TheStreet.com Ratings: Seven to Own in '07

6. According to the Department of Health and Human Services, the number of Americans over 65 years old will more than double by 2030 from 2000. Because the U.S. population is aging and this is the first year for the expanded third-party insurance coverage on drugs and supplies, we like the B-minus-rated Schwab Health Care Focus Fund ( SWHFX Quote).

This open-end fund, like the entire tech sector of the market, has fallen behind the rest of the market in recent months. But it is one of the small handful to maintain a buy rating (B-minus or above), down from an A as recently as September 2006. It is 55.6% invested in pharmaceuticals and biotech and 42.6% in health care equipment. Exposure to biotech, pharmaceuticals and health care provides good diversification to the other 2007 selections.

For those intrepid active investors looking to add a pure drug distribution play, we suggest taking a look at health care distributors, one of the few stock sub-groups with strong buy recommendations. Stocks in this group include PSS World Medical ( PSSI Quote), Patterson Companies( PDCO Quote), Owens & Minor (OMI Quote), Cardinal Health ( CAH Quote), McKesson Corp. (MCK Quote) and AmerisourceBergen Corp. (ABC Quote).

And last but not least, a diversifying industrial idea:

7. Because total return investing is best done with quality dividend-paying stocks, we like the outlook for Caterpillar (CAT Quote), the world's largest manufacturer of construction and mining equipment. The stock is attractive at $60 per share, has an 11.5 PE ratio and an above average relative dividend yield ratio. This is a classic value play where one can earn interest while waiting for higher earnings to emerge from this company's mining, energy and infrastructure growth, primarily in non-U.S. markets.

This year Caterpillar is moving its Asia Pacific operations from Japan to faster-growing China, which represents the single-largest opportunity for future sales of Caterpillar products. Certainly a lower dollar exchange rate will also help fuel next year's activity. But the company's management is cautiously optimistic about growth for 2007 and seems to have scared the financial markets by lowering above-average growth estimates for 2007. Monthly dealer statistics confirm that U.S. retail sales are indeed down, but even a modest recovery in these numbers could force a stock revaluation upward.

For those not afraid of unpopular stories, this is the one to selectively add to your portfolio in 2007 with an eye toward 2008 and the Olympic (Beijing) prize.