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Global Powerhouses

01/27/2015 7:00 am EST


John Buckingham

Editor, The Prudent Speculator

With interest rates again heading south, we continue to think that equities remain very attractive relative to income that can be generated from competing asset classes, explains long-term value investor John Buckingham, editor of The Prudent Speculator.

In addition, corporate balance sheets and income statements generally are in terrific shape, with solid overall earnings growth projected in 2015, US economic data generally have been upbeat and global central bankers continue to support growth initiatives over inflation-fighting measures.

Though we are braced for an increase in near-term volatility, we are optimistic that US stocks will post solid gains during this favorable third year of the Presidential Cycle.

Caterpillar (CAT)

Caterpillar is a global powerhouse in mining, construction, and power systems equipment.

Its extensive dealer network and reputation for quality products provide key competitive advantages over rivals.

While near-term operating headwinds are brisk, we remain long-term fans of CAT and its solid free cash flow generation, which supports capital allocation strategies that start with maintaining its ‘A’ credit rating.

The company also focuses on investing in growth, steadily boosting the dividend, repurchasing shares, and funding the long-term pension plan.

CAT shares are trading at 14 times consensus earnings estimates and offer a 3.1% dividend yield.

Johnson & Johnson (JNJ)

This leading global healthcare company maintains a broad revenue stream and a robust research pipeline.

JNJ seemingly faces relatively few major patent losses over the next few years and the majority of its pharmaceutical offerings are specialty drugs, which frequently carry stronger pricing power.

Further, we see long-term attractive potential for the company’s orthopedics business as positive market demographics continue to build, as well as opportunistic expansion in emerging markets.

JNJ has a strong balance sheet and we view positively the number of compounds it currently has in later-phase clinical trials, along with recent product line extensions. The dividend yield for this high-quality name is 2.7%.

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