In a special yearend feature for Kiplinger's Personal Finance, contributing writer Carolyn Bigda highlights some of the top investment ideas for the coming year, including favorites in the healthcare, industrial, and financial sectors.
Steven Halpern: Joining us today is Carolyn Bigda, contributing writer for Kiplinger’s Personal Finance. How are you doing today, Carolyn?
Carolyn Bigda: I’m great, thank you.
Steven Halpern: Thank you so much for joining us. In the new issue of Kiplinger’s, you feature a story on the top stocks to buy for 2015. Was there any general theme or criteria that you were looking for in selecting these stocks?
Carolyn Bigda: Yes, there was. Generally speaking, we were looking for companies that we thought had potential to grow their earnings next year even despite, sort of, the uncertainty about the economy. Even if the global economy is a little bit slower than expected, these companies should do fairly well.
They have some pretty good prospects. In some cases, these stocks also pay dividends, which are sort of the icing on the cake, but, in general, we were looking for companies that can do well regardless of what the economy does next year.
Steven Halpern: Two of the topics you highlighted were both in the healthcare sector; Abbott Laboratories (ABT) and Gilead Sciences (GILD). Could you explain the overall attraction to the healthcare group and these two stocks in particular?
Carolyn Bigda: Sure, there is a lot of growth in healthcare these days, with more and more people getting access to health insurance and requesting care. There is good growth potential overall for the sector. Then, with Abbott Labs, this is a company that is trying to get lean and mean.
They sold off, sort of, their research pharmaceutical unit a few years ago when they sold out Abby and now they’ve been streaming down even more this last year and that’s helping them lose their profit margin.
They’re focusing on areas such as emerging markets where there is really strong growth potential there as well. The outlook for the company is pretty promising.
Steven Halpern: And Gilead is more of a biotech play, correct?
Carolyn Bigda: Yes, it’s a biotech play for sure and you might think—with biotech stocks—they grow very fast. A lot of times their price earnings ratios are a little expensive, but not in this case. It still trades at pretty attractive levels, only 11 times 2013 earnings.
It has a lot of, sort of, blockbuster drugs in its pipeline right now. It has some of the leading medicines or treatments for Hepatitis C and HIV, so the company is doing very well. Next year, analysts say that profits could increase by 25%. It’s good growth potential and not too expensive.
Steven Halpern: You also picked stocks that would fall under the broader industrial group. One is the aerospace firm Precision Castparts (PCP) and the other is the power tool maker, Stanley Black & Decker (SWK). What led to those picks?
Carolyn Bigda: Sure, these are two totally different companies. Precision Castparts caters to the airline industry and they make the complex molds and sort of other components that are used to build advanced jet engines today.
There is a boom that’s going on in the aerospace industry and they’re benefiting from it.
The stock hasn’t done very well lately, because a lot of the clients have been, sort of, going through inventory and de-stocking that way, but analysts expect that de-stocking to end in 2015 and for Precision Castparts to really benefit from the buildup of the Boeing 787 Dreamliner, the Airbus A350, and some of the other advanced jet engines out there.
With Stanley Black & Decker, this is a company that makes a lot of tools that people are familiar with for home renovations and that kind of thing.
The company is starting to benefit from the turnaround in housing, and as more people get confident in housing prices again, they will be doing more renovations.
Stanley Black & Decker is in a good position to benefit, especially because the company has bought its subsidiary in Europe a few years back. It really didn’t work out well so the company is trying to turn it around. They’re doing a good job of it so there is potential there for profit margins to increase next year.
Steven Halpern: Finally, you selected two financial firms—one, American Express (AXP)—and the other the brokerage firm Charles Schwab (SCHW). What do you like about the financial sector and these stocks in particular?
Carolyn Bigda: The financial sector had its problems during the financial crisis in 2008. It has been kind of coming around. The stocks still aren’t overly expensive.
They’re still sort of struggling with the low interest rate environment, but Charles Schwab, for example, even though low interest rates are hurting the company’s earnings, it is making up for that with a huge amount of volume.
They’re attracting lots of assets in terms of investors signing up to invest with them. As one analyst said, they’re an asset-gathering machine. When you have that kind of volume, if short-term interest rates do start to rise, that would be a huge bonus to the company in 2015.
With American Express, they had competitors—Visa, MasterCard—and American Express just has never traditionally been as big or as widely accepted as Visa and MasterCard.
They’re making a big push to extend their reach. This year, the long-term program is going to make it easier for ‘Mom and Pop’ stores to accept cards from them. Next year, analysts expect that earnings could increase because of that.
Steven Halpern: We really appreciate taking the time, today. Thank you so much for joining us.
Carolyn Bigda: It was my pleasure.Subscribe to Kiplinger's Personal Finance Here...