This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Six-Pack of Premium Stocks at Discount Prices

Stocks in this article: IBM JNJ WMT DIS PG XOM

BOSTON ( TheStreet) -- IBM (IBM), Johnson & Johnson (JNJ) and Wal-Mart (WMT) are among premium stocks languishing in the bargain bin, says Hank Smith, chief investment officer of Haverford Investments.

But not for long, he says.

Quality companies -- those with sound businesses, long track records, competent management and large dividends -- typically sell for a premium, whether in the stock market or the supermarket. Investors have fancied small-cap stocks, as well as sectors including technology and commodities, leaving blue chips by the wayside.

Smith says his strategy has collected a group of six value stocks make up what he affectionately calls a "six-pack," offering a different type of flavor for investors than a six-pack of beer.

"The concept is that the U.S. large-cap quality space has been more or less ignored for the past 10 years," Smith says. "There were many years when the space was a relative underperformer, but business fundamentals have not underperformed. So you look at companies where you've seen tremendous growth of earnings in the neighborhood of 170% to 300% with very similar dividend growth."

Hank Smith
Hank Smith, chief investment officer of Haverford Investments

Stock prices are out of line with business fundamentals to a degree, Smith says. That means price-to-earnings ratios, a key valuation tool, have been compressed.

In addition to earnings multiples, Smith also looks for stocks that have barely budged over the past 10 years. The companies must have increased earnings two- or three-fold over that time while increasing dividends by the same magnitude. Finally, they must have exceptional balance sheets and good fundamental prospects.

The strategy has paid off for Smith and clients of Radnor, Pa.-based Haverford Investments. With $6 billion in assets under management, Haverford serves wealthy and institutional clients. Since inception, the firm has outperformed its benchmark, the S&P 500, in 19 of 20 rolling 10-year periods.

"We're not trying to hit home runs," Smith says. "Where this strategy and the quality of investing hold up is particularly in down markets. We keep up when the market is up, but we hold up much better in the down markets."

Smith expects this strategy to pay off as the stock market reverts to the mean after the so-called "lost decade," when U.S. stock indices like the S&P 500 and the Dow Jones Industrial Average returned nearly nothing to investors over the past 10 years.

"It's hard to think you're going to have another 10 years of the stocks going nowhere. If we did, we'd have P/E ratios down to four or five times earnings," Smith says. "Part of this strategy tries to build the intellectual case for the low probability for another lost decade. In doing that, we emphasize that the past 10 years wasn't a lost decade in terms of fundamentals."

Here are six large-cap value stocks that Smith holds in client portfolios.

1 of 7

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs