Five Stocks for the Year Ahead

By Kathy M. Kristof
Kiplinger’s Money Power

With debt woes slamming Europe, these firms that sell mainly in the U.S. and in emerging nations look especially attractive.

Chevron (CVX: $97). A spike in oil prices last summer helped the company report blockbuster third-quarter earnings. At today’s lower oil prices, analysts believe Chevron’s earnings will drop about 7 percent in 2012. But even at that level, the stock sells at bargain-basement prices and pays an annual dividend of $3.24 per share that’s easily supported by the cash it generates (the stock yields 3.5 percent).
Microsoft (MSFT: $25). Value-oriented stock pickers are now pouring money into the Redmond, WA., 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 smartphone and tablet users. Meanwhile, Microsoft’s gaming and business-services units are vibrant. The shares sell for 9 times estimated year-ahead profits and yield 3.3 percent.

Dover Corp. (DOV: $53). Knowles Electronics, a unit of this little-known conglomerate based in Downers Grove, IL., makes the tiny microphones used in cellphones 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. 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 2.5 percent.
Schnitzer Steel Industries (SCHN: $43). The company has been able to grow rapidly by selling recycled scrap to businesses in developing nations, such as China, Malaysia and Thailand. Meanwhile, the Portland, OR., company has been investing in technology to cut costs and improve efficiency. With analysts forecasting annualized earnings growth of 15 percent over the next five years and the stock selling at just 10 times estimated year-ahead profits, Schnitzer looks like a steal.
Lockheed Martin Corp. (LMT: $77). 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 5.3 percent.

Editor’s Note: Kathy M. Kristof is a contributing editor to Kiplinger’s Personal Finance magazine.