3. Cisco Systems
Cisco Systems Inc. (NASDAQ: CSCO) is now entering the post-John Chambers era, at least as far as Chambers being CEO. Cisco remains the unchallenged leader in networking and communications equipment now, just like it was five years ago, and that is almost certain to be the case in the years ahead. It was picked in 2010 for its dominance in the enterprise market, with hardly any serious exposure to the trends of consumers and retail.
Cisco will find growth in routers, switching, data, wireless, security and more. Cisco is always competitive in major telecom carrier upgrade cycles, and it has even been able to mostly get past the negative NSA cloud that was there in 2014. Cisco remains the king of share buybacks so far versus its peers. It did not pay a dividend in 2010, but it has been aggressive enough in dividends that it now yields almost 3% (much better than most tech giants). Cisco’s cash has grown from about $40 billion in 2010 to over $53 billion in 2015. Cisco trades at about 13 times a blended 2015/2016 earnings.
Alternative Tech Picks: Back in 2010, the technology landscape was not as certain nor as stable with industry leaders knowing their place compared to mid-2015. Apple Inc. (NASDAQ: AAPL) was still fighting vast competition, and BlackBerry was a close to a $50 stock then. Apple is now the largest stock by market cap and by profitability. Still, it is going to take more than just the watch and future iPhone upgrades to lead the next generation of growth, even if buybacks should act as a key stabilizer. Another alternative tech leader for the next decade is Oracle Corp. (NYSE: ORCL), with Larry Ellison’s giant CRM software player being embedded in many enterprises around the globe. Oracle’s 1.4% dividend has much more room to improve at not even a 25% payout rate, and it is valued at less than 15 times blended 2015/2016 earnings.
4. Dollar General
Dollar General Corp. (NYSE: DG) remains the king of dollar stores. Back in 2010 the theme under a “new normal” and “post-new normal” that we expected to remain was the rise of the dollar stores against Wal-Mart and other giants. Dollar stores have continued to reach up beyond the one-dollar mark, and this trend will remain. Its shares were underperforming peers in 2010 because the private equity backers were still unloading stock. Those former owners are gone and shareholders now have complete control.
Dollar General had to back off a merger ambition, and now rivals Dollar Tree and Family Dollar are merging. While this is more firm competition, the real issue is that it levels the field when it comes to the post-dollar stores ahead. Dollar General is now worth over $22 billion, and while it had no dividend in 2010 it has recently started paying a dividend with an introductory yield of 1.2% that is almost certain to grow in time — and it is a winner from a strong dollar. In 2010 it had 8,900 stores in 70% of states, and had grown close to 12,000 stores in 43 states in early 2015.
Alternative Retail Picks: Retail remains jittery and risky, with anything tied to trends or apparel effectively being a new company more than once each year. The combined Dollar Tree Inc. (NASDAQ: DLTR) and Family Dollar Stores Inc. (NYSE: FDO) will be a formidable competitor. While this is geared toward food in retail, Whole Foods Market Inc. (NASDAQ: WFM) remains the envy of natural foods retailers and plain old grocers alike — just don’t expect that stock to do very well if and when the next recession comes.
5. Exxon Mobil
This may feel like a bumpy sore for oil patch investors who rode the $100 oil down to under $50, but Exxon Mobil Corp. (NYSE: XOM) remains the undisputed king of integrated oil giants, and it owes its formation back to the days of Standard Oil. Since 2010, Apple has passed it up as the largest company in America by market cap, but Exxon Mobil’s acquisition of XTO in natural gas gave it a future for that fuel as well, even if it is unattractive today.
Exxon Mobil was able to grow its dividend in 2015, and it will likely remain a large repurchaser of its own common stock in the years ahead if oil stabilizes. Exxon Mobil used to have a yield of 2.5% in 2010, but it now yields closer to 3.4% due to dividend hikes. Warren Buffett decided to exit his Exxon stake, perhaps too soon, after building it up in 2014, and Buffett successors almost certainly will go back to Exxon if they ever want to own a massive oil position. As we said in 2010, in energy trends, the one constant is that nothing lasts forever. If you know where oil prices will be in 2017, you can predict what Exxon will trade at on a price-to-earnings (P/E) ratio basis. Also, if one company can buy cheap, beaten up oil and giants it will be Exxon Mobil.
Alternative Oil Pick: Kinder Morgan Inc. (NYSE: KMI) has completed its transformation back to a corporation after rolling up all the partnership structures. Kinder Morgan has the infrastructure and toll road model, so it is less dependent (but not immune) to oil prices. Still, it is now worth over $90 billion. Richard Kinder wants to grow the dividend 10% each year from a 4.5% yield base out to 2020, if oil prices cooperate, although 24/7 Wall St. might warn investors that such aggressive dividend growth may be difficult.
Kimberly-Clark Corp. (NYSE: KMB) remains a key defensive stock and a leader in consumer products that dates back into the 1800s. With a $41 billion market cap, it remains a fraction of Procter & Gamble’s mega-cap size. With a product line of paper towels, tissues, diapers, sanitizers, surgical drapes and gowns, and more, the only issue that ever seems to come up is promotional competition from large rivals and from cheap generic brands. Still, Kimberly-Clark is a winner and has been restructuring.
Defensive stocks had a premium in the market in 2010 as well, and despite dividend growth its yield is now closer to 3.2%, versus just over 4% back in 2010. A strong dollar hurts Kimberly-Clark and its U.S.-based peers, but the reality is that emerging markets remain in place for growth potential in the years and decades ahead. With a payout ratio of about 60%, there is room for dividend growth and earnings are expected to grow despite revenue growth headwinds from what may remain a strong U.S. dollar ahead. The price of being in defensive stocks is not cheap at about 18 times a blended 2015/2016 earnings estimate, but that is an issue among all large consumer products players, and it was an issue in 2010 as well.
Alternative Consumer Products Pick: The Procter & Gamble Co. (NYSE: PG) as it pares down its portfolio and jettisons Duracell to Warren Buffett’s Berkshire Hathaway. P&G is a mega-cap at $220 billion in market value, with a 3.3% yield, and valued at almost 20 times a blended 2015/2015 earnings.