Addition Of METLIFE and 3M To The “Favored Stocks” List.

[ 0 ] March 6, 2011 |

In talking to Lange Financial Services ( LFS ) on Thursday and Friday last week , we have discussed the recent list of stocks recommended for purchase on this blog dated February 25, 2011. In addition to the companies suggested on that list, we are adding to our Favored Stocks list METLIFE ( MET ) $45.50 and 3M ( MMM) $91.15 as stocks to Buy on Weakness.

METLIFE ( MET ) $45.50 is the Number 1 insurer in the USA.   Morgan Stanley analyst Nigel Dally upgraded his rating on MetLife to Overweight from Equal Weight and set a price target of $57. “The company has one of the strongest fundamental outlooks in the industry, given its attractive ROE [return on equity] expansion story and its robust excess capital position,”  he stated in a research report this past week.  Furthermore,  Dally noted that MetLife trades for less than nine times his 2011 profit estimate of $5.25 a share—compared with $4.38 a share in 2010—and under eight times his 2012 estimate of $6 a share. The stock trades at a small premium to year-end 2010 book value of $43 a share and at a discount to projected year-end 2011 book of $46 a share. This conservative measure of book value excludes unrealized capital gains in the insurer’s investment portfolio.

Bulls like Dally argue MetLife’s return on equity could rise to 12% in the next two years from 10% in 2010, helped in part by the Alico acquisition, which MetLife has projected could add about 50 cents to 2011 profit.

3M ( MMM ) $91.15, one of the 30 DOW stocks is an industrial powerhouse and one of the most innovative companies in the world.   The company launched 1300 new products last year alone, and its sales and profits are rising substantially.   With its footprint in emerging  markets as well, we could see earnings growth of up to 60% or more over the next 5 years. Last year, Booz & Co., the consultant, named 3M the third most innovative company in America, after Apple (ticker: AAPL) and Google (GOOG). On any given day, you can find 3M’s inventors working on such products as ultra-skinny panels for solar cells, or anti-microbial touch screens that let your fingers dodge co-workers’ germs. Yet while shares of Apple have soared since the market bottomed in March 2009, 3M’s stock (MMM) has crawled ahead. Last year, it climbed 7%, about half the S&P 500’s gain. That’s about to change. Shares 3M are entering a sweet spot, thanks to a blizzard of new products and the rising popularity of 3M’s wares outside the U.S. Over the next several years, 3M brass say, sustainable top-line growth will double, to 7% to 8% a year.

Last year, 3M made $4.1 billion, or $5.63 a share, on $26.7 billion in revenue. The earnings blew past the guidance the company had provided early in the year, when the economic outlook was cloudy, and were well above the depressed level of 2009, when the big manufacturer earned $3.2 billion, or $4.52 a share. For the current year, 3M is forecasting 5.5% to 7.5% internal revenue growth and earnings of $5.95 to $6.20 a share, after pension expenses. (Without them, the range is $6.17 to $6.42.) Management contends that 20%-plus operating margins are doable over the next several years, which would be an industry-leading level. The robust sales forecast reflects the company’s success at refreshing a stale product line over the past few years, improving productivity and rationalizing capacity.

We would also note that both companies have has positive comments ( cover stories no less ) in Barrons recently. Fred Lange was mentioning these two stocks to us near the end of last week and we thought it wise to add them before the trading week ahead.

We are adding a FAVORED STOCKS section to the top navigation bar of the site and will be listing the stocks we discuss on the blog there to make them easier to follow. This will be finalized in the next day or so.

W&BR

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Category: Markets and Trading