After Lost Decade, a Blue-Chip Revival

11/09/2009 11:17 am EST


George Putnam

Editor, The Turnaround Letter

George Putnam, editor of The Turnaround Letter, says these out-of-favor giants may be poised for a comeback.

We all know that, despite the big runup recently, many stocks are still below their highs of a year or two ago. But what about some of the biggest, best known and best managed companies in the country that are trading below—in many cases well below—where they were ten years ago. That’s pretty tempting to us.

Sure, late 1999 was the last gasp of the Internet bubble, and so that explains some of the tech names. But our list includes retail, beverage, entertainment, drug, and other lowtech businesses. We can’t tell you exactly what is going to propel these stocks back to their former heights—if it were obvious, Wall Street would be all over these stocks and they wouldn’t still be in the doldrums—but we think many of them could be poised to rebound.

Moreover, a number of them have generous dividends, so that you get paid while you wait.

Coca-Cola (NYSE: KO) is perhaps the most widely recognized brand name worldwide. Some may think the fizz has gone out of the brand, but Coke’s steps in non-carbonated beverages, such as Dasani water, Powerade sports drinks and Minute Maid juices are paying off. And even the core Coke product still has good potential in China and other international markets.

Walt Disney (NYSE: DIS) is the consummate consumer discretionary company, including not only its resorts, movies and consumer products, but also its media outlets ESPN and ABC, which depend on consumer-focused advertising. Everyone is still wringing their hands about the prospects for consumer spending, but for patient investors Disney is a well managed company with strong brands and unmatched assets.

Home Depot (NYSE: HD) pioneered the concept of home improvement superstores, and the stock rode a wave of popularity to P/E multiples in the 60s and 70s around the turn of the century. More recently, the company stumbled as it tried to fend off competition from Lowes (NYSE: LOW) and others. However, under CEO Frank Blake, who took over in 2007, the company seems to be getting back on track.

Intel (NYSE: INTC) is the world’s largest maker of semiconductors. Despite strong competition, Intel has found a way to remain the technology leader in chips used from PCs and highend servers to wireless communications and graphics. The whole sector has been weak for several years, but when the demand for tech products begins to pick up again, Intel will be one of the primary beneficiaries.

Microsoft (NYSE: MSFT) may seem like a stodgy behemoth these days, but it is taking a number of steps to restore profit growth. The company is aggressively cutting costs at the same time as it is unveiling its latest operating system, Windows 7.
Pfizer (NYSE: PFE) just completed a $68 billion acquisition of Wyeth, a merger that will significantly expand Pfizer’s reach, both in terms of existing product offerings and new drug pipeline. Management expects $4 billion in synergy savings, and that is on top of a general $2 billion cost-reduction program already underway. While the entire healthcare sector has been weak as investors worry about what the politicians in Washington are up to, we believe that Pfizer is well positioned for sustained growth.

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