5 More "Forever" Stocks You Can't Afford to Ignore

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Last week, I told you that I thought the recent market rout had presented some real buying opportunities for the type of blue-chip "forever" stocks StreetAuthority Co-founder Paul Tracy preaches about to his Top-Ten Stocks readers. During my research, I found 20 such potential long-term buys. 10 of them were reviewed n a pair of previous columns, which you can find HERE and HERE . Here's a look at five more, and I'll round out the list later this week.

I've already gone through the first five, and here is round two...

11. Intel (Nasdaq: INTC
2002 sales: $27 Billion
2011 sales (est.): $54 billion

It was a tale two decades for the world's largest chip maker. Shares rose from (a split-adjusted $1 at the start of the 1990's to $41 at the end of the decade. A decade later, shares would be languishing at half of that December, 2000 price. Even if the stock price has gone nowhere, this business has steadily moved ahead as Intel has expanded beyond its microprocessor niche into other specialized chips that handle graphics and other chores.

For several years in the last decade, it looked like Intel was running faster just to stay in place. Heavy R&D spending caused free cash flow to slump from an average of $8 billion in 2003 through 2005, to less than $4 billion - on average - from 2006 through 2009. Yet that metric is back again at peak levels, reaching $8 billion in 2010. Goldman Sachs figures it will reach $9 billion this year and $10 billion in 2012. That should help Intel to keep boosting its dividend , which currently yields nearly 4%.

12. Jabil Circuit (NYSE: JBL )
Fiscal (August) 2002 sales: $4.8 billion
Fiscal 2011 sales: $16.5 billion

Jabil is the world's third largest contract manufacturer, making a wide range of electronic components, devices and systems for major tech companies like Cisco Systems (Nasdaq: CSCO ) and Apple (Nasdaq: AAPL ) . Excepting the global economic slowdown of 2008 and 2009, sales have risen at least 15% in every year of the last decade. Equally important, Jabil has recently been able to generate very impressive profit margins in an industry known for very slim margins.

Fiscal 2011 results, which were just released last week, were extremely impressive. Sales shot up more than 20% from a year earlier, thanks to a big push to land new customers in fields such as medical devices and clean energy technology. Jabil is also offering more advanced manufacturing services, and these moves are pushing the company onto a path of higher profit margins, which helps explain why EPS rose more than 50% in fiscal 2011 to $2.34 a share.

Could a break-out be at hand? Jabil's stock has been on the decline, from nearly $40 in early 2006 to a recent $19, which values the stock at just seven times projected fiscal 2012 EPS of $2.60. Needham's analysts figure they'll move up to $26, or 10 times that fiscal 2012 outlook.

13. Johnson Controls (NYSE: JCI )
2002 sales: $20 billion
2011 sales (est.): $40 billion

With exposure to both the automotive and heating/ventilation/air conditioning industries, this company surely rides the ups and downs of the global economy . Yet the long-term trend has been steadily upward noted by those above-cited sales figures, and a stock that from $10 in 2000 to around $40 this spring. If you missed that upward move, you've just been given a second chance, as this summer's market rout has pushed the stock right back to $27, giving up roughly half of the decade-ling upward surge.

Johnson Controls has typically traded for between seven and 20 times forward earnings . Right now, the forward multiple on projected 2012 profits is around nine. Assuming shares trade up to the mid-point of that range, or 13 times projected earnings , and if the fiscal 2012 EPS forecast of $3.16 is to be believed, then shares should rise back up to $40. That's +50% above current levels.

14. Kohl's (NYSE: KSS )
Fiscal (January) 2003 sales: $9 billion
Fiscal 2011 sales : $18.4 billion

While many investors were fixated on big-box retailers such as Wal-Mart (NYSE: WMT ) and Target (NYSE: TGT ) over the past decade, Kohl's quietly emerged as the industry's best operator. Same-store sales have steadily been on the rise over the last decade, fueling impressive gains in profit margins and the bottom line . Earnings per share hit a record $3.66 in fiscal 2011, are expected to reach $4.50 in the current fiscal year , and exceed $5 in fiscal 2013, thanks to the retailer's spate of growth initiatives. That's an impressive trajectory at a time when consumer spending is in such a funk.

Still, Kohl's shares haven't gotten the love they deserve, having fallen from $75 in 2007 to a recent $48. Connect the EPS forecast and the current stock price and you see a mismatch. Analysts at Citigroup think this stock deserves to trade up to 13 times their projected fiscal 2012 profit forecast, or $68. That's 40% upside from current levels.



15. Mylan Labs (NYSE: MYL )
2002 sales: $1.1 billion
2011 sales (est.): $6.2 billion

This provider of generic drugs has been one of the key beneficiaries of the ongoing stream of Big Pharma drugs that lose patent protection. As more drugs have moved off-patent, Mylan's opportunities have expanded. And as the company doesn't need to spend a lot on R&D every year, it has become a veritable cash cow : Mylan has generated a collective $900 million in free cash flow over the last two years. 

The road looks bright, thanks to another wave of major drugs soon to go off-patent.

That helps explain why analysts think Mylan will boost EPS roughly 15% in 2012 to around $2.30. Shares trade for less than eight times that figure. That low multiple comes after a recent 30% pull back to $18, which is right where this stock traded back in 2003.Mylan's stock will never garner a high P/E ratio, but there's no reason this stock can't again garner a forward multiple of 11 or 12 times earnings, implying a move into the upper $20's, roughly 50% above the current share price.

Risks to Consider: As is the case with other stocks profiled in this series, this could be a "dead money" portfolio until the market finally regains its footing. Johnson Controls and Jabil Circuit likely have the greatest economic risk , and would see a large reduction in forward earnings estimates if the global economy fell into a prolonged slump. Mylan likely carries the least earnings risk.

Action to Take --> These are part of a group of 20 solid companies that possess solid long-term track records. There's no reason to suspect that these companies won't flourish in the decades to come as well. The fact that these shares are well off from the highs, and in some instances back at levels seen a number of years ago, creates a solid entry point.


-- David Sterman

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , CSCO , JCI , KSS , MYL

David Sterman

David Sterman

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