The equity markets have been battered, largely driven by the sour economy: Through the first eight months of this year, the Dow Jones Industrial Average dropped nearly 13%, the Nasdaq composite index fell 10.7% and the S&P 500 slid 12.6%, according to Eric Fitzwater, an associate director at SNL Financial LC, a Charlottesville, Virginia-based financial services research firm.
In contrast, the Dow and Nasdaq rose more than 7% and the S&P 500 leaped 4% during the same period in 2007. Despite the choppy landscape, equity experts contend there are at least five good places to invest your money in the stock world. Stephen Washington, managing director at Cleveland-based SBK-Brooks Investment Corp., (No.7 on the B.E. INVESTMENT BANKS list), is bullish on stocks that have solid fundamentals, offer a good buying opportunity, present good earnings growth potential, and could deliver a good return over the long term.
He says Cognizant Technology Solutions (Nasdaq: CTSH), a large outsourcer of information technology consulting and IT outsourcing services, fits into that category. Cognizant’s customers include Fortune 500 companies that outsource various outsource IT functions globally.
The company’s stock is cheap relative to its long-term growth rate, Washington says. He adds that Cognizant is trading at about 19 times its estimated earnings for this year. In contrast, SBK-Brooks puts Cognizant’s earnings growth rate closer to 25% to 26% a year. Cognizant shares opened Wednesday at $27.71, down 15 cents.
Another company Washington recommends is Precision Castparts Corp., (NYSE: PCP), an international manufacturer of metal castings mainly for jet engines. He says the company is a play on the global expansion in tr
ansportation in industrialized countries. Precision Castparts also has the ability to improve engine gas usage efficiency in the parts it makes for the engines, Washington says. Precision shares opened Wednesday trading at $97.89, up 60 cents.He says the stock’s price-to-earnings (PE) ratio is currently about 15 times its estimated earnings, versus having an annual earnings growth rate of just under 20% that SBK-Brooks has placed on it. “You can pay a low price relative to the type of earnings trend this company is showing.”
For William Young, president of Buford, Dickson, Harper & Sparrow, a St. Louis-based portfolio management and financial services firm, many opportunities exist in the turbulent market, particularly in the retail, financial, and healthcare sectors. Young says retail has pulled back because of rising fuel costs and job concerns, while the financial sector is being restrained by credit and mortgage problems. Healthcare has also retreated because of rising costs.
“These concerns create opportunities to add stocks of great companies that are positioned for growth to portfolios,” Young says.
Specifically, Young likes Nike Inc., (NYSE: NKE), a dominant player in the athletic shoe and apparel market. He says Nike continues to expand existing shoe offerings and is entering new sports markets such as golf. Nike’s international market share continues to outpace competition. Nike shares opened Wednesday at $59.28, down $1.
For good value, Young highlights AFLAC (NYSE: AFL), which sells supplemental health and life insurance in the U.S. and Japan. The company’s cost controls and increasing premium revenue make the stock a good long-term buy. AFLAC shares opened Wednesday trading at $56.42, up 34 cents.
In healthcare, Young points to Johnson & Johnson (NYSE: JNJ), a maker of health care products and provider of services tied to the consumer, pharmaceutical, and medical devices and diagnostics markets. Johnson & Johnson shares opened Wednesday trading at $71.60, up 26 cents.
As the American population continues to age, JNJ is best positioned for continued earnings growth. He says it provides essential health related products and drugs that will improve and prolong the lives of an older population.
Separately, the global equities markets have responded overwhelmingly positive to the information about the federal government’s effective bailout of Fannie Mae and Freddie Mac, says a top investment banker.
Washington, managing director at SBK-Brooks, says the news of the Federal Reserve taking over the two mortgage giants makes now a good time for investors to look at financial stocks that have been beaten down by the mortgage market’s downturn and the subprime mortgage debacle.
Some investors are taking the government’s action — with its move to essentially back about half of the nation’s mortgage market — as a signal that the mortgage sector has essentially bottomed out.
Though he does not have any specific recommendations in the financial sector, Washington says an exchange traded fund or a mutual fund that specializes in financial sector stocks would be a good investment to look at. He cautioned of course that investors should be careful when looking at such stocks or funds because some of those investments still have bad fundamentals.
“A diversified portfolio of financial investments could be timely for a long term investor,” Washington says.