Smart Money Thinks Big

Chart watchers believe such gaps are usually filled, meaning that even if Amgen stays strong through Dec. 31, there's a good chance long-term investors will have an opportunity to buy the stock in the low- to mid-$70s, from where the gap occurred, sometime in the first half.

Intel (INTC): Semiconductors have rallied strongly since the October lows, and if big-cap growth is back in vogue, Intel is certain to benefit. With the stock up 14% year to date, I defer to Jim Cramer's "buy on weakness" recommendation, but will note his $28 near-term target is well within reach.

Pepsico (PEP): The beverage and snack giant is up 13% year to date and while not absolutely cheap, looks relatively more attractive than Coca-Cola (KO) on P/E-to-growth and price-to-sales metrics. Pepsi also sports a strong looking chart.

Exxon Mobil (XOM): Although energy stocks have fallen from grace as oil prices retreated and the political rhetoric heated up, the energy giant is still up 13% year to date. The energy bull market isn't over and the group is likely to have another rally before year end.

Looking further out, here's what TheStreet.com contributor Chris Edmonds of Pritchard Capital Partners had to say about Exxon Mobil: It's reasonably priced and stable but the "law of large numbers" makes it hard to grow, especially given environmental/political restrictions on drilling. The company has the cash to create value if they are willing to acquire a major independent.

Contrarian's Delight

Morgan Stanley (MWD): That this stock is up year to date, even if just by 1%, is telling you something given the pronounced negativity that surrounded Morgan earlier in the year and the fact the Federal Reserve is in a tightening mode.

Cisco (CSCO): Despite an impressive balance sheet and relatively attractive valuations -- such as a forward P/E ratio of 15 -- Cisco is down 9% year to date and is decidedly out of favor. Wall Street seems to have lost faith in John Chambers, as evidenced by the desultory reaction to Cisco's recent Scientific Atlanta (SFA) acquisition.

But therein lies the opportunity: Cisco could enjoy HP-like moves in 2006 if Chambers is ousted and/or changes his mind about paying dividends. Cisco might also find itself in the crosshairs of activist shareholders, which would likely provide some upside.

Johnson & Johnson (JNJ): It's down 3% year to date and has an ugly chart, featuring a series of lower highs and lower lows. At some point money is going to gravitate back to big pharma, but questions remain about the Guidant (GDT) purchase, even at the lowered price.

Home Depot (HD): The stock looks cheap on a P/E basis and is now roughly in line with Lowe's (LOW) on PEG and price-to-sales metrics.

If Home Depot successfully tests technical support at around $40 that would be a bullish sign, but a (presumably) slowing housing market begs the question: Does that mean less business for the home improvement retailer as the money and desire to fix up the homestead diminishes, or more as people look upgrade current residences vs. moving?

IBM (IBM): Big Blue is down 10% year to date but has strong momentum going into year-end. Due to a combination of factors, I believe IBM will prove to be among the best big-cap growth stocks to own in 2006.

RealMoney.com contributor Jon Markman outlined the bullish case for IBM yesterday, which I'll summarize: The company has earnings upside potential from exposure to video game consoles and its new z9 mainframe, as well as from recent layoffs and the sale of its PC business. In addition, IBM generates tremendous revenue and profit from recurring sources, which will appeal to fund managers looking for reliable earnings if and as the economy slows in 2006.

Technically, IBM has broken out of a long downtrend and could challenge the $115 level if it's able to break through resistance in the $98-$99 range, which appears to be its near-term destination.

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