Band's Contrarian Picks

03/07/2003 12:00 am EST

Focus:

Richard Band

Editor, Profitable Investing

When it comes to value, quality, and conservative growth few names better exemplify this characteristic than Richard Band. One of the longest running successful and popular advisors, Richard Band truly represents the very best in newsletter publishing.

"On the conservative side, we’re recommending that people keep about 1/3 of their stock position in companies that pay above-average dividend yields. You’ll benefit if the dividend-tax laws change, but in any event dividend-paying stocks should be much in demand as the years go by. From age 55 and beyond you should want to be drawing income out of your investments. That’s a demographic age-wave trend that just won’t be stopped over the next ten, 15, or 20 years. In particular, I’m interested in the bank stocks right now. The banking industry has gone through this recession in a much different fashion than the recession of 1990 or of 1982. In 1990, over 500 banks in the US become insolvent. During this most recent recession, we’ve seen that happen to just about a dozen banks.

"So the banking industry is in much better condition than in the past, and I would be looking at banks like BB&T (BBT NYSE), National City Corp. (NCC NYSE), which is in Cleveland, and US Bankcorp (USB NYSE). These are all solid banks yielding 3½% to 4½%. They raise their dividends year after year. These are the kinds of stocks you want to own on the conservative side of your portfolio – especially if you are heading into retirement.

"On the aggressive side, I would throw my lot in with some ‘technology gorillas’ such as Microsoft (MSFT NASDAQ), Cisco (CSCO NASDAQ), Intel (INTC NASDAQ), and Nokia (NOK NYSE). These are the gorillas of the technology space that have increased their market share during the downturn, improved their balance sheet, and built up tremendous cash reserves on their balance sheets.

"The stock market's anxiety attack isn't over yet. We probably won't see a solid, final bottom until the Iraq/North Korea crises are resolved. But we're a lot closer than we were just a week or two ago. Some of my most-trusted indicators are beginning to flash buy signals. For example, options traders – the celebrated Wrong-Way Corrigans of the stock market – are buying puts (a bet that prices will fall) at a breakneck clip. My ten-day ratio of put volume to call volume on the Chicago Board Options Exchange has soared to the top 1% of all readings of the past three years.

"It's still too early for us to buy with both hands. But I'm ready to start nibbling at great defensive growth stocks like Colgate-Palmolive (CL NYSE), which is a buy below $53 and Johnson & Johnson (JNJ NYSE), which is a  buy below $51. Colgate just raised its dividend by a whopping 33%. A more impressive demonstration of earnings power would be hard to imagine. Johnson & Johnson's proposed acquisition of Scios, a promising biotech firm, will help refill the parent company's drug pipeline and propel earnings growth well into the future. I look for these stocks to jump 15%-20% in the coming year even if the Dow idles in neutral. In a strong market recovery, which we're hoping for, they could go through the roof.

Related Articles on