The big-stock indexes are at or close to record highs, but shares of high-quality, well-known companies continue to look relatively cheap. And it looks like interest rates aren't going higher soon. This means it's prime time for blue chips.
That's the word from Standard & Poor's in its annual forecast issue, published this week. The views are generally in line with Kiplinger's projections. SP chief investment strategist Sam Stovall foresees modest gains for stocks next year. It would be a bit of a downer after 2006's strength, but it's still positive. Kiplinger's forecasts returns of 7% to 12% in 2007.
SP offers the following six ideas for 2007, based on its preference for companies with high levels of free cash flow (cash flow from operations left over after capital expenditures) relative to share price, as well as a history of share repurchases. Each of the analysts' selections also earn high marks from SP for consistent earnings and dividend growth.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Bemis (BMS) isn't a household name, but you'll likely find its products in your refrigerator. Its main business is making packaging materials for fresh foods, such as meat and cheese. The company has plants all over the world and has boosted dividends for 23 years in a row. The stock, which closed at $34.30 on Dec. 15, yields 2.2% and trades at 17 times the 2007 consensus earnings estimate of $2.07 per share, according to Thomson First Call. SP expects Bemis to hit $40 over the next 12 months.
General Mills (GIS; $57.65) is the second-largest maker of breakfast cereals. Besides Cheerios and Wheaties, brands include Betty Crocker, Bisquick, Green Giant, Yoplait and Pillsbury. The company also has joint ventures, including one with Nestlé, through which it sells products internationally. The stock sports a P/E ratio of 17.9, based on earnings estimates of $3.22 per share for the four quarters ending Nov. 2007. SP's one-year target price is $61.
TJX (TJX; $29.05) is spiffing up its off-price T.J. Maxx and Marshall's stores. Its other retail shops include A.J. Wright, Bob's Stores and HomeGoods, plus T.K. Maxx in Europe and Winners and HomeSense in Canada. In all, it runs 2,400 stores. Shares sell for 16 times estimates of $1.87 per share for the fiscal year that ends January 2008. SP target price: $33.
Toro (TTC; $47.46) helps keep the grass green in golf courses and football fields, and possibly your own back yard. The maker of lawn mowers, irrigation equipment, aerators, yard tools and other turf maintenance gear keeps developing innovative products. The stock sells for 14.6 times estimates of $3.26 per share for the fiscal year that ends October 2007. SP expects it to reach $56 over the next 12 months.
Sunoco (SUN; $68.26) is the second-largest independent oil refiner in the U.S, with gas stations in the East Coast and the Midwest, near its refineries. A share buyback program has reduced the number of shares outstanding by 25% since the beginning of 1999, according to Morningstar. The stock's P/E is 9.6, based on estimated 2007 company earnings of $7.09 per share. Shares yield 1.5%, and SP's target price is $86.
Kimberly-Clark (KMB; $67.23), maker of Kleenex, Huggies and Scott tissues, is in the midst of a major cost-cutting program that should improve earnings starting in 2007. SP's analysts like the company's expansion into new categories (such as toiletries for babies), as well as a focus on developing countries. Kimberly-Clark sells its goods in 150 countries. It returned $2.3 billion to shareholders last year through dividends and share repurchases and has increased its dividend 34 consecutive years. Analysts estimate 2007 earnings of $4.19 per share, a P/E of 16. The stock yields 2.9%. SP expects it to hit $76 over the next year.
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole SpeechFed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
