In this screen, we identify stocks for investors seeking the best of both worlds: strong expected relative price performance with a minimum level of risk. To generate this list, we first screened for issues ranked average, or better, for both Safety and relative price performance in the year ahead. Then, to further reduce the relative collective risk that is normally associated with stocks that offer high returns, we limited our cut to equities with a Price Stability Index in the upper 10% of our Universe (the Index runs from 5 to 100, with 100 being the best). Finally, we required that each stock have a dividend yield of at least 2.1%.
Given the criteria, our screen returned some of the more established and conservatively run companies, and equities arising from this screen are typically considered defensive. Of course, some issues may exhibit greater price swings than others, and the recent stepped-up volatility in the stock market and the decelerating prospects for economic growth combine to create a higher-than-usual degree of uncertainty. As a result, investors may well be drawn to the shares listed here, since they rate well for Safety. The list, on balance, will probably warrant the consideration of risk-averse accounts seeking good near-term price performance. Below we highlight some of the stocks from our screen.
Coca-Cola (KO - Free Analyst Report) is the world’s largest beverage company. It distributes major brands, such as Coca-Cola, Diet Coke, Sprite, Mr. Pibb Xtra, and Fresca, through bottlers around the world. North America accounts for a majority of the company’s sales, though it does have a strong international presence.
Investors shouldn’t be surprised to see Coca-Cola on our list, as the company has posted steady annual earnings gains over its history without much volatility. During the June quarter, the beverage giant realized top- and bottom-line advances of 5% and 16%, respectively, relative to last year’s second quarter. An important factor affecting growth is Coca-Cola’s various efficiency efforts, which were put into place in response to a lackluster domestic economy. Perhaps the most significant shift in operations has been the company’s move to acquire the North American operations of its largest bottler, Coca-Cola Enterprises. We believe that this has significant cost savings potential for Coca-Cola. Also, the company may well be in the market for small, complementary acquisitions of other bottlers, as a means of dealing with a challenging operating landscape.
Johnson & Johnson (JNJ - Free Analyst Report) manufactures and sells healthcare products in the consumer (baby care, sanitary protection, and skin care), medical device (wound closures orthopedics, and contact lenses), and pharmaceutical (contraceptives, anti-infective, and dermatological) segments.
Johnson & Johnson stock is ranked to mirror the broader year ahead market averages and garners our 1 (Highest) Safety rank. The company has made progress of late replenishing its pharmaceutical pipeline. Since mid-2008, sales of four of its leading
drugs have been hurt by new generic competition. However, Johnson & Johnson received FDA approval last year for its treatments of severe psoriasis and adult schizophrenia. Also, one of the company’s most promising drugs is a blood thinner whose uses include stroke prevention for patients with arterial fibrillation. Hence, we look for improved year-to-year quarterly results for the balance of 2010.
The Travelers Companies (TRV – Free Analyst Report) is a leading provider of commercial property/casualty insurance and asset management services. Following the April, 2004 acquisition of the former Travelers, the company is now a leading provider of homeowners insurance and automobile insurance through independent agents.
Though we look for a year-over-year share-net decline in 2010, comparisons should turn positive next year. Last year was a relatively quiet one for weather-related catastrophes. Consequently, we forecast an increase in the loss ratio for 2010. However, we are more optimistic about other line items. For example, net premiums earned are poised to improve sequentially, as all three of the company’s segments have posted increased renewal rates, and policyholder retentions remain at lucrative levels. Moreover, investment income per share should continue to climb, thanks to an increased level of invested assets. Finally, the expense ratio should increase in each of the next two years, as costs are spread over a likely rising premium base (on a sequential basis.)
To see the results of our screen, limited to those stocks that have strong relative price performance with a minimal level of risk, click here. As always, subscribers should carefully review the analyses in Ratings and Reports before committing funds to any particular equity.