There's a good reason why I don't manage investments for a living--or even manage them gratis
for friends and family. If there were losses I would feel guilty, and the stress would keep me up nights. Losses in my own portfolio are disappointing, of course, but would not cause as much mental anquish.
Nevertheless, because people do occasionally ask me for an opinion, here's how I would invest $10,000 in the stock market, assuming at least a two-year investment horizon. And yes, I do own these equities. Herewith the abbreviated reasons why these stocks may show above-average appreciation in the year ahead.
Apple is the second most valuable company in the world behind Exxon-Mobil. Yet, given it's historical and near-term projected earnings growth, Apple is significantly undervalued. The PEG ratio (price-earnings ratio divided by earnings growth rate) is a yardstick that many analysts use. If the ratio is less than one (for example a 20 PE divided by a 20% growth rate), then a stock is usually viewed as underpriced. Apple's PEG is 0.6.
Deere is the world's largest manufacturer of farm equipment. As economies improve, the megatrend of higher food production coupled with population movement away from the farm should raise the demand for Deere products. However, it should be noted that the debt to equity ratio of nearly 4 to 1 ($27 billion versus $7 billion) makes Deere a risky proposition if interest rates rise or its debt has to be rolled over in a period of tight liquidity. Meanwhile, the dividend yield of 2% is a source of comfort.
Freeport-McMoRan Copper & Gold Inc. engages in the mining of gold, copper, silver, molybdenum, and cobalt. The appreciation in gold we all know about, but, as the second largest producer of copper, FCX is well-positioned to capitalize on a global economic recovery. Analysts have been targeting a share price of at least $50. Don't buy this stock if you think we are still in recession because in that case copper prices and earnings will soften---in fact you should not make new investments in the stock market at all (that's not my opinion, but I've been wrong before).
Buying Netflix is a gamble, not to mince words. Netflix made a number of well-publicized disastrous moves last year in an effort to manage the transition from DVD rental to direct streaming of video entertainment. In the most recent quarter Netflix lost subscribers, and its share price fell from $304.79 to $62.37--nearly 80%--in a few months. Netflix still has downside, especially since owners of content are negotiating much tougher contracts, but I believe it has enormous potential to piggyback on the growth of Apple's iPad, Amazon's Kindle, and other mobile devices. Besides, at current prices the entire company is valued at $4.5 billion, a relatively inexpensive target for a company looking to acquire 20 million paying customers.
We'll check back in a few months to see how these companies are doing.