Hardly a day passes that we don’t hear the news about a recession or how the problems in the real estate/foreclosure market are going to get worse before they get better. All of this talk -- which some say is more than just talk -- has undoubtedly slowed the powerful U.S. stock market. In fact, the Dow Jones Industrial Average is down nearly 8% this year to date, according to The Wall Street Journal on January 27, 2008.
But, despite the negativity and floods of bad economic news, there are always opportunities in the stock market. Here are a handful of hot stocks that may be poised to outperform the stock market in 2008, regardless of recession possibilities. As always, please consult with your financial adviser before making any investment decisions; this is not an offer or solicitation to buy or sell these stocks. Now that the disclaimer is out of the way, on with our list of hot stocks in 2008:
Merck & Co. (NYSE: MRK) - $53.32
Merck is a pharmaceutical giant, and it’s among the hot stocks in 2008 because even during a recession, people still need medicine. Merck has had a strong run over the past couple of years and has reported fast-growing profits in addition to boasts of a very promising drug development pipeline. Merck’s stock has more than doubled since the Vioxx lawsuit was announced about three years ago; the lawsuit was cleared up in November 2007. Although there was a big settlement involved, Merck put aside a reserve for it and the effects of the lawsuit should now be old news. More importantly, Merck has yet to regain its pre-lawsuit highs, so it still has some room to run. The biggest gains may have already taken place, but with a promising future, strong cash flow and a 2.8% dividend yield, Merck is primed to be among the hot stocks in 2008 -- and beyond.Author’s disclosure: I own this stock.
Pfizer, Inc. (NYSE: PFE) - $22.60
Pfizer, Inc., like Merck, is another large pharmaceutical company, but Pfizer’s stock price has failed to produce gains the past couple of years. A mediocre pipeline, fears of lost revenue when the Lipitor patent runs out, and discontinuation of the development of the drug torcetrapib are some of the factors contributing to Pfizer’s less-than-stellar financial performance. However, from a defensive standpoint, Pfizer is an interesting option.Internally, Pfizer continues to produce lots of cash flow from operations and has been buying back a big chunk of stock. Many analysts believe that Pfizer will need to create a brand new drug or acquire some promising companies to return to growth. Some are saying that 2008 is the year this will start happening, which will make it among the hot stocks in 2008. Even if the turnaround does not happen in 2008, odds are that the 150-plus-year-old Pfizer will find a way to make it happen. In the meantime, Pfizer is paying out a 5.6% dividend and has raised its dividend each year for the past four decades. This exceptional yield is more than most CDs or money markets, it puts a floor on the stock price during the short-term, and it offers a nice stream of income while you build a position and wait for Pfizer to hopefully get its act together.
Author’s disclosure: I own this stock.
AT&T (NYSE: T) - $36.11
It seems that things have come full circle; after the forced antitrust breakup of AT&T, we seem to be back at square one. AT&T has long been a phone company, but new advances in technology and new challenges in the marketplace have AT&T diversifying its revenue lines. Yes, AT&T did warn of slowing growth, which is being experienced by peers across the board. However, amid the fears of recession and growth, AT&T has a lot of positive things going on, making this a hot stock option for 2008: In a bold move, AT&T significantly raised its dividend by 12.7% (4.3% yield) and announced a significant $15.2 billion stock buyback program. AT&T still has the exclusive on the iPhone for the next couple of years, and their expanded service offering of entertainment, music and content services should bode well for the former Ma Bell. Additionally, the acquisition of BellSouth should start to positively impact AT&T’s financial results in late 2008 to early 2009.Author’s disclosure: I do not own this stock.
General Electric (NYSE: GE) - $34.31
GE is one of America’s largest and most diverse companies and it’s often referred to as a bellwether for the overall health of the U.S. financial markets. Since GE is so large and is so widely followed by analysts and researchers, the company rarely strays from its earnings estimates. But, the recent activity of the U.S. stock market and economic data had some people fearing that GE might actually miss its earnings estimates, serving as a warning of other problems. However, GE once again pulled through and met its earnings numbers and reported strong growth and results from its international business efforts. GE is near its 52-week low and, despite a quick blip in the latter part of 2006, it has not seen its stock price move much in the past three years. Plus, GE is committed to rewarding shareholders, as indicated by paying out dividends (currently a 3.7% yield), and completing its $27-billion stock-buyback program one full year ahead of schedule. GE’s positive results and reaffirmed outlook spells a sign of relief for both the U.S. and Global markets.Certainly, there are some challenges, but overall, things look good. GE will keep buying stock, keep paying dividends, benefit from increased demand in the energy sectors, and offer diversity of revenue with sales coming from all over the globe. In short, GE is truly a global company that has seen its stock price treated as if the U.S. is its only game. Per CEO Jeffrey Immelt, GE has positioned itself to outperform in this market -- and its financial numbers prove it, making this a hot stock for 2008.
Author’s disclosure: I do not own this stock.
Burlington Northern Santa Fe Corp. (NYSE: BNI) - $76.93
If someone has made more money than you, it’s typically a good idea to listen to what they’re saying. More importantly, if that person is the No. 2 moneymaker of all time, extra attention should be given. Warren Buffet has been buying tons of shares of Fort Worth, Texas-based Burlington Northern Santa Fe Corporation. Burlington provides rail transportation services and transports just about everything imaginable via its more than 32,000 miles of rail systems.
After his early January buying spree, Buffet now owns 18% of the company. I certainly do not advocate following Buffet blindly to the death -- even he is human -- however, with high oil prices encouraging more rail transportation and a general long-term optimism for the U.S. economy, railways look to be promising investments. Consider that the more goods that need to be shipped, the better it is for Burlington’s cash flow. It seems that the engines can pull an unlimited number of railcars -- and each car added to the engine, simplistically, is just gravy in terms of margins and cash flow. Short-term, the economy has slowed a little bit and that has hurt Burlington’s stock price, but during these dips, Buffet has been loading up and is making no secret of doing so. Buffet’s buying helps to protect the downside and should inspire confidence for the long haul.
Author’s disclosure: I do not own this stock.
National Bank of Greece (NYSE: NBG) - $12.47
While most U.S.-based banks are falling off a cliff, many foreign banks are performing very well -- and the National Bank of Greece has been no exception. One of Greece’s most widely held stocks can be purchased here in the U.S., and the National Bank of Greece has seen growth thanks to a consumer-lending boom in Greece. Initially, you may say that this is what got the U.S. banks into trouble in the first place, but the National Bank of Greece is planning to buck the trend. The markets in Greece may have slowed, but the bank has actively expanded its service offerings into fast-growing markets, including Turkey and Eastern Europe. Even with the risk of a lending slowdown or credit crunch in Greece, the bank expects profits to grow by at least 15% in each of the next three years. This growth also positions the bank as a solid takeover candidate and that is always a good upside event to have in the hat, although it may never happen.Author’s disclosure: I do own this stock.
stocking up
If the first couple of weeks of 2008 are any indicator, the U.S. stock market is in for a rough ride. Not only have we seen multiple days of big declines, but the economic data being released and the sentiment on the street also suggest that a recession is likely coming or already here. However, even during rough patches, the opportunity exists to position yourself for profits. Rather than riding the wave of hype or momentum, focus on the business prospects of a company. The hot stocks of 2008 listed here have a lot going for them from a business standpoint, and over the long term, they should ultimately reward patient investors.Resources:
http://money.cnn.com/2007/08/30/markets/spotlight_mrk/index.htm
http://en.wikipedia.org/wiki/Main_Page
http://seekingalpha.com/article/56953-at-t-rises-on-dividend-hike-15-2b-buyback
http://query.nytimes.com/gst/fullpage.html?res=9806E7D61430F932A3575AC0A9619C8B63
www.gurufocus.com
http://messages.finance.yahoo.com
http://online.wsj.com
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