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.Stock investors have been stuck on a never-ending rollercoaster this year. Steep drops and fast gains have returned these anxiety-addled passengers back to where they started. After losing 37% in last year's bloodbath, the S&P 500 Index shed another 25% before hitting a 52-week low on March 9. The index has since climbed 31%. For all its gyrations, the benchmark is down just 1.2% this year. The only way investors can win in this market is by picking promising stocks from the most stable industries. While technology companies have been leading the market this year, stocks in health care, media and utilities offer some of the best investment opportunities this summer. Health care: Investors have been questioning for months whether President Barack Obama's reform plans will hurt the profits of insurance and drug companies. These fears have been dragging down stocks across the industry, creating bargains among quality companies. While big ideas have been discussed, Congress is more likely to pass a more moderate plan. Demand for health-care products and services will also grow as the population ages. These drug companies offer healthy profit potential with low risk. Teva Pharmaceutical Industries ( TEVA): Teva is the world's largest producer of generic drugs, a niche marked by low research, development and marketing costs. These are some of the biggest expenses for name-brand drug companies. Teva has an added advantage in that most pharmacies dispense generic drugs over name-brand ones, ensuring a reliable market. The stock is up 16% this year and analysts estimate that second-quarter profit rose more than 19%, suggesting there's more room to gain.
Gilead Sciences ( GILD): With first-quarter sales of more than $10 billion, Gilead is the biggest drug company people never heard of. The company is best-known for its lucrative HIV treatments, Truvada and Atripla, which account for almost 72% of its revenue. These drugs helped the company post a return on equity of 53% in the trailing 12 months. Gilead's second-quarter net income is expected to climb almost 20% from a year earlier. The shares have fallen 12% this year, but look for the stock to pop when earnings are announced July 21. Abbott Laboratories ( ABT): While there's nothing sexy about Abbott, it offers consistent growth with a return on equity of nearly 28% and a dividend yield of 3.5%. The company benefits from a wide array of products from drug-eluting stents to Muscle Milk, a dietary supplement. Abbott is ultra-diversified and undervalued, with a price-to-earnings ratio of 12.3 versus an industry average of 13.5. Although its shares are down 13% this year, the company aims to boost earnings 10% to 20% this year. Media: Despite the weak economy, consumers plan to spend as much or more on entertainment this year than in 2008, according to a survey released in April by research firm NPD Group. That includes movies, television, video games and music. Among media companies, Walt Disney ( DIS), DirecTV Group ( DTV) and Netflix ( NFLX) offer exposure to high-growth areas of the economy that should thrive when the recession ends. Disney: While attendance at theme parks might be soft this summer, fans are flooding theaters to see Up, the latest Pixar feature. The animation powerhouse that Disney bought in 2006 has been consistently delivering films that gross $500 million or more.
The success of the High School Musical movies and music has helped Disney shares lose only 1% this year, even after its profit fell 46% in the quarter that ended in March. Time Warner and CBS shares have dropped more than 20%. Disney's promising movie pipeline includes A Christmas Carol with Jim Carrey and Old Dogs with Robin Williams and John Travolta. DirecTV: This satellite-TV operator has been aggressively wooing budget-conscious consumers with promotions in its bid to add 1 million subscribers this year. In some parts of the country, DirecTV is the only alternative for people who hate cable. DirecTV offers a return on equity of 27%. While its shares are up only 3.5% this year, analysts estimate that the company's earnings grew 7.5% in the second quarter. Earnings are also expected to increase in the second half. Netflix: After passing the 10 million-subscriber level during the first quarter, Netflix stock has soared 35%, beating the market and archrival Blockbuster, whose shares have fallen 46%. With analysts expecting earnings growth of 19% for the second quarter and a return on equity north of 21%, the trend is likely to continue. With an eye on the future, Netflix has been quietly preparing to stream videos directly to TVs, which will likely overtake other forms of content delivery. Utilities: Dependent customers and regulation that limits competition have helped utilities reap big profits. The benefits are largely passed on to shareholders through dividends. Xcel Energy ( XEL), New Jersey Resources ( NJR) and FPL Group ( FPL) stand out from the pack as attractive investments.
Xcel Energy: Xcel is the top wind-power provider in the country. With a dividend yield of 5.3% and a price-to-earnings ratio of 12, well below the 16.9 average for utilities, Xcel looks like a bargain based on numbers alone. Oppenheimer recently initiated research coverage with a rating of "outperform." Xcel has been investing in smart-grid technology and solar arrays in Colorado, positioning the company for future gains. These efforts have also helped insulate it from the price fluctuations of traditional energy sources. New Jersey Resources: This natural gas provider has been adding new customers and converting more from oil to natural gas. Analysts expect it to deliver a quarterly profit after a year-earlier loss. Although the company's shares are down 6%, it has generated a return on equity of 16.6% and offers a dividend yield of 3.3%. New Jersey Resources has also managed to keep its debt low. FPL Group: Like Xcel Energy, FPL is cheap, with a price-to-earnings ratio of 12.9 and a healthy dividend yield of 3.4%. Short interest in the stock has plummeted from 10.2 million shares two months ago to 6,000 shares as of June 10, suggesting that investors consider the stock accurately priced. This year, FPL shares have gained over 10%, besting the S&P 500 by 11%. The company has been diversifying into wind, solar, hydroelectric and nuclear power to stay relevant.