Stock Picking Season Has Arrived

 | Dec 17, 2013 | 3:30 PM EST
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It's that time of year again when all investment related media unleash their annual lists of stock picks for the upcoming year. Not to be outdone, next week, I will unveil my annual Gad Winning Portfolio for 2014. For now, let's examine what some of the industry's top pros are saying about 2014, courtesy of Fortune magazine, which consider to be one the best financial journals.

Don Yacktman, head of the highly regarded and successful Yacktman Funds, singles out PepsiCo (PEP) for 2014. Both of Yacktman's funds have delivered annualized returns of about 11% for over a decade, making them the best performers on the planet. His philosophy is simple and successful: Buy great companies out of favor. PepsiCo fits the bill, according to Yacktman. Pepsi's dividend and buybacks are sending 5% back to shareholders in cash. Factor in price increase and unit volume growth of 2% to 3%, suggests Yacktman, and Pepsi is increasing earnings by 9% to 10% a year.

Looking abroad, David Herro of the highly regarded Oakmark International Fund chooses Credit Suisse (CS) of Switzerland. Low rates and a strong Swiss franc have put the company at a cyclical bottom that Herro feels will turn. A year ago, during the depths of Europe's banking crisis, Herro bet big on Spanish and French banks, a contrarian bet that has proven very timely. Once Credit Suisse comes out of its cyclical downturn, Herro expects that the company will earn more than $8 billion in operating income, less than 5x today's current market cap.

Agriculture has been a dismal industry for the most part in 2013 and it came as no surprise to see picks such as AGCO (AGCO) and Deere (DE) make the list. I would even include fertilizer companies in the group, perhaps leaning toward Mosaic (MOS) given its pristine balance sheet and lighter exposure to potash.

Underlying all these picks is one of the hottest bull markets since the 1980s. Next year may be the year that the Fed fully stops buying bonds, although many expect interest rates to remain low. Low interest rates of course, make equities very attractive relative to other asset classes. The big theme for investors heading into next year is to have more realistic return expectations.

Columnist Conversations

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