BOSTON (TheStreet) -- Cisco (CSCO), Johnson & Johnson (JNJ) and Lowe's (LOW) are stocks that offer investors a triple treat -- they're the best in their industry, carry little debt compared with cash and are trading at discounts, says Russell Croft, a fund manager at Croft Leominster.

"We've been really warming to the quality of the old blue-chip companies where you're not paying any premium for the company in this market," Croft says. "A lot of these companies will be able to increase dividends, buy back stock, and many times buy growth through mergers and acquisitions."
Russell Croft, manager of the Croft Value Fund

Based in Baltimore, Croft Leominster has $800 million in assets under management, with $325 million in the Croft Value Fund ( CLVFX). Croft has been a co-portfolio manager of the Croft Value Fund since he joined the firm in 1997.

The Croft Value Fund has low turnover. Croft prefers to buy and hold companies for three to five years, sometimes longer.

"We just want to find a good company and a good investment and hold it for the long term," he says. "We're seeing more of the high-quality growth at a discounted price. The multiples are down with the overall market, and you can get some great companies with a good discount."

That style of contrarian investing has paid off for investors. The Croft Value Fund has an annualized return of 4% over 10 years and 4.1% over five. That has earned the fund a four-star rating, the second-highest, from Morningstar.

To make money over the next three to five years, investors don't need to take on elevated risk. "You can build a good long-term portfolio right now with a lot of good-quality companies out of favor," he says.

As bond yields have sunk to record lows, blue-chip stocks have become even more attractive because of their fat dividends, Croft says.

"I'd take a risk buying good-quality stocks right now than reaching to find yield in the bond market," Croft says.

Croft says the following five stocks are trading at a discount and have the potential to rebound along with the economy.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Johnson & Johnson ( JNJ)

Company Profile: Johnson & Johnson sells consumer products including Tylenol, Rolaids, Imodium, Band Aid and Rogaine.

Closing Price: $63.23 (Oct. 8)

Current Dividend: 3.4%

Croft's Take: "J&J has a 3.4% dividend with a triple-A balance sheet. It's going to allow them to continue to pay and increase their dividend, and buy back shares. On top of that, it's a premier global health-care franchise. It's going to be a pretty stable investment over time. After a rough couple of years, their pharmaceutical portfolio is hopefully getting into shape and will add revenue growth to the company. It's trading at 12.5 times 2011 earnings, which is around where the market is so you can lock it up without a premium."

Analyst Consensus: Fourteen of 21 research firms covering J&J say investors should buy shares. The other seven have a "hold" rating.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Lowe's ( LOW)

Company Profile: Lowe's is a home-improvement retailer.

Closing Price: $22.70 (Oct. 8)

Current Dividend: 1.9%

Croft's Take: "This is one where there is a little contrarian hint to this, but it's a best-in-class retailer. It trades at 13.5 times 2011 expected earnings and yields about 2%. It has the strongest balance sheet in the industry and it's been taking market share in the downturn, although not from Home Depot ( HD) per se. It's a chicken way to play housing bottoming out. You're not buying Toll Brothers ( TOL) or Lennar ( LEN). But if there were good housing news, Lowe's would move on that as well. They'll come out of the downturn very strong, and they still have room to expand their footprint. They increased their dividend, even in the really tough times. That really shows the quality of the company."

Analyst Consensus: Seventeen of 26 analysts with coverage of Lowe's rate the stock a "buy." The other nine analysts suggest that investors hold shares.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Cisco ( CSCO)

Company Profile: Cisco is the biggest maker of corporate routers and switches.

Closing Price: $63.23 (Oct. 8)

Current Dividend: Cisco doesn't pay a dividend but has announced plans for one.

Croft's Take: "This is another big blue chip that has been out of favor a little. It trades at 13 times earnings so down here near $22 it's a good buy. It's the largest and most diversified provider of networking products. We want exposure to broadband growth. We think of Cisco as the plumber of the Internet, so you have some visibility of growth for the long term with Cisco. They may not get back to hit their revenue growth targets in the short term but in the next few years they can get there. Video over the Internet is such a strong driver of traffic and bandwidth that it really moves the needle for Cisco. They're using their balance sheet to buy companies and they just recently announced they're going to pay a dividend between 1% and 2% in 2011. They have so much cash and the balance sheet is so strong."

Analyst Consensus: Twenty-five analysts have a "buy" rating on shares of Cisco. Another eight researchers recommending holding on to shares, while one analyst has a "sell" rating.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Becton Dickinson ( BDX)

Company Profile: Becton Dickinson is a disposable-medical-supply company.

Closing Price: $74.75 (Oct. 8)

Current Dividend: 2%

Croft's Take: "It has a 2% yield and trades at 14 times 2011 expected earnings. You hear their business is all about syringes and scalpels, so it's not the sexiest health-care stuff in the world. But they're very tied to the volume growth of health care, so they're hopefully steering away from some of the worries about reimbursement risk. They have a large diagnostics-test business, which is a growth business. They have a good strong business there. Fifty-five percent of their sales are international, which is very important in health care. They've always been good about returning cash to shareholders. They buy back stock. It's a company in an industry that's been out of favor and they've been growing earnings throughout all of the issues. BDX is one to buy and put away."

Analyst Consensus: Twelve of the 18 research firms with coverage of Becton Dickinson have a "hold" rating on the stock. The other six say investors should buy shares.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

United Technologies ( UTX)

Company Profile: United Technologies is the maker of Pratt & Whitney jet engines and Otis elevators.

Closing Price: $72.91 (Oct. 8)

Current Dividend: 2.3%

Croft's Take: "This one trades at about 13.5 times 2011 expected earnings. It yields about 2.5%. They have the HVAC, fire and security, elevators, and aerospace equipment, so it's a classic industrial company. Over 60% of their sales are outside of the U.S., and the rising middle class feeds into that. Aerospace has been a tough business for everyone, but a lot of their exposure is in aftermarket products and services, which reduces the cyclicality of the business some."

Analyst Consensus: Fifteen analysts have a "buy" rating on United Technologies, and another six say investors should hold on to shares. No research firm has a "sell" rating on the stock.

-- Written by Robert Holmes in Boston.

>To see these stocks in action, visit the 5 Stocks THat Are a Better Buy Than Bonds portfolio on Stockpickr.

>To contact the writer of this article, click here: Robert Holmes.

>To follow Robert Holmes on Twitter, go to http://twitter.com/RobTheStreet.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Personal Finance

Summer Travel: The Best Places to Visit in the U.S.

Summer Travel: The Best Places to Visit in the U.S.

9 Best Investment Books for Beginners

9 Best Investment Books for Beginners

How to Calculate Your Net Worth and Pin Down Your Financial Health

How to Calculate Your Net Worth and Pin Down Your Financial Health

The Best States for Millennials' Money and Health

The Best States for Millennials' Money and Health

U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders

U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders