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Investing should always be a function of valuation. When valuations are attractive, buying stocks are likely to produce good results over a satisfactory period of time, and vice versa. Greater uncertainty usually leads to valuations that are more attractive. Despite the fact that Dow is approaching 13,000, today's global economic uncertainties still leave pockets of attractive opportunities.
Most are found in cash-rich, well-established technology stocks and blue chip type stocks paying attractive yields. You get the best of both from Microsoft (Nasdaq:MSFT) today: at $31 a share, Softy's is up 18% in the past year but still trades at 11.5 times earnings and yields 2.5%. Furthermore, with $40 billion in cash not needed to run the business, MSFT dividend is likely to go up over time. Intel (Nasdaq:INTC), with a 3.1% yield and $10 billion in excess cash, is another attractive long-term holding that will provide conservative investors with an attractive income return and steady capital appreciation over the years.
Safe by Necessity
Some businesses have it in their DNA to be conservative at all times; not swinging for the fences but instead opting for singles and doubles through good and bad. Emerson Electric (NYSE:EMR) is one such name. Emerson's products are indispensable to many companies in many industries, but management does not take that for granted. Trading at $50.60, shares yield 3.1% and are valued at 16 times earnings. Spend a little time listening to CEO David Farr and you will know why this business is always prepared for both good and bad times. History has shown that owning Pfizer (NYSE:PFE) for a period of years has been a good bet, thanks to the dividend that has been as good as money in the bank. Today, that dividend is 4.2%. Despite concerns from blockbuster drugs going off patent, Pfizer's dividend will probably keep investors loyal. The result is likely to be a share price with low volatility and a consistently growing dividend. (For related reading, see A Primer On The Biotech Sector.)
Very few people succeed at short-term investing, as that approach requires timing and a great dose of luck. But if you treat investments as a way to build wealth, then owning some of today's cash-rich income-producing stocks is likely to pay off over the course of a couple of years.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.