At Darda Financial Services L.L.C., a fee-based wealth management services firm in Winston-Salem, North Carolina, founder and CEO Danny Freeman’s stock-watching philosophy is blunt. The financial adviser says that the truism of investing “is the simple fact that capital will always flow to where it can earn the highest rate of return at some acceptable level of risk.” Freeman knows that the impact of Europe’s ongoing fiscal melee and political gridlock in Washington, D.C., have dampened investor optimism. He intends to reassure skittish investors that there are well-established, financially sound firms that are growing and some that sport dividend yields. The market is making a grinding escalation, he says, but one that could continue for the next three to five years. With that in mind, he offers the following three stocks he believes are poised for growth during that period.
1 Caterpillar Inc. (CAT) Even from a distance, many Americans see black lettering on the sides of big yellow construction machines and know it spells CAT. The $60 billion Peoria, Illinois-based company is the world’s largest maker of construction and mining equipment and other heavy machinery. It had strong growth up until housing collapsed, European markets imploded, and China and India sputtered. But CAT is now springing back, Freeman says. In 2011, revenues grew 41%; much of that growth came from foreign sales, which are likely to continue. Earnings per share could grow from $7.40 to $15 by 2015, and CAT has a dividend yield of about 2.2%. It is an attractive investment opportunity because it is so deeply intertwined with the global recovery, says Freeman. He predicts that several factors could boost the share price, including renewed orders from builders benefiting from a U.S. housing market recovery. In April, CAT opened its fourth manufacturing facility in India as South Asia’s giant builds new roads and other infrastructure. Freeman says China, which announced a $150 billion infrastructure investment program in September, will push CAT’s growth as the country “uses CAT equipment that helps convert farmland to urban and commercial uses.”
PRICE: $82.81 • P/E: 9.46
(Continued on next page)