4 Stocks with Long-Term Potential

09/21/2012 11:00 am EST

Focus: STOCKS

George Putnam

Editor, The Turnaround Letter

They aren't going to set the world on fire, but if you're interested in bedrock, long-term growth stocks, this quartet is the place to start, writes George Putnam III of The Turnaround Letter.

We went looking for some stocks that could be good long-term holdings. The stocks discussed below are solid companies with strong positions in their respective markets. They all pay dividends above 3%. And they are generally out of favor with investors right now, making them look cheap to us.

Appliled Materials (AMAT) is the largest supplier of semiconductor manufacturing equipment. The semiconductor sector will always be cyclical, but Applied has the resources to make strategic acquisitions, allowing it to capture market share during downturns. An aggressive stock buyback program and the solid dividend should enhance shareholder value.

CA (CA), formerly CA Technologies, is a major information technology services provider. It survived a maze of legal problems in the early 2000s, and is now working to stay at the fore-front of the IT sector. CA has a robust product development pipeline, a worldwide presence, and strong strategic partnerships. The financials are solid; debt has been reduced by 50% over the last four years, and there is an ongoing stock-repurchase plan.

Dow Chemical (DOW) is the nation’s largest chemical company. The product line is very diverse, and about two-thirds of sales come from outside North America. Investor concerns about a worldwide economic slowdown have dampened the stock performance recently, but we believe that the current stock price adequately discounts this risk.

General Dynamics (GD) has long been a leading defense contractor supplying a range of products and services, ranging from land- and sea-based combat vehicles to information systems and other advanced technologies. The company is also one of the largest suppliers of corporate jets via its Gulfstream product line. The uncertainty about possible Defense Department cuts has led to historically low valuations, providing a good entry point for patient investors.

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