New Year Investments


Best picks of eight experts are remarkably different

December 30, 2007|By EILEEN AMBROSE

Investors, 2007 is now in your rear-view mirror. What matters is what's ahead. And next year may be tricky to navigate.

The U.S. economy is expected to slow down. The stock market is expected to continue its big swings, giving spasms to those who check their 401(k)s daily. And then there's the unknown impact of a presidential election.

To help you, we asked investing gurus to come up with eight great ideas for '08.

Few ideas overlapped. That may indicate we're in for an unusually tumultuous year.

Some see money to be made in preserving our planet and its resources. Others see money to be made in companies whose sin was standing too close to the housing and mortgage markets.

Some of the recommendations are familiar. Others, you might never have thought of.

Amy Domini, founder and chief executive, Domini Social Investments, Boston

Green is green.

Investors this year poured money into stocks of companies in obviously climate-friendly industries such as solar energy.

Then there's Emerson Electric Co.

"This is a real boring company, but a lot of boring, old stodgy things have suddenly become important." she says.

Emerson might be best known historically for making valves, motors and other electrical gear, but it's also into air-conditioning equipment and helping manufacturing plants and oil refineries get more efficient.

As business, consumers and countries start addressing climate change, they will tackle the easiest jobs first, Domini says. Consumers will demand more fuel-efficient cars. Governments will upgrade power grids that lose significant amounts of electricity during transmission. And businesses will retrofit office buildings so they're not too hot in the winter and too cold in the summer.

"These are all bread-and-butter businesses for Emerson," Domini says.

Emerson also has a sizable presence in polluted Asia, a likely market for Emerson's technology, she says.

"I consider this the kind of company you should be able to purchase and sleep on for five years," Domini says.

Peter Ricchiuti, assistant dean, Tulane University business school, New Orleans

Next year's big play: water.

"People have realized that this is the next great natural resource that's going to run into trouble," Ricchiuti says.

Pockets of drought appear in the country and aren't likely to go away. "Atlanta is about to run out of water," Ricchiuti says.

Plus, leaky pipes are a big problem in some of our oldest cities. Hurricane Katrina, for example, exposed the collapsing infrastructure of New Orleans, where Ricchiuti teaches.

"We think 50 percent of water doesn't make it to the faucet. We hear that for New York City, too," Ricchiuti says. "We have pipes under the ground that are made of wood, and those are some of the better ones."

Ricchiuti's best bets for taking advantage of the need for water system fixes: Mueller Water Products and Watts Water Technologies. Mueller does "all the municipal water work in the country, from fire hydrants to the faucet," Ricchiuti says. Watts is a world leader in making valves so you don't scald yourself, he says.

Both stocks took a drubbing this year. "Both have been painted with the housing brush," Ricchiuti says. "That's not really the story. The long-term story is water."

Dan McHugh, president, Lombard Securities, Baltimore

Bank and brokerage stocks across the board have been beaten down by the subprime mortgage mess, McHugh says. Financial stocks are selling for half or even a third the price that they were going for early this year, he says.

The fire sale will continue into 2008, he predicts. "I don't see a bottom at this point."

And that includes some banks and brokerages that never walked into the mortgage minefield. You can find some of their stocks at low prices, McHugh says.

He has his eyes on Seacoast Banking Corp. of Florida; SWS Group, parent of Southwest Securities, and Provident Bankshares Corp., the largest Maryland-based bank. He says he hasn't bought any shares. He's waiting to see if their prices go lower.

"I would stay away from large banks," he says. Chances are smaller banks avoided risky mortgage securities, but there's no guarantee, he says.

"Investors will have to be discriminating and know what's in the portfolio of the banks they buy."

David Joy, chief market strategist, RiverSource Investments, Minneapolis

Sluggish earnings. Rising interest rates. A volatile market. Not a great prognosis for investments.

Joy's solution: Invest for dividends.

"You can get yields that are in fact 5 percent or more," Joy says. That's better than CD rates, especially with interest rates heading down recently.

Joy's best bets for dividends are AT&T Inc., Bank of America Corp. and R.H. Donnelley Corp.

AT&T this month announced its largest annual dividend increase. That will push its dividend yield next year to about 4 percent, Joy says.

Bank of America offers a dividend yield of about 5.5 percent, Joy says.

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