8 Stock Picks for 2012

The numbers suggest that the economy is growing modestly, but recent stock market volatility indicates that the future is anything but certain. So it's a good time for investors to seek out industry giants that are likely to prosper even in an era of tepid growth.

Rarely have values appeared as tempting. Many big companies have spent the past few years paying off debts, leaving their balance sheets squeaky-clean. Many have also built up treasure troves of cash, which can be used to boost dividends and finance growth. With debt woes slamming Europe, firms that sell mainly in the U.S. and in emerging nations look especially attractive. (Share prices are as of December 1.)

Our choice of Apple (AAPL) -- a solid performer over the past year -- may not be the layup you may think it is for 2012. The company's stock has been weak lately because investors worry that the death of its visionary leader, Steve Jobs, could retard product development and slow the company's double-digit growth. They worry, too, about intensifying competition in tablet computers.

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But the tablet market is expanding rapidly, suggesting that iPad sales will continue to grow briskly even as Apple loses market share. And the recently issued iPhone 4S, another hit, is sure to goose results in the coming year.

New CEO Tim Cook isn't as averse to dividends as Jobs, leaving open the possibility that Apple will soon start returning some of its stunning cash hoard ($86 billion) to shareholders. Meanwhile, the stock, at $387.93, is remarkably cheap for a company exhibiting such rapid growth, selling at just 11 times estimated earnings for the fiscal year that ends in September.

A spike in oil prices last summer helped Chevron (symbol CVX, $101.83) report blockbuster third-quarter earnings, with both sales and profits doubling. No one expects a repeat. At today's lower oil prices, analysts believe Chevron's earnings will drop about 7% in 2012. But even at that level, the stock sells at bargain-basement prices -- about 8 times estimated 2012 earnings -- and pays an annual dividend of $3.24 per share that's easily supported by the cash Chevron generates (the stock yields 3.2%). The San Ramon, Cal., firm has little exposure to natural gas, which is in chronic oversupply. A growing economy could cause oil prices -- and Chevron shares -- to rise. But even in bad times, the stock is a great defensive play.

The stock of Microsoft (MSFT, $25.28) has been dead in the water for more than a decade, even as the firm has consistently beaten earnings forecasts. Value-oriented stock pickers are now pouring money into the Redmond, Wash., company, drawn by its great cash-generating ability and the prospects for Windows 8 -- the upcoming version of Microsoft's personal-computer operating system, which will contain features aimed at smart-phone and tablet users. If the launch is successful, it could restore Microsoft's reputation as a great growth stock. If it's not, look for management changes. Meanwhile, Microsoft's gaming and business-services units are vibrant. The shares sell for 9 times estimated year-ahead profits and yield 3.2%.

When you think cell phones and tablets, Dover Corp. (DOV, $54.76), a conglomerate based in Downers Grove, Ill., doesn't necessarily come to mind. But it should. Its Knowles Electronics unit makes the tiny microphones used in cell phones and tablets from Apple, Nokia and Sony Ericsson. But that's not all. Refrigerated display cases in grocery and convenience stores are made by Hill Phoenix, another of Dover's 33 subsidiaries. Dover's Norris Production Solutions arm helps extract oil from aging wells. Better yet, the company is increasingly integrating related businesses, cutting costs and cross-marketing, which should boost profit margins. The stock sells for 11 times estimated 2012 profits and yields 2.3%.

Even in a tough economy, Schnitzer Steel Industries (SCHN, $46.10) has been able to grow rapidly by selling recycled scrap to businesses in developing nations, such as China, Malaysia and Thailand. Profit margins have shrunk over the past year as demand for scrap metal has stagnated. But even modest economic growth could result in more cars going to the scrap heap, alleviating that imbalance. Meanwhile, the Portland, Ore., company has been investing in technology to cut costs and improve efficiency. With analysts forecasting annualized earnings growth of 15% over the next few years and the stock selling at just 11 times estimated year-ahead profits, Schnitzer looks like a steal.

Worries about cuts in military spending have pressured stocks of big defense contractors, such as Lockheed Martin Corp. (LMT, $78.98). But the cutbacks are likely to be less draconian than feared. Lockheed is the lead contractor on a multiyear contract for F-35 fighter jets that could be worth some $382 billion, and the Department of Defense says it's now willing to let the company compete for India's $11 billion fighter-jet contract, too. The Bethesda, Md., company has a lucrative satellite business that can help sustain growth when defense spending slows. The stock sells for just 10 times estimated 2012 earnings and yields a robust 5.1%. Plus, Lockheed is buying back billions of dollars' worth of its stock.

Target (TGT, $52.15), which offers everything from T-shirts to TVs, is known for selling quality products at reasonable prices. But the Minneapolis-based retailer gets only half as many repeat-customer visits each month as does rival Wal-Mart Stores. Why? Groceries. You buy apples more often than apparel. In 2010, Target started remodeling stores to add attractive full-service grocery aisles. More recently, it launched its RedCard, which offers customers a 5% discount at Target stores. That's pulling in new shoppers, generating more repeat business and fueling solid sales growth. Selling at 12 times projected 2012 earnings and yielding 2.3%, Target's stock is as big a bargain as its merchandise.

For the final pick, we go beyond our shores with generic-drug giant Teva Pharmaceutical Industries (TEVA). Although Teva is based in Israel, it generates 50% of its sales in the U.S. The company acknowledges that earnings no longer will grow at the 15% to 20% annual rate to which investors have grown accustomed. Ironically, another factor weighing on the stock is concern that Teva will face increasing competition for its patented drug for multiple sclerosis, Copaxone, which accounts for less than 20% of sales.

But the stock, at $39.74, sells for just 7 times estimated 2012 earnings, suggesting that investors may be overly pessimistic about Teva's prospects. Additionally, the company is likely to use its substantial cash flow to boost dividends, rather than to buy other businesses, as it has in the past. The stock yields 1.8%.

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