Five Best Stocks for '07

To those three I'd add these two stocks: Johnson & Johnson(JNJ Quote) for its unique mix of consumer, pharmaceutical and medical devices and the company's ability to innovate in all these segments; and Procter & Gamble(PG Quote) for successfully making the very tough transition to a truly global consumer-products company.

About These Two New Picks

There are lots of good short-term reasons to own Proctor & Gamble. The toughest stages of the integration of Gillette, an October 2005 acquisition, are behind the company. Raw-materials prices are falling, or at least not climbing as fast as they did a year ago (although it's a tribute to management that in this environment, the company was still able to expand operating margins by 0.9 percentage points), and the likelihood of market volatility in 2007 should give a boost to safe-haven blue chips like this one.

But it's one long-term trend that really attracts me to the shares: Procter & Gamble has finally become a truly global company that will be able to grow sales at double-digit rates for years because it can tap into the phenomenal growth of the middle class in the developing economies of Asia.

In fiscal 2006, Procter & Gamble received 26% of its sales from developing markets, up from 23% in fiscal 2005. That's the first time in its history that the company received more than a quarter of sales from developing markets. Sales in developing markets grew by 35% year over year, thanks in good part, it's true, to the Gillette acquisition. But organic growth in these markets was well into the double digits. Over the past five years, Procter & Gamble has increased developing-market sales at a compounded annual rate of 16%.