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Top 10 Stocks to Own for the Rest of the Year

Stockpickr Guest Columnist

First the bad news. If you think the residential real estate market is bad now, just wait -- it will get far worse.

Here's my take. Middle-class borrowers with loans that started out with teaser rates are also suffering. The inventory of homes -- the number of houses on the market -- is enormous and sales have been dropping in most of the "hot" real estate markets, even during the summer, when sales are supposed to be good.

Politicians will probably pass laws to severely limit the number of subprime mortgages in the future, eliminating no-equity loans, 125% loan-to-value loans, low teaser-rate loans and the like. This will drive a stake through the heart of the real estate market, destroying the potential for the working class to buy starter homes, eliminating the move-up real estate market as well as any possibility for subprime borrowers to refinance.

Any real estate investors who start looking for bargains in the real estate market now will get burned, making the market worse and stoking the fires in the news about the real estate catastrophe. Even if the Federal Reserve eventually lowers interest rates, it will do almost nothing to help the real estate or mortgage market (unless it drops rates to 1%).

A few major hedge funds probably will go under, and at least one major investment firm will experience severe problems prompting either its collapse or a forced takeover. There will be a lot of talk from politicians about more regulation of hedge funds, but nothing will be done. They will realize that it was primarily the wealthy that lost money in them. The press will have a field day with hedge fund problems, blaming the weakened economy on the wealthy for investing in such funds in the first place and implying that the wealthy deserve what they got.

In addition, more mortgage companies will declare bankruptcy and at least one major homebuilder will go under. The stocks of investment brokers, investment bankers and banks will languish despite their favorable yields and ratios, at least for the next couple of months and probably for the rest of the year.

Now for the good news (finally). A bull market in stocks will sneak up on you, with some stocks that have nothing to do with mortgages or real estate making all-time highs by year-end. The yields on stocks will be so high and the price-to-earnings (P/E) ratios and P/E-to-growth (PEG) ratios so low that shrewd investors will take advantage of these bargains.

When these stocks increase in price, you will read in the press that it is just a temporary bounce or a short squeeze before a bigger fall. But it won't be any of these; it will be a real bull market in these stocks. This good news will be ignored, as most of the financial headlines focus on people losing their homes, mortgage companies going under and hedge funds collapsing.

Here are 10 stocks that should be much higher by year-end. Keep in mind, I am not recommending them, as I never make recommendations, but suggesting them for further research. None of these names should be affected by subprime or hedge fund problems.

Lafarge(LR Quote) is a France-based company that sells construction materials and should benefit from infrastructure rebuilding. It has a low P/E of 11.6, and it yields 1.9%.

Another infrastructure stock is URS Corp.(URS Quote), which provides engineering and technical design services. Its PEG is a favorable 1.5.

PepsiCo(PEP Quote) manufactures Pepsi, Mountain Dew, Diet Pepsi, Gatorade, Tropicana Pure Premium, Aquafina water, Sierra Mist and many other beverages, which people will keep drinking, even in a weakened economy. Pepsi has a PEG of 1.8 and a yield of 2.2%.

Kimberly-Clark(KMB Quote) makes and sells health and hygiene products, such as Kleenex, Kotex, Depend, Cottonelle and Viva brand paper products. This is another defensive stock as people will continue to use these products no matter what the economy is doing. Kimberly-Clark is one of the highest-yielding stocks on the list at 3.1%.

Johnson & Johnson(JNJ Quote) makes health care products including Band-Aids, Neutrogena, Splenda, Tylenol, Listerine and Sudafed, all major brands that people are unlikely to give up in financially tight times. J&J pays a dividend of 2.7%.

UIL Holdings(UIL Quote) is a utility in the southwestern part of the state of Connecticut that yields 5.8%. The company stated that it is committed to keeping the dividend at its current level. Connecticut doesn't have the home price excesses that California, Florida and Nevada have.

Brewer Anheuser-Busch(BUD Quote) will continue to sell beer, whether there is a recession or not. With a yield of 2.7%, it should hold up well.

Magna International(MGA Quote), Canada's largest automobile-parts manufacturer, just increased its dividend by more than 89% in the latest quarter, after lowering it previously for the first quarter. The yield is 1.1%.

Sotheby's(BID Quote) will benefit from the wealthy getting in over their heads, through the auction of mansions, jewelry and art. It just increased its dividend by 50% and is yielding 1.3%.

Norfolk Southern(NSC Quote) is a railroad that Warren Buffett just added to his Berkshire Hathaway(BRK.A Quote) portfolio. With an extremely low PEG of 0.9 and a yield of 2.1%, Norfolk Southern should do well.