Wednesday, January 7, 2009

Investing Pittsburgh: My 5 Favorite Stocks

A friend of mine asked me to put together a list of my five favorite stocks. I thought since I put in the work, that I'd go ahead and share it not just with him, but with my e-friends as well!

In general I follow three rules (in order of importance) for stock picking.
  1. Must be a good value
  2. Must pay a dividend with a decent yield. I have found that if you can find a value stock with a decent dividend that there’s no hurry for the stock price to recover because you can cash dividend checks while you wait for the market to correct.
  3. Preferably a contrarian play. With the rise of the online discount broker, there are more silly plays being made in the market than ever before. I’m happy to take advantage of them. I also think that many new age stocks are overhyped. Though I make my living in technology, I can sympathize with Buffet’s argument about the over-valuation of the tech sector as a whole.
With that in mind here are 5 picks I like and any reasons I have for them outside of what’s mentioned above:
  1. PNC – It’s my favorite right now, and the heftiest percentage of my portfolio. In addition to being a good value (with quite a bit of growth potential to boot), I bought in with a 6% yield! You can still get pretty close to that, around 5.5 at the moment. People are apprehensive about the merger with National City, but the government gave NCC to PNC for a wink and a smile and they didn’t do it so PNC would fail.
  2. X – US Steel is by far my second favorite. Since I bought it in early December I’m up close to 40% and I still think it’s a bargain, a steal if you’ll forgive the pun. In addition to being a solid match for my three factors, it has the potential to benefit fantastically from any major infrastructure project Obama embarks on.
  3. HNZ – There’s a big drop off for me between second place and third. In fact at the moment my portfolio is 70% cash with the rest in PNC and X. That being said, we had to pick 5 companies and I don’t think HNZ is a bad place to be. 4.5% yield from a solid value stock.
  4. PPG – See the note about Heinz, I’m not sure the money isn’t better off in cash for the next month or two, but I think it is a good buy at this price and would help any portfolio in the long run. Its yield is almost 5% and its business is pretty diverse. People have overestimated its dependency on the Big 3. Many of the vehicle related products that PPG produces will be used by foreign vehicle companies with plants in the US and Mexico even if the Big 3 were to be allowed to fail (which I doubt).
  5. AEO – Don’t buy this yet unless you don’t mind holding it for a while, but it is still a good deal at a 7.8 P/E. The yield is below 4, which isn’t particularly good for the current deflated share price, but I think it has more growth potential then most of the other stocks I’ve named.
Investing Pittsburgh is a regular part of this blog. It details the ins and outs of a mock portfolio of Pittsburgh Stocks invested and managed by me. For a list of all of the previous "Investing Pittsburgh" posts, click here.

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