Confident in the market’s recovery, many young investors have ventured into stocks with a buy low and hold strategy. You’ve read what they had to say about getting started, now, check out their favorite stocks picks. Charles Weems, 27, Erika Smith, 25, Andrew Simon, 23, and Kevin Njeru, 18, share their top funds as financial analysts weigh in on the long term prospects on the company’s growth. (See also: “The Young & the Restless” and” Behind ING-Girls Inc.’s $50,000 Youth Investment Challenge“)
Charles Weems, 27, Decatur, GA
Tip for Beginners: The best advice from my boss: “start early,†find a mentor who is investing and exchange ideas. Hang around and listen to those who are where you want to be in life.
My Favorite Holdings: Fannie Mae (FNM) and Freddie Mac (FRE)
Why I like these stocks: I still believe these two are going to be good holdings for the long term. The government is not going to let those two companies fold because of their important standing with the housing market, investors, and the economy as a whole. I believe with the new stimulus package beginning to take effect, we should start seeing the housing market turn around over the next five years.
The Professional Opinion
Analysts Consensus on Freddie Mac:
Hold: 1
Sell: 2
Analysts Consensus on Fannie Mae:
Hold: 1
Sell: 2
Matthew Warren of Morningstar:
“We recommend against speculating in Fannie shares. Fannie Mae posted another enormous loss in the fourth quarter ending in December. Severity of loss has increased as steady home price declines chew through homeowners’ equity and inadequate credit enhancement on Fannie Mae loans. Increased severity combined with an acceleration and broadening of credit problems suggests that things will get worse before they get better. With Fannie slowing foreclosures, stepping up modification efforts, refinancing (high-risk) high loan/value loans to lower rates, and reversing some recently implemented guarantee fees, it is clear that Fannie Mae is working toward policy goals rather than shareholders’ benefit. Freddie Mac posted a fourth-quarter loss of $25 billion, contributing to a $50 billion loss for the year ending in December, which wiped out decades’ worth of profitability. With net worth again in the red, Freddie’s conservator has submitted a request for another $30.8 billion in funding from the U.S. Treasury. With this new senior preferred investment from Uncle Sam, the total amount of these securities will rise to $45.6 billion. We would avoid speculating in this firm’s shares.â€
Ted Parrish of Henssler Financial Group:
“Fannie Mae and Freddie Mac have basically been taken over by the federal government. The government infused a lot of cash and that’s why most stock analysts don’t cover the companies anymore. Once a company gets below a certain price level per share, they loose coverage from a lot of the major research firms. That particular price can be anywhere between $5 and $10. The chances of those companies being major forces as independent organizations are not going to happen. Fannie and Freddie are not good for long-term growth. Their existence as a “going concern,†[or a business entity] is in question at this point. Shareholders will be the first in line to take a hit if there is any more trouble in their business.â€
Kevin Njeru, 18, Gainesville, FL
Tip for beginners: Join an investment club. Collaborating with others allows you to pool resources and financial sources. It also allows for feedback and additional research on companies.
My favorite holding: Procter & Gamble Co. (PG)
Why I like the stock: It’s an easy to understand company for young investors because it manufactures products such as Tide laundry detergent, Pampers diapers, and Crest toothpaste. Procter & Gamble’s products are daily essentials and as a company, it’s trustworthy. They’ve recently increased prices on products, which has helped generate a profit in the sagging economy. The stocks value has taken a hit, falling more then one-third since last September. Long term, I see them performing well because of brand equity and the fact that consumer goods will always be a profitable industry.
The Professional Opinion
Analysts Consensus:
Strong Buy: 1
Buy: 3
Hold: 12
Wendy Nicholson of Citigroup Inc.:
“We rate the shares of Procter & Gamble hold/low risk. Our hold rating primarily reflects the stock’s valuation, which we find to be full. Indeed, while we view the acquisition of Gillette to be a positive for Procter & Gamble and its
Overall, though, with Procter & Gamble’s excellent track record in integrating acquisitions, continued success at launching higher-priced, higher-margin new products, and management’s proven ability to manage exceptionally well its increasingly large and diverse business, we are hopeful the company will continue to meet, if not exceed, our earnings expectations.â€
Michelle RhodesBrown, of Profit Investment Management:
“Procter & Gamble is a well-run, large, global consumer staples company. In any dogfight you want this company on your side, for the most part. They have huge mega brand large advertising budgets they use to gain market share.
It’s not a “buy†because they’re so large that growing is difficult. If you look at their sales growth, it’s more driven by price increases than by volume increases. That makes people nervous. Procter & Gamble attributes its volume declines to customer (retailer) destocking. Because energy and commodity prices have come back, they worry about whether they can keep their prices.â€
Andrew Simon, 23, San Francisco
Tip for Beginners: Do your research. Find companies that have valuable assets, aren’t loaded with debt, and have a competent management team that can take them through the economic downturn.
My favorite holding: Intel Corp. (INTC)
Why I like the stock: With a large portion of the corporate and consumer market corned, coupled with the fact that the tech industry is growing, not shrinking, Intel will soon be back on the rise. Intel’s top competitor, AMD Inc. (AMD) recently announced its plans to restructure the company to reduce expenses. These plans primarily involve the termination of employees, contract or program terminations, and facility closures. Meanwhile, Intel has plans to build a new factory to begin mass production of their newest chips. While AMD plans to reduce manufacturing output, Intel is receiving rave reviews on its two newest processors.
The Professional Opinion
Analysts Consensus
Strong Buy: 13
Buy: 13
Hold: 14
Underperform: 1
Sell: 1
JoAnne Feeney of FTN Equity Capital Markets Corp.:
“We remain cautious regarding the second half of 2009 because signals of a seasonal increase in end-market demand have yet to materialize. Longer term, we view Intel as likely to deliver results outpacing the broader economic recovery. The company released its next-generation mainstream server CPU (central processing unit) at the end of March, code-named Nehalem EP. This product closes the architectural gap with AMD by adding an on-board memory controller (AMD did this in 2003). Experts are enthusiastic about this new CPU, and anticipate higher sales of servers as a consequence. Intel’s high-end version of Nehalem is not due until the first quarter of 2010, although it was originally expected by year-end. It looks like Intel has worked out the bugs. We remain positive on the shares.â€
Eugene Profit, Profit Investment Management:
“Intel’s last quarter earnings came in eight cents better than Wall Street estimates, even though revenue fell 26% year-over-year. The problem with that is basically people like to see revenue going up. By cutting expenses Intel’s growth margins were a little bit better and we know that demand is down because of the economy. You’re starting to see computer inventory bottoming out. Because you’re going to have computer upgrade cycle starting even though you have a weakened economic environment, Intel will benefit because the inventory of semiconductor chips are very low. There’s going to be and increase in the demand for Intel chips. It’s rated a hold, because with revenues down, that’s a concern. But the reason they were down has as much to do with the weak economy as anything else.”
Erika Smith, 25, Atlanta
Tip for Beginners: Understand what type of investor you are. Use investment questionnaires to develop a mix that is suitable for your financial goals based on your time horizon and risk tolerance.
My favorite holding: Oracle Corp. (ORCL)
Why I like the stock: My interest began in 2005 when Oracle acquired Siebel Systems Inc. This signaled the company was making a serious effort to increase market share and challenge the dominance of German enterprise
software maker SAP (SAP). Oracle’s products will be increasingly relevant as the world continues to look for information technology solutions to reduce costs and innovate how we do business. For example, reduction of administrative costs will be important to U.S. healthcare reform. Oracle should be able to provide solutions that will streamline healthcare processes and reduce costs to gathering and use patient data.The Professional Opinion
Analysts Consensus
Strong buy: 10
Buy: 10
Hold: 7
John DiFucci of JP Morgan Chase:
“We believe that Oracle Corp. is better equipped than most software companies to weather a soft economic environment given its ability to rationalize its cost structure that has been temporarily burdened by a myriad of acquisitions. Our analysis indicates that Oracle shares are attractively valued at current levels. Oracle is running its business assuming a prolonged economic downturn persists for the foreseeable future, resulting in an environment of declining corporate IT budgets. Oracle will look to gain share in this environment through up-selling and cross-selling into its 320,000 strong customer base of primarily large corporations (versus small businesses). Management expects to grow margins by growing revenue by greater than the rate of expense growth. While Oracle’s strategic relationship with its customers may position it better than most software companies, its top line is not immune to a macro slowdown.â€
Ted Parrish of the Henssler Financial Group:
“Oracle has a solid base of customers and a lot of their revenue is “recurring revenue,†which means it’s stable and predictable since they lock their customers into multi-year contracts. The reason to buy right now is because the stock is very cheap on any relative measure, price to earnings, price to sales, price to cashflow. It’s trading for a multiple that’s lower than the market (technology sector) and for a company of its quality, that’s hard to believe. But its expected growth in earnings is above average and right in line with its price/earnings ratio.â€
* When investing or making any type of financial decision, it is important to do your own research before making any decisions.
** Analysts consensus taken from Yahoo Finance