Stock Picks 2010: Undervalued Blue Chips For Soft Recovery

The first tender green shoots of financial recovery have budded and flowered. Unemployment and job quality remain issues that still loom in the foreground and healthcare may be another looming issue in 2010, but the stock market is climbing back into positive territory. The S&P 500 gained 2000 points in 2009 and analysts suggested this was merely a modest correction. After such a colossal financial meltdown, are you ready for economic growth again?

My stock portfolio is! I'm perhaps one of the few remaining optimistic investors in the United States stock market. I've been picking off the last tasty morsels of undervalued financial stocks and looking to a gradually strengthening economy to drive my stock choices for 2010. Now that the word is out after President Obama's State of the Union Address, I feel that the nation may be realizing just how undervalued the big banks are. Before I share my picks, let me address some of the hot button issues that are driving stock prices into higher territory.

China

China has for several years been emerging with a new middle class that wants to consume like never before. To ignore the presence of this force on the world economy would be like the captain of the Titanic ignoring the iceberg in the front window. The impact of China's demand on the global economy for consumer goods, luxury items, and basic materials and durable goods simply cannot be underestimated. As China's economy continues to grow, I think we will also see a filter effect on China's nearby trading partners in Asia and elsewhere in the world.

Forbes.Com on Investing in China

Green Products and Energy

People are becoming more and more convinced that green products and clean energy are worthy of pursuit for social and fiscal reasons. My investment choices will be strongly influenced by a company's ability to adapt to a vision of a greener, more environmentally friendly world. You can even now invest in index funds of eco-friendly companies or trade in a speculative commodities market that sells Carbon Offsets to emissions-producing nations.

This commodity is the result of European Union countries and other participating nations' attempts to buy clean energy solutions to off-set their polluting activities at home. Most trading of carbon offsets occurs in London. I am no expert, and am learning about this still, but if people are trading in carbon offsets like it's real estate, then we've barely begun to see the effects of the green revolution on our market place.

Look for well-established companies that are investing research dollars into green products and energy production, and look for other green buzz-words like clean coal, green energy, and eco-friendly building materials.

Water

Water. It is a non-renewable resource that some day may be recognized as being far more precious than gold. Cleaning up polluted water sources and finding alternate sources of water will factor into the wealth picture of the future. However, I think water utility companies are presently taking a back-seat to sexier investment prospects. I think water is a no-brainer long-term investment.

Imminent Baby Boomer Retirement

The Boomer's are about to retire, and are going to be increasing their last minute investment activities to give a boost to their lagging stock portfolios. I expect to see increased activity in the financial services industry. Retirees will probably leverage their homes as the economy improves to buy smaller, less costly homes before inflation sets in. This could possibly point to a mini housing boom for low-cost communities that already attract retirees. Historically retirees have flocked to the sun belt, but this may or may not be the case as Boomers are already taking care of elderly parents in some cases. Still with Boomers leverage their homes to supplement their retirement expenses, I expect to see continued activity in real estate and mortgage industries.

Looming Changes in Healthcare

As the United States Congress attempts to address the problems of the struggling health care system, winners and losers will emerge as money is redistributed throughout this sector. But as the old saying goes, the more things change, the more they stay the same. What will not readily change is adult obesity, heart disease, diabetes, swine flu, and other major diseases. As always, big gains may be found in this sector, but investments in this area will probably be extremely volatile.

While I am no economist, nor am I a stock market expert, it is easy to conclude that the above areas will continue to have a strong influence on the future of the market. I can easily look to these areas to help me in my own individual stock purchasing plans.

I am an opportunistic buy and hold investor. What does that mean? As a general rule, I purchase stocks to hold for long periods of time, waiting for them to increase in value and income. My goal is to buy shares in solid companies or to use value investing principles to buy great companies on sale. As stock buyers go, I'm fairly conservative in my approach.

Income-generating stocks are the bread and butter of my stock portfolio. I still hold shares in a few REITS or real estate investment trusts (HRP is one of my favorites, though it isn't a popular choice among analysts right now). I also try to focus on buying stocks that pay a dividend. The nifty fifty stocks were well-known blue chips in the 1970s which developed a reputation as good stock portfolio workhorses, but not great moneymakers, but now are very deeply on sale. These stocks are the ultimate value stocks and I'm hoping to add some of these stocks to my portfolio too.

Why is this my particular investment strategy? I'm a very small-time investor who buys stocks as part of a retirement strategy. In my 401K portfolio I mostly hold shares of low-cost index funds. When I retire I will be required to start making minimum withdrawals from my retirement account. My goal at retirement is to hold investments that will pay me a quarterly yield that will not deplete the actual shares of stock in my portfolio.

My stock portfolio is much more aggressive, but it is a smaller portion of my overall retirement picture. 

Some of my bets are with the battered an undervalued companies that have been particularly hard-hit during this recession.

General Electric (GE) has a financial products division that has helped to drag it's stock valuation into the mud during the last few years, but this company has a research division that is doing exciting things with water reclamation processes that combine the undervalued blue-chip element with green energy products and a limited future resource--water. This stock is at the top of my list of stocks to buy.

Coca Cola (KO) has been paying a dividend for over 100 years and its brand name and products are still growing. While Coca Cola has had a presence in the U.S. for a century, its presence in China will continue to grow, with the middle class consumers there. It is a strong, solid value.

Eli Lilly (LLY), the Indianapolis-headquartered big pharmaceuticals company, has also been paying a dividend for over 100 years. It develops healthcare products for diabetes and in early 2010, will be paying out a 5% dividend. In a good market this an impressive dividend.

Bank of America (BAC) This big bank is under fire for paying big bonuses, but it has paid back all of the bail-out money it loaned to the government. If you have the stomach to buy bank stocks right now, then this is one stock I would pick up on sale. I believe the markets are somewhat cyclical in nature, and this stock is well on the road to recovery. I expect it to continue to be "on sale" for the next year or two, and when the economy is in a full-fledged recovery, to make big on this particular stock purchase. Likewise, Wells Fargo (WFC) is a long-time favorite of famous investor Warren Buffet. I would continue to buy shares of this stock.