TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Speculators trying to identify the stock market's next turn are likely to get burned.

The economy probably is changing from contraction to slow growth, and investors should tailor their strategy accordingly. In a range-bound market -- the S&P 500 Index has been stuck around 900 for two months -- buy undervalued stocks with stable dividends. That strategy lacks excitement, but offers strong risk-adjusted returns.

TheStreet.com Ratings

High-quality companies are selling at discounts to the equity market and their peer groups. The following five companies, after being put through a quantitative screener, may offer outsized returns when others rise and fall with a narrow band. Each has average daily trading volume of more than 2 million shares, a 2009 price-to-earnings ratio of less than 13, a 2010 P/E ratio of under 12 and a dividend yield of more than 4.5%. By purchasing such stocks, you earn a gain from dividends. And any price declines present the opportunity to dollar-cost average and accumulate shares with a higher yield. If you can spare the cash, reinvesting dividends is another way to fertilize your investment.

This is a proven strategy if you have a long-term holding period and are able to select companies that have stable businesses. With this strategy, your stream of income won't dissipate if the economy sours.

Each stock receives a "buy" recommendation from TheStreet.com Ratings' proprietary model.

Verizon ( VZ) is the largest U.S. wireless-service provider. First-quarter revenue rose 12% to $26.6 billion as net income inched up 0.2% to $1.65 billion and earnings per share climbed 1.7% to 58 cents. The company is compensating for a peak in U.S. cellphone penetration by increasing its share of the growing netbook and smartphone markets. If AT&T ( T) loses its exclusive deal with Apple ( AAPL), Verizon is poised for a jump.

Lorillard ( LO) makes the popular Newport cigarette brand. First-quarter revenue rose 1.2% to $917 million as net income climbed 5.7% to $184 million and EPS jumped 9% to $1.09. The company has a robust business, with a net margin of about 24% and quarterly operating cash flow near $450 million. Lorillard recently sacrificed its superlative financial position by issuing $750 million of debt. The company plans to buy back stock and boost capital expenditures with the proceeds. Addiction is recession-proof. But legislative reform and increased taxes are ongoing concerns.

Consolidated Edison ( ED) is a utility serving New York, New Jersey and Pennsylvania. First-quarter revenue dropped 4.3% to $3.42 billion as net income fell 40% to $183 million and EPS declined 40% to 66 cents. Despite lower margins and returns, the company increased its dividend in 2009, marking the 35th consecutive annual increase. Con Ed has $10.7 billion of debt and quarterly interest expenses totaling $146 million, a common plight for a utility. But the company has added $506 million to its cash balance since the first quarter of 2008.

Kimberly-Clark ( KMB) makes and markets health and hygiene products. First-quarter revenue fell 6.6% to $4.49 billion as net income declined 7.7% to $407 million and EPS decreased 5.7% to 98 cents. Margins widened during the quarter, and return on equity surged 1,401 basis points to nearly 47% on a lower base. A debt-to-equity ratio of 1.73 and a quick ratio of 0.62 indicate room for balance-sheet improvement. Still, the company has a record of consistent dividend increases and its product lineup, which includes the Kleenex and Huggies brands, is strong.

CenturyTel ( CTL) is an integrated telecommunications company specializing in local-exchange, long-distance and broadband services. First-quarter revenue declined 2% to $635 million as net income fell 24% to $67 million and EPS dropped 18% to 67 cents. Profitability remained strong, with the net margin near 11%. The company has conservative leverage, as reflected by a debt-to-equity ratio of 0.95. But the cash balance could use a boost, sitting at just $61 million, as compared with $52 million of quarterly interest expenses. The recent acquisition of Embarq could generate significant cost savings in 2010. But a recent debt downgrade by Moody's hurt the outlook for this stock. It's the riskiest of the bunch.

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