10 stocks that can keep running

Here is the link,
http://finance.yahoo.com/news/10-stocks-that-can-keep-hmoney-2360342846.html?x=0&.v=1

After going through all those analyses, I've come up with what I think will be the big themes of 2010:

TREND 1: Big-caps bounce back

It's been a decade since they were last in favor, but the market's largest stocks are ready to take charge.

In the first phase of a bull market, smaller and junkier stocks tend to lead the way, as has been the case since this rally began in early March. But speculative frenzy eventually gives way to the fundamentals, and that should bring your focus back to high-quality blue-chip stocks this year.

I'm not alone in this thinking. GMO chairman Jeremy Grantham -- who back in 1999 famously and correctly predicted negative 10-year returns for stocks -- wrote recently that "quality stocks simply look cheap and have gotten painfully cheaper" as investors have been enticed into buying riskier assets.

He's right. Consider that a decade ago, which was the last time this group was in favor, the largest 10 stocks in the S&P 500 had an average price/earnings ratio of 59. Today, the P/E of the top 10 is closer to 15.

Aside from being just plain cheap, high-quality blue chips have other things going for them. If the economic recovery is more muted than expected, these businesses offer solid downside protection. At Morningstar we refer to these companies as "wide moat" businesses because their industry dominance can help them grow earnings in good times and bad.

By contrast, lower-quality small stocks that have priced in a strong recovery could get killed if reality falls short of high expectations.

So which blue-chip companies look attractive now?

Exxon Mobil

Don't think of Exxon Mobil as just an oil giant. A more accurate way to describe this behemoth, with a $353 billion market value, is a capital-allocation machine.

Thanks to its operational efficiency and management's discipline in weighing new oil and gas projects, Exxon Mobil's returns on capital -- a measure of how effectively a firm deploys resources -- are consistently above those of its peers.

That efficiency should come in handy if commodity prices stop soaring or possibly even fall. At the same time, its immense geographic footprint should help it weather any regional economic storms.

Of course, given Exxon Mobil's maturity and modest growth prospects, don't feel as if you have to chase this stock at all costs. Morningstar believes it's worth $87 a share. Anytime it dips below $70 -- buy it. It's currently trading around $74.

Johnson & Johnson

There are plenty of things to like about this $172 billion health-care giant. For starters, its diverse business lines -- 40% of sales are from pharmaceuticals, 35% are from medical devices, and the rest come from consumer products -- throw off tons of cash. And that has helped J&J raise dividends for 45 years.

The firm is diversified in another way: Half its sales come from abroad, so if the dollar keeps falling, foreign revenue should see a boost.

And though the company already runs lean and mean, it announced a restructuring plan to save from $1.4 billion to $1.7 billion annually. That should send its already juicy 27% profit margins up even higher.

Sysco

With a market capitalization of $16 billion, this Houston-based company is modest in size compared with Exxon Mobil and J&J. But Sysco is the largest food distributor in North America, controlling 15% of the market.

Sysco enjoys big advantages over its competition thanks to economies of scale, and those advantages only increase as the firm grows larger.

True, business has been hurt by weak household spending. In the most recent quarter, sales fell 8.1%. That's not surprising, since many of Sysco's customers are restaurants, and a night out is a pretty easy expense for cash-strapped families to cut. Yet the company's operating income fell only 1.5% in the quarter, largely because management has done such a good job cutting costs and increasing productivity.

Sysco is well-positioned for when consumers finally crawl out of their bunkers. And with a modest P/E of 13.9 and a generous dividend yield of 3.6%, you're being paid to wait.

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