Morningstar strategists reveal their stock picks

They find opportunities in energy and other commodities, and even in financials.
JUN 26, 2008
The market may be down and volatile, but there are still opportunities for those seeking value across all sectors, including financials, a panel of senior equity analysts from Morningstar Inc. said Wednesday at the Chicago-based research firm’s annual conference. “The question is whether there are individual banks or regional banks that could be looked at,” said Josh Peters, equity income strategist. “Are these banks going to get through this with an enhanced competitive position?” Among the stocks Mr. Peters would select in this area is BB&T Corp. of Winston-Salem, N.C. “Stock prices have gotten clobbered, but BB&T has continued to raise its dividend,” unlike other banks, he said. Other stocks that Mr. Peters considers winners include U.S. Bancorp of Minneapolis and Wells Fargo & Co. of San Francisco. Some segments of the materials sector have continued to do well despite the downturn in the housing market. One favorite is Vulcan Corp. of Clarksville, Tenn., which manufactures gravel and other construction materials. “They have raised prices 12% in a declining environment, and the stock is pretty cheap right now,” said Pat Dorsey, director of equity research at Morningstar. International-goods picks include cement producer Cemex SAB de CV of Monterrey, Mexico, said Paul Larson, equity strategist at Morningstar. Commodities have experienced price increases, but not just in oil. “We’ve seen commodities as a group go up,” Mr. Larson said. “Steel prices are through the roof. Agriculture has gone up.” There are segments of the energy sector where stock pickers can find value, said Toan Tran, equity strategist at Morningstar. He cited Legacy Reserves LP of Midland, Texas, an oil and gas partnership that focuses on exploration And alternative-energy companies, growing due to the rise in the “green” movement, are gaining interest among investors. “I think the next bubble will be in alternative energy and green stocks,” Mr. Tran said. But the sector is nascent, he said, and a bubble could be years away. “All the signs are there,” Mr. Tran said. “We see tons of capital investment, a lot of the development is coming out of universities, and we may see more enabling legislation from government.” In the area of growth stocks, Mr. Tran recommended Monsanto Co., an agriculture biotech company based in St. Louis, which produces genetically modified seeds. “There is a massive growing demand for food,” he said. “You either convert more acres to farming or you increase yield per acre. These genetically modified seeds increase farm yields dramatically.” Technology is another sector where opportunities might exist. Consider the development and convergence of a multitude of hand-held data and communication devices, Mr. Tran said. “It’s a platform race,” he said. “There will be a dominant platform for these converged devices. I would say it would be Apple [Inc. of Cupertino, Calif.] or Research in Motion Ltd. [of Waterloo, Ontario, Canada].”

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