Monday, March 9, 2009

Best Hot Stock Picks

Divide a given interest rate into 72. The result, more or less, is the number of years needed to double your money. So a compounded 6% return doubles your money in about 12 years. A 7% return takes just over 10 years. The opposite works, too. Want to double your money in five years? You’ll need a return of more than 14% a year.

The Rule of 72 works pretty well for reinvested dividends, too, although since dividends are often paid quarterly and therefore compound more often, the wait is a touch shorter. Two conditions: The dividends must keep coming, and the stock price mustn’t plunge all the way through to the end of the waiting period. Temporary drops are OK, even welcome, since reinvested dividends will buy shares at the lower prices.
Here are some stocks that might double your money, even without big price gains. No guarantees, obviously.

14 years

You’ll need at least 5% a year in dividends. Food stocks like Heinz (HNZ) and Kraft (KFT) pay that much. So does Boeing (BA), which I particularly like. Its shares, at less than six times this year’s earnings forecast, are priced as though mankind has come up with something better than airplanes for long-distance travel. And Genuine Parts (GPC) looks likely to profit from all those cars Americans aren’t buying, since it sells the parts needed to keep old cars running.

12 years

That’ll take a 6% yield. Merck (MRK) seems capable of keeping its meaty payment coming. Philip Morris International (PM), too. Verizon (VZ), another high-yielder, is growing its broadband unit about as fast as it’s losing business in its landline division, resulting in flat profits at the moment — a fairly enviable state.

10 years

Dividends of 7% and up are suspicious. Be careful of stocks whose prices are being pounded on the likelihood that dividend cuts are coming. Pitney Bowes (PBI) seems a good bet, especially since it recently increased its payment. Egg producer Cal-Maine Foods (CALM) yields 6.9% but is something of an odd bird; it pays one-third of profits as a variable dividend. With shares at less than four times this year’s earnings forecast, such a policy could produce a yield of greater than 8%.

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