It’s time that Wall Street face the music. The days of the Federal Reserve’s easy money policy are drawing to a close and that’s going to have big–potentially disastrous–implications for the markets.
You see, for the past few years, the Fed’s accommodative policies–known collectively as Quantitative Easing (QE)–have been a driving force behind the stock market. Essentially, the Fed has been pumping $85 billion into the U.S. economy each and every month–in the form of bond buying. This has helped keep interest rates low and encourage borrowing.
This Fed policy gave Corporate America the green light to rush to the bond market and borrow at ultra-low rates and put the cash towards aggressive stock buyback programs or dividend increases. And this corporate buyback frenzy has persisted as long as the Fed has kept up its end of the bargain.
As you probably know firsthand, stock buyback programs and dividend increases are great for shareholders. So many investors have banked on the continuation of the Fed’s zero-interest rate policy. If you consider yourself one of those investors, I have bad news for you: Things are going to change very quickly in the next few months, and not for the better.
In fact, the Federal Reserve recently stated that it could start to cut back on bond purchases by the end of the year–and end them altogether in 2014! And now that the unemployment rate has fell to 7.3% in August, we are drawing ever closer to the 6.5% benchmark rate that signals to the Fed when it’s time to pull the plug.
So if you don’t act quickly, you could be caught holding the bag when the Fed announces the definitive end to Quantitative Easing.
What Will Happen When QE Ends?
If QE ends definitively, it will make all high-dividend stocks more volatile, especially mortgage REITs. What I expect would happen is that an initial shockwave would hit Wall Street. The kneejerk reactions we’ve seen to past Fed announcements will pale in comparison to the post-QE pullback. But that doesn’t mean you have to get caught up in the panic.
You still have a choice to make.
Option #1 is to resign yourself to the market’s obsession and get caught up in the selling action that will inevitably result from the end of QE.
Option #2 is to plan ahead for what’s to come: A flight to quality.
I’m sticking with the second option and I recommend you do the same. The first half of 2013 belonged to the crap, if you’ll pardon my language; the second half should belong to the quality. Believe it or not, the best performing stocks in the first half of the year were in the bottom 10% of market capitalization (i.e., micro caps), with the lowest dividend yields (essentially 0%), the most negative analyst earnings revisions (bottom 10%) and the highest short interest (top 10%).
That can’t last. The biggest winners the last six months profited from a tremendous “short squeeze” that propelled many thinly-traded stocks higher as wave-after-wave of money flowing into index funds and ETFs caused the shorts to cover their positions, which increases institutional buying pressure. Whenever low-quality stocks lead the way and a “crap rally” occurs, the stock market historically reverses itself and a flight to quality ensues, typically within seven months.
The time for that flight to quality is approaching, so there’s no time to waste. I’ve been running my proprietary screening tool on full blast to try to isolate the best Bernanke-proof stocks around and I’ve isolated eleven such names. No matter how choppy the market gets, I fully expect these stocks to benefit from the impending flight to quality.
Of course, buying is only half of the battle. With this kind of volatility on the horizon, you’ll need to go over your existing positions with a fine tooth comb. So later on in this report I reveal 25 of the biggest names on Wall Street that you must sell now.
Arm Your Portfolio With These Fed-Proof Stocks
Bulletproof Pick #1
AmerisourceBergen Co. (ABC) is one of the world’s largest pharmaceutical services companies–serving an industry that’s expected to reach $370 billion to $390 billion by 2015. In other words, the profit potential stuffing. Moreover, because it helps drug makers and healthcare providers cut costs, it stands to win big from the healthcare shift that’s just getting underway here in the U.S.
The company is on track to meet its 2013 financial objectives and is in a good position to generate sustainable long-term growth. AmerisourceBergen expects 2013 adjusted earnings in a range of $3.06 to $3.11 per share and between 11% to 13% sales growth. But I’m really looking forward to what comes next. By most estimates–mine included–the company is headed toward.
Just recently, the company’s board approved $750 million in stock buybacks–that’s on top of the $450 million or so it has left on its existing program. Even more impressively, since 2006 the company has increased its quarterly dividend nearly tenfold.
As a result, investors are being paid 1.4% per year just to hold the stock, the second highest dividend in the Wholesale Drugs industry. Between its industry leading position, its commitment to shareholders and its earnings prospects, I consider this conservative industry leader among my top healthcare picks.
Bulletproof Pick #2
And I haven’t even begun to talk about this company’s earnings prospects. With 15 million customers (and counting), this company has a firm handhold on the U.S. cable, data and voice market. But that doesn’t mean this company is resting on its laurels. The next big push is the shift to video streaming media, and instead of denouncing the threat to traditional cable, this company is embracing the change. Recently, this company agreed to stream more than 300 live channels through Roku, the leading set-top box player.
Adding to the excitement, there’s a lot of buzz right now around both a change at the top and possibly industry consolidation. So it’s small wonder why U.S. funds have been scooping up shares of this stock, and why I’m recommending my Blue Chip Growth readers do the same.
Bulletproof Pick #3
Discover Financial Holdings (DFS) is the perfect play to cash in on rising consumer spending—which the government expects will hit $12 trillion in eight years. On top of this, the company is at the crux of another powerful trend: The surge in U.S. consumer credit. Discover is, of course, a big card issuer in the U.S. and a leading innovator in the credit card industry. At last count, Discover-brand credit cards are used by more than 25 million members!
And before long, Discover Financial will get a piece of the housing recovery–the company has just started offering home equity loans. While this isn’t expected to affect earnings until next year, this is just another example of how the company has kept moving forward in the credit business.
What’s more, stock gives shareholders serious bang for their buck. With a 1% annual dividend yield, DFS falls in the top 10% of all Credit Services companies. And the company is in the process of buying back $2 billion of its own stock. These kind of value-added activities will continue to entice investors no matter what the larger market is doing.
Bulletproof Pick #4
My No. 4 pick for the post-Fed market just so happens to be one of the most exciting biotech plays around. Just how exciting? Well, this company is working overtime to double sales by 2017! This is a pharmaceutical company specializing in cancer treatments as well as therapies for immune-inflammatory related diseases. It currently has several drugs on the market–one that treats a blood cancer that begins in the bone marrow–and a blockbuster chemotherapy treatment currently used in breast cancer patients.
Bulletproof Pick #5
My next recommendation is one that you’ll definitely want to consider “ringing up.” With over 2,600 supermarkets across the U.S., this is one of the nation’s largest grocery chains. On top of this, this $97 billion company’s empire covers nearly 1,200 gas stations, 800 convenience stores, over 300 jewelry stores (yes, jewelry!) and 37 food processing facilities.
With the dollar as strong as it is, I’ve been screening for strong domestic companies, which have an inherent edge over multinational companies. And I’ve found just the right fit in our No. 5 pick, which is also benefitting from lower food costs and higher grocery spending.
But the big catalyst for this company is a multibillion dollar merger. Our grocery retailer is about to combine with one of its biggest competitors in a $2.5 billion cash deal. Analysts expect the deal to add $0.06 to $0.09 a share to this company’s earnings in the first full year following the merger.
So I’m telling my Blue Chip Growth readers to add this stock immediately because it won’t be long before it takes off.
Bulletproof Pick #6
Chances are that you’re familiar with Johnson and Johnson (JNJ), which was founded in 1886 as the Johnson brothers sought to spread the practice of sterile surgery in the U.S. That mission continues today, only now, the company maintains this standard worldwide. J&J has grown into a $16.5 billion company, with hundreds of products in more than 170 countries. J&J consumer products can be found in households everywhere, from Band-Aids to Listerine to Tylenol to baby shampoo. You probably have several on your shelves.
But what you may not realize is just how big the Johnson and Johnson name is. This company dominates the competition even outside of consumer products.
No. 1 in medical devices and diagnostics.
- No. 5 in biologics.
- No. 6 in consumer health.
- No. 8 in pharmaceuticals.
And the company’s motto “for all you love” extends to investors as well. As J&J has expanded its global reach, its commitment to its shareholders has remained the same. Johnson & Johnson has increased its dividend for each of the past 51 years! With upwards of a 3% annual dividend yield and strong earnings potential, I have no reservations recommending this old company for new money.
Bulletproof Pick #7
Next up is my top automotive recommendation, which just so happens to be a leading supplier to the auto industry. From vehicle engineering and assembly to production of exterior trim and building interior door panels, this company has it covered. Fiat–including Chrysler and Dodge–Ford and General Motors are all long-time clients of this up-and-comer.
Now is a great time to buy because this auto parts maker is still flying under the radar of many investors. But I don’t expect this stock to remain a secret for long. First, this company is cash rich and using its cash hoard to reward shareholders. It boasts a strong dividend track record–in the past five years it has hiked up its quarterly payment by 78%. The company is also in the middle of a 12 million share repurchase program, which ends in November.
And then there’s profit potential. This company is benefitting from all the outsourcing and just-in-time manufacturing demands on the auto industry. And while it is based in Canada, it’s a global company that is largely immune to currency valuations that would otherwise hurt its competitiveness. That’s because it has the ability to transplant its manufacturing operators to the most competitive countries.
For now, the stock remains a steal, but I look for it to blast away analyst estimates in the coming months.
Bulletproof Pick #8
With 10,400 locations in 150 countries, Hertz Global Holdings Inc. (HTZ) has a global reach that extends from airports to construction yards…
They are the #1 choice for consumers, construction, petrochemicals, manufacturing-and let’s not forget the entertainment industry. So you’ll find them in all North American countries, as well as scattered across Europe and Asia.
One reason Hertz has popped onto my radar is that it is in the middle of a major acquisition. The Federal Trade Commission (FTC) recently granted Hertz final approval to acquire Dollar Thrifty Automotive Group (DTG) for $2.3 billion. As part of this deal, Hertz sold off minor assets like its former Advantage car rental business as well as select airport operations. But it should be well worth the effort. The combined company should see at least $160 million in annual cost synergies thanks to increased productivity and efficiency.
Bulletproof Pick #9
My No. 9 recommendation is the world leader in serving science. Scientific institutions–including universities, biotechs, hospitals and government agencies–all go to this leader when they need specialized equipment.
What makes this company special is that it also stands to profit no matter what happens with the general regulatory climate. It makes what I like to call “mandatory devices”–tools that are essential to the day-to-day operations at laboratories, clinics and hospitals. These include analytical instruments, basic chemicals and laboratory glassware. So regardless of how the healthcare industry is changed by ObamaCare, this company’s products will still be in demand.
But I’m really recommending this stock now because it is also set to become the second largest player in the genetic testing market. No stranger to big buyouts–the company was formed through a $13 billion merger of two big rivals–this company is buying out a big genetics player for nearly $14 billion. This deal is expected to add $0.90 to $1.00 to its per-share profit in 2014.
Bulletproof Pick #10
The Clorox Co. (CLX) has dominated the cleaning products market for a century! Clorox is one of those brands that have become so popular that the name is now interchangeable with the generic term “bleach.” And, there’s good reason for that-it is estimated that 8 in 10 U.S. households rely on Clorox for their laundry and cleaning needs!
CLX is also at the crux of a powerful consumer trend. Whether it’s the norovirus or the latest flu virus, it seems like we have a new germ scare every few months. And there is no doubt that the company is benefitting from the germ phobia that has gripped much of the world. Scientists have even talked recently about concerns over superbugs that could prove resistant to antibiotics. More people than ever are using Clorox’s antiseptic wipes and cleaning products, so this company’s prospects remain strong.
Bulletproof Pick #11
I have a lot of pharmaceutical plays on the Blue Chip Growth Buy List for one simple reason: Pills are cheaper than procedures. Now that ObamaCare is the law of the land, everyone is required to sign up for healthcare or risk being penalized. This is creating a very healthy environment for pharmaceutical companies like my final Fed-proof stock.
Right now, all eyes are on this company’s ophthalmology division because it’s about to get a lot bigger. That’s because my No. 11 pick recently bought out one of the world’s top contact lens businesses for $8.7 billion. Word on the Street is that this acquisition will add to earnings immediately and add $800 million in annual cost savings by the end of 2014.
And the timing couldn’t be better. The global contacts business is booming due to the aging population, growing demand in emerging markets, and growing rates of diabetes, which can damage the eyes. All these signs point to a good year for the company’s bottom line, so I’m having my Blue Chip Growth readers take full advantage of this.
25 Stocks To Sell Now
I’ve been crunching the numbers and I was shocked to find some of the biggest names on Wall Street–from tech stocks to commodities companies to financials–are on the verge on imploding. In fact, I’ve isolated no fewer than 25 big names that were flagged by my stock screening system. And because you were among the first to sign up for this special report, you are the first to know about these companies.
If you own any of these companies now is the time to unload them before they get really hammered. Especially with earnings announcement season right around the corner, holding even one of these companies could sabotage your profits for 2013 and beyond. So without further ado, here is my complete list of 25 blue chips to unload right away.
- Alcoa Inc.
- Apple Inc.
- AT&T Inc.
- Baker Hughes Inc.
- Barrick Gold Corp.
- Canon Inc. ADS
- Caterpillar Inc.
- Coach Inc.
- Chevron Corporation
- Devon Energy Corp.
Ecopetrol S.A. ADR
- E. I. du Pont de Nemours and Company
- Exelon Corp.
- Exxon Mobil Corp.
- FirstEnergy Corp.
- General Electric Co.
- Goldcorp Inc.
- Intel Corporation
- International Business Machines Corp.
- J.C. Penney Co.
- Loews Corp.
- Microsoft Corporation
- Vale S.A. ADS
- Vornado Realty Trust
- Wal-Mart Stores Inc.
Take Your Profits to the Next Level In 2013
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