’s,” a growing developer of natural gas agreed to be acquired by the world’s largest privately owned energy company, Exxon Mobil (XOM-$69). The deal provides a current spread of 3-4%. Gas is the cleanest fossil fuel, whetting big Exxon’s demand. XTO owners will own XOM stock by mid-2010 at a slight markdown.

International Business Machines (IBM-$132) no longer just makes big computers. Services, including software, make up 60% of sales. Long strong overseas, it is expanding sales in emerging markets. Innovation is increasing with an ambitious program to embed information technology in urban infrastructures. IBM is a $100 billion technology company selling at a discount to lesser folk.

Amazon.com (AMZN-$141) is dedicated to using innovative information technology to serve and win customers. The result is the world’s fastest growing and most profitable retailer. Amazon’s stock is the most richly valued of these ten with forecast 2010 earnings lowering its P/E ratio to over 50. That’s pricey but it’s capable of beating estimates.

Monsanto (MON-$83) leads in applying biotechnology to enhancing crop yields. Its genetically modified seeds are slowly winning consumer acceptance, particularly in emerging economies. Its older chemical products were pressured under tough agricultural conditions but 2010 will see broad recovery with new product rollouts.

Oracle (ORCL-$25), my newest recommendation, is growing global sales of its broad array of business application software at 18%. It should receive approval of its pending acquisition of Sun early next year, which will expand its database strengths. Forecast earnings reduce the P/E to 15.

 

Teva Pharmaceuticals (TEVA-$56) is the world’s largest provider of generic drugs. Pressures for cost containment of medical care will increase demand for its products. 2010 earnings are forecast around $4.50, up 34% from forecast 2009, a quite reasonable valuation for the leader in a vital sector.

Clorox (CLX-$62) managed to grow sales and earnings during a difficult consumer economy. The company has steadily built market share without sacrificing profit margins. Finances are sound and international sales growing. Its 3.2% yield from a periodically increased dividend makes it a good balance for more volatile stocks.

China Life Insurance (LFC-$73) is the world’s most profitable life insurance company. With a captive market and compatible relations with its government, its growth is assured. Valuation is a bit rich but forecast 2010 earnings growth brings the P/E ratio down to 25. Its stock provides a conservative method to play the China economy.

Aflac (AFL-$47) is growing steadily from sales of supplemental health and life insurance in the U.S. and Japan. It survived a few capital bumps during the financial crisis but is back on track for steady growth in sales, earnings and dividends. 2010 earnings will be over $5.00 a share, making its valuation quite reasonable.

3M (MMM-$83) has come a long way from Scotch Tape and Post-It notes with over $22 billion worldwide sales of innovative technology-based products. Growth is steadier, if slower, than others here but its valuation is reasonable and its prospects appear underrated.

These innovative companies share an approach demanded by Amazon founder Jeffrey Bazos, “focus on the long term and obsess over your customers.” Shareholders will share their successes in 2010.

 

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. (949)-494-1376/(800)-697-2622; www.crowellroberts.com

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