Two Bear Market Buys

07/29/2008 12:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of High Income and Hedge Fund Trader, finds two very different stocks he expects to beat the bear.

We officially are in a bear market, but [the recent] dramatic rally demonstrates the danger of selling the market short after a long decline. So we continue to look for unique buying opportunities.

As Dr. Jeremy Siegel pointed out [recently], anyone with a sense of history should be smart enough to buy stocks when they're cheap-as they are now.  

So, take a good look at Integrys Energy Group (NYSE: TEG).

Integrys is an electric and natural gas utility serving Chicago, Southern Michigan, the Upper Peninsula of Michigan, Minnesota, and Wisconsin. 

Utilities are largely recession-proof as revenue is highly predictable. And dividends are likely to be maintained or increased, not cut like so many banks and retailers are doing.

The income here is especially secure. Formerly known as WPS Resources, Integrys has raised its annual payout every year for 50 years in a row, including a dividend hike in March. That isn't likely to change. Analysts see this year's earnings rising 37%, with more growth to follow in 2009.

Chief executive officer Larry Weyers says his goal is to increase earnings up to 8% annually-and to boost the dividend along with it. 

This is a stock that could easily give us a 15% capital gain in the year ahead, plus another 5.4% in dividend income. Not a bad total return for such a highly conservative choice.

So buy Integrys at market. (It closed below $50 Monday-Editor.) And place a protective stop at $42.

Normally, during bear markets, brokerage stocks fall sharply, but Charles Schwab (Nasdaq: SCHW) has bucked the trend, and with good reason. Founder Charles Schwab returned as chief executive officer in 2004, and has done a terrific job in turning the company around.

As a result, the stock gradually has recovered. This trend is likely to continue as Schwab offers more "financial services," including no-load mutual funds and home-equity and mortgage loans.

Don't be turned off by Schwab's involvement in the mortgage business. Schwab started offering mortgage loans in 2003, and has done so conservatively.

While Chase, Citigroup, and other big lenders have turned too restrictive, Schwab has been opportunistic. Schwab's mortgage and home-equity loans outstanding were up 76% this year to $4.1 billion, with delinquencies at a low 0.33% of outstanding balances.
 
The company last week posted a 9% increase in net revenues to reach $5.1 billion and a 22% jump in income from continuing operations (ignoring the sale of US Trust to Bank of America). With profit margins exceeding 40% and a stock price selling at only ten times trailing earnings, what's not to like?
 
Let's buy Charles Schwab (SCHW) at today's market and set a protective stop of $18 a share. (It closed above $21 Monday-Editor.)

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