SmartMoney Magazine: Where To Invest In 2007

SmartMoney Magazine recently published an article titled “Where to Invest in 2007″ by Russell Pearlman and Reshma Kapadia. The article visits past economic conditions and how that has played a role in the performance of stocks. Today companies are “generating more growth overseas, immunizing themselves against the swings of the U.S. economy”. Ok. So, where do we put our money? SmartMoney suggests the following industries:

This year’s sectors to watch are Investment Banking, whose deal-making is now global; Chemicals, boosted by cheaper energy; Internet, where ads and retail are here to stay; Insurers, which thrive amid disaster; and Beverages, since alcohol is recession-proof. In Emerging Markets, you can profit from the new global middle class.

There are some individual stocks they suggest we keep our eye on this coming year…in no particular order, of course.

• Dow (DOW) – With more than 60% of its sales coming from outside the U.S., the chemical giant (and they make plastic stuff too) has offset its increasing productions costs, which consist primarily of oil and natural gas, by increasing its prices. Best of all, insider trading is occurring, which is always a good sign.
• Yahoo! (YHOO) – Aside from the fact that Yahoo! is expected to earn 30% more in revenues, the company’s new paid search system, Panama, is being rolled out now to compete with Google’s already burgeoning ad system. Advertising expected to grow 20% annually for the foreseeable future. According to research discovered Daniele Guerini on seekingalpha.com, Yahoo generates $0.04 per US search vs $0.11 at Google. Panama could definitely help reduce the gap significantly. A reduction of the gap to a more reasonable 30% discount [$0.077 per search] would generate approximately $800M of extra revenues based on the number of searches…revenues generated at no extra cost.
• Diageo (DEO) – First of all, look at this chart…marvel with me. Thanks. Some might say that chart looks good enough to drink. In case you’re not familiar with Diageo, the company engages in the production and distribution of spirits, wines, and beer worldwide. It offers a range of premium brands, including Smirnoff vodka, Guinness stout, Baileys Original Irish Cream liqueur, Captain Morgan rum, and Tanqueray gin. Diageo’s other spirits brands consist of Crown Royal Canadian whisky, Seagram’s 7 Crown American whiskey, Seagram’s VO Canadian whisky; and beer brands comprise Harp Irish lager, Smithwick’s ale (pronounced Smith-icks for you non-beer drinkers), and Red Stripe lager. Last but not least, it also owns the distribution rights for the José Cuervo tequila brands in the United States and other countries. As everyone knows, people drink in both good times and in bad. Diageo has managed to keep its operating margins above 20%, and it offers an attactive 3.1% dividend yield. Even one of coolest mutual funds on the planet, The Vice Fund, includes Diageo in its holdings…#2 in its holdings at 4.36% of its fund (as of 12/14/2006, Morningstar.com). You can read more about The Vice Fund in my previous post. SmartMoney also picked this stock in 2004 and 2005. I wonder if they get free drinks. Even if they didn’t, how could you not pick them?

Read the entire article to see what other stocks the magazine recommends at SmartMoney.com

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