The important thing to remember—both in investing and in asset management—is successfully balancing out the risk–reward equation. “The key for us is to generate solid returns for our clients through all of this and to be very thoughtful about the amounts and types of risk we’re taking in our portfolios and to be open minded about where the opportunities exist for generating positive returns,” says Green “We’ve had to have a balanced approach over the last couple of years, for looking at companies that had strong fundamentals and that represented good upside opportunity but also making sure there were plenty of stocks in the portfolio that had strong financial quality and therefore would offer stability through turbulent times.”
The stocks Green likes for 2010 fall under four themes:
1. Their reasonable valuations, high-quality names, and improving fundamentals
2. Solid global investment in new infrastructure and industrialization in emerging markets that will lead to per capita growth in consumption of industrial metals and commodities
3. Increasing global sales as a weakening dollar supports U.S.-based multinational firms
4. Unit growth in PCs driven by both enterprise and consumer spending and supported by the Windows 7 launch
J.P. Morgan Chase & Co. (JPM) is a high-quality, conservative, diversified financial services company that continues to be one of the best positioned large-cap banks equipped to deal with any further deterioration in financial market conditions. The bank has a strong capital base and has been well ahead of its peers in provisioning for loan losses.
Johnson & Johnson (JNJ) remains the largest globally diversified healthcare company with a strong balance sheet and robust cash flow. Its diverse revenue mix in terms of products and geographic footprint should benefit in a challenging U.S. macro-economy in combination with the improving news flow on the pharma pipeline side. The stock currently carries a 3% dividend and it reiterated its earnings outlook amid restructuring plans.
Chevron Corp. (CVX) has the best production growth profile amongst all “super-major” oil producers and is experiencing robust sequential growth in its Exploration and Production segment. The company is executing well on its capital projects and its return on capital employed (ROCE) is improving coupled with aggressive cost cutting.
McDonald’s Corp. (MCD) is well positioned for steady unit growth internationally, particularly in BRIC countries. Currently, 64% of its sales come from outside the U.S., making the company a prime beneficiary of a weakening dollar. MCD is enjoying steady same-store sales growth and is generating plenty of free cash flow.
Microsoft Corp. (MSFT) benefits from the upside potential in the adoption of the Windows 7 operating system in combination with the possible rebound in IT spending and enterprise PC upgrade cycle. The stock is poised for further upside as the product cycle kicks in and generates strong cash flow over the next few years.
Intel Corp. (INTC) is enjoying robust revenues and gross margins as the PC supply chain strengthens. The company’s product roadmap is strong and it firmly remains the market share leader in the desktop, laptop, netbook, and server segments. Intel raised its dividend and currently has a yield of about 3%.
This article originally appeared in the January 2010 issue of Black Enterprise magazine.