Five Stocks You Should Look at Now
11/12/2009 12:01 am EST
There are lots of those advisory services and newsletters out there that charge you a small fortune for access to a guru's mysterious stock picks. Here at LearningMarkets.com, we think smart picks are built on smart investing principles.
Oddly enough, we really don't like picks. We think the most important thing investors and traders can do is educate themselves to make wise decisions on their own, not blindly following some "expert." So the "picks" you'll find here are certainly good stocks, but we offer them as examples of the types of stocks you should be watching and the principles you should use in making your own picks.
That said, here are five stocks or symbols you should be watching and our explanation as to why:
Pick 1: Dell, Inc. (DELL)
This company has a solid market cap of over $30 billion, and the stock trades in the affordable $15 range. But that's not the reason we recommend you look into this stock. What makes this one such a great find is its incredible Return on Equity (trailing twelve months), or ROE, which is over 48% in DELL's case. ROE, in very basic terms, is a measure of how well a company turns assets into profits. If you don't know what ROE is, or you don't use it, you MUST read about using ROE to screen and analyze stocks and become familiar with this simple but very powerful fundamental measure.
Pick 2: Verizon Communications, Inc. (VZ)
This stock is a major player in many portfolios, and the blue chip is trading near $30 but has been relatively flat this year. But we don't advocate it because of its short-term (or even long-term) growth outlook. We think you should own Verizon because the company nearly always pays a good dividend. And dividend investing is just smart investing. In fact, we've actually lovingly thrown the idea out there that non-dividend paying stocks are kind of like Ponzi Schemes.
Pick 3: Tupperware Brands Corporation. (TUP)
The reason we picked this gem is it happens to be in a great industry group that happens to have significantly outperformed the market since the bottom earlier this year. Tupperware is in the packages and containers industry of the goods and services sector. The stock has doubled in value in the last six months while the S&P 500 (.INX) or SPX has gained about 25%. Comparing a stock to its industry, and an industry to the market in general, is called Relative Strength Analysis. Every trader should know it and use it.
Pick 4: iShares Barclays TIPS Bond ETF (TIP)
We think bonds should be part of every investor's portfolio. Sure, they aren't sexy, they don't deliver those elusive but sought-after 1000% returns, but what they do is designate a part of your portfolio that's dedicated to conservative, long-term growth--both as a hedge, and as a wealth-building strategy. Learn more about bonds in your stock portfolio and TIPS (Treasury Inflation Protection Securities).
Pick 5: Linn Energy, LLC. (LINE)
Linn is an energy company that, since the market bottom earlier this year, has nearly doubled in value, trading in the $25 range today. Despite that tremendous growth, value investors will argue this stock is still undervalued, as it's PEG ratio is under 1, at .60. Value investing involves using financial ratios, primarily price/earnings/growth (PEG), to assess what a stock's potential to grow is compared to its price and fundamental value.
By: S. Wade Hansen of LearningMarkets.com