Blue Chips Poised for Share Growth

Michael McGee sees value plays in three big company brands

Independent financial adviser Michael McGee

Michael McGee is a hopeful pragmatist. During 2012’s second half, the Detroit-based independent financial adviser projects that U.S. economic growth could rise 1% to 2%, even as employers remain reluctant to add workers as they monitor fluctuating financial markets and the presidential and congressional elections with uncertain outcomes.

McGee, who has been affiliated with international insurer Allianz Life Insurance Co. for four years, is also concerned about the U.S. debt levels, the eurozone crisis, the expiration of the Bush-era tax cuts, and ongoing political strife. Such flux nearly ensures that corporations will hoard cash until there are clear post-election directives from Washington, he believes. Moreover, consumers will likely use their paychecks to whittle debt rather than make new purchases. These conditions could make it hard for the markets to sustain any rally or move upward. But McGee, who worked for Smith Barney and Merrill Lynch before opening his own firm in 2008, contends that careful investors should consider the following.

CITIGROUP INC. (C) Citi, which had 2011 revenues of $111 billion, may have been slammed by the recent financial crisis and had its stock price punished, but it is gaining ground. It is a growth investment now, says McGee. Positive moves include continued management and division restructuring, and a reverse stock split in 2011 that should attract more institutional investors. Citi is rebuilding its investment banking operations, says McGee, anticipating simultaneous rises in the economy and lending as money center banks will be needed to assist the financial rebuilding of the domestic and global economies. Currently, McGee says that “the stock is undervalued and Citigroup is getting lean to be ready for the pickup in lending.” Analysts’ median target price is $40.

PRICE: $26.88  •  P/E: 7.53

FORD Motor CO. (F) “I like this inexpensive stock as a value play where investors have an opportunity to own an American icon of a company for less than $11,” says McGee. Buoyed by strong investor response, Ford Motor Credit has sold $1.5 billion in bonds and last June converted $2.5 billion of asset-backed securities into unsecured debt. Ford is paying down debt and has begun to pay a dividend again. “The company has a low price-to-earnings ratio and great-looking cars and trucks. [President and CEO Alan] Mulally has restored a culture of quality, and the reinstatement of the dividend tells me the company is on the right track. The blue oval is back at Ford,” says McGee. Analysts’ median target price is $15.

PRICE: $9.60  •  P/E: 2.03

CVS Caremark CO. (CVS) will benefit from a rising older population, soaring healthcare costs, and increased need for services and products. It is the U.S.’s largest pharmacy healthcare provider, with more than 7,300 stores, and about 75% of the U.S. population lives within three miles of a CVS Pharmacy. Revenue streams include the federal Medicare Part D program that subsidizes prescription drugs for older or disabled patients. Within the next four years, the Woonsocket, Rhode Island, company, which boasts more than $107 billion in annual revenues, plans to expand its walk-in MinuteClinics, whose practitioners, it says, “specialize in family healthcare and can diagnose, treat, and write prescriptions for common family illnesses.” The prospect excites McGee, who says “this company has room to soar.” Analysts have set a high price target at $51.

PRICE: $48.22 •  P/E: 18.25

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