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What to Buy in the Dow
Posted at 8:00 a.m. EDT, March 9, 2009

When I arrived at my worst-case view that the Dow could reach 5320, my first reaction wasn't, "Look out below." It was more like, "Wait a second, how much I would like to buy these stocks at those levels?" Then I started thinking, "What do I do if it gets there and I am not in? Will it stay down there? Is it right to avoid a market that's cut by almost two-thirds in such a short period of time when some companies with really good earnings power might be selling at prices that we might never see again?"

But which ones?

Certainly not the under-$5 crowd -- Alcoa ( AA), Bank of America ( BAC) and Citigroup ( C). Pass on ABC because you have to bet that Citigroup isn't AIG ( AIG), that Alcoa isn't the old Asarco and that Bank of America can't stanch the bleeding caused by Tim Geithner's indecision, which is allowing the ProShares UltraShort Financials ( SKF) to destroy the stock.

No, I like eight of them, eight that I would be buying right here. If you buy in quarters -- 25 shares per 100 you want owned -- you'll need to start today.

The first is interchangeable because of the price, AT&T ( T) at $20 or Verizon ( VZ) at $23. Why? Certainly not growth; there won't be all that much because of the recession. However, they have so much cash flow and they can slow deployment of expensive equipment -- yes, even with Verizon's FiOS -- to the point where a dividend boost will take them to about 8%, a level that Altria ( MO), the best-performing stock in the S&P 100, shows can withstand the onslaught. Verizon has a tad more growth because of FiOS, but it could cut both ways in a severe slowdown as the FiOS build-out will cost them.

Caterpillar ( CAT) at $18 is just too juicy. I think that it will be like CAT in 1985 when it sold down low on a weakened balance sheet and a war with labor. The company has much more wherewithal now. This is still the single best machinery company in the world, and I think that if you abandon it at $18 you are simply betting that things will never come back. That's a difficult bet to make because, if it has to, CAT can move the whole shebang overseas to where the markets are heating up again or recovering.

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