Below are nine stock picks for 2009, which are taken from the 1,000 company database of ETF Innovators (ETFI) Indexes, and which I own in my personal brokerage account. Given my cautious stance toward the economy and stock market, the picks have a defensive theme favoring the healthcare sector as a source of defensive growth companies.
1.) Consumer Staples – Tobacco: Altria Group (MO) has lost about 30% of its market value since spinning off the international tobacco operations into a separate public company as Philip Morris International (PM), resulting in a dividend yield of 8.5% with a stock price near 15 bucks as of today. Altria declared its quarterly dividend of 32 cents today, with an ex-dividend date of 12/22/08 which is payable on 1/9/09.
2.) Consumer Staples – Packaged Food: Kraft Foods (KFT) is trading with a historically high dividend yield over 4% since losing about 23% of its market value in the past year. Profit margins will expand thanks to falling commodity prices, but Kraft will face headwinds from the move by consumers to buy cheaper, generics such as store brand equivalents. However, Kraft has lost 12% in market value since it started trading in mid-2001 which shifts the risk/reward in favor of buying at current low levels.
3.) Healthcare – Generic Drugs: Caraco Pharma (CPD) is still undervalued despite the gain of nearly 36% today as the pending tender offer for Taro Pharma (TAROF) by India's Sun Pharma (Bombay: 524715) implies a
fair value of over 10 bucks for Caraco.
Trends in favor of the global generic drug industry include the following: nearly $70B in brand name drug sales with looming generic competition through 2012, a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70% to save money for the consumers and the government (through Medicare Part D spending), continued industry consolidation of small and mid-caps by industry leaders such as Teva Pharma (TEVA) and Mylan Labs (MYL), and the potential for legislation next year regarding generic versions of high-cost biological agents
4.) Healthcare – Biotech: A World Health Organization (WHO)
report released this week estimates that cancer will overtake heart disease as the top cause of death in the world by 2010, which is part of an overall trend that predicts global cancer cases and deaths will more than double by 2030.
