Stocking-Stuffer Stocks for the Holidays

BOSTON (TheStreet) -- Thinking of purchasing an Apple (AAPL) iPod as a holiday gift for a family member? How about a gift subscription to Netflix (NFLX) or Sirius XM (SIRI)? A Disney (DIS) DVD, perhaps?

Forget about buying items that could instantly depreciate in value. Investment managers say it may be more valuable to give an actual ownership stake in the company. Quite literally, a stock investment can be the gift that keeps on giving.

While the purchase of stock will certainly save you the headache of navigating busy mall traffic in December, gifting shares of stock can also teach children and young adults an important lesson in investing.

"Stocks, especially when you frame the certificate, can be great learning tools for children," says Joline Godfrey, chief executive of Independent Means and author of Raising Financially Fit Kids. "It's vital that kids see the share of stock as something living, so talk about the company, find stories about the company leaders or founders, ask kids to rate the products, and help them chart the stock price on the walls of their bedrooms -- with butcher paper, of course!"

The stock market has yet to reel in the retail investor after the late 2008 implosion, which may dissuade some gift buyers from going this route. Godfrey says that after every bust, there are calls to take financial education seriously. And though there is incremental change, financial illiteracy is rampant, she says.

"Financial education is a competitive advantage among 21st-century kids," Godfrey says. "Families need to think about how to prepare kids for a world in which making a job, not taking a job, is the new norm. This next gen will need to be able to create their own personal safety nets, so basic financial skills -- saving, budgeting and tracking money -- will be imperative."

The importance of learning about investing at a young age isn't lost on fund managers.

"We had a competition when I was in sixth grade," Michael Cuggino, portfolio manager with the Permanent Portfolio Family of Funds, recalls. "We were learning about economics and we all had to pick three stocks out of The Wall Street Journal. Unfortunately, the winner wasn't me, but it fostered a lot of interest in stocks and how markets work."

Cuggino says that lesson turned him on to investments at an early age. His first stock ownership came in college, when he purchased 10 shares of AT&T ( T). "I still have the stock certificate, even though it's dated and it's not worth anything. The $250 I spent is more worth the remembrance," he says.

Cuggino and several other fund managers have scanned their portfolios to come up with stock picks that gift buyers can use as replacements for traditional holiday gifts. Read on to see which stocks they think could be gift-wrapped and placed under the tree this holiday.

Robert Bacarella, portfolio manager of the Monetta Young Investor Fund ( MYIFX), says gift buyers can teach financial literacy through stocks like Disney and Ford.

Walt Disney ( DIS)

Holiday Gift Equivalent: The Beauty and the Beast Blu-Ray/DVD combo pack retails for $39.99, which is equal to one share of Disney stock.

Bacarella's Take: "Our company has always been proactive toward getting kids involved in the investment process. With Disney, it's no doubt a leader in the entertainment sector. The name is so recognizable to young people. It also pays a moderate dividend, which we look for in more established growth companies.

"On a fundamental basis, there is no doubt that Disney can continue to growth at its historical rates. It has a low beta in down markets and, in up markets, it keeps pace. As the economic recovery takes hold, you could get a very nice move in a company like Disney."

Ford ( F)

Holiday Gift Equivalent: The Power Wheels Ford F-150 retails for $199.99, which is worth about 12 shares of Ford stock.

Bacarella's Take: "Ford is our third-largest holding, and we've had that position for a year. It's one of the reasons the fund has performed as well as it has. When you look at the whole group, Ford was the only automobile company that was able to survive on their own without bailout money. They've become a much more efficient company in terms of profitability and margins and handing the debt load they have.

"From a fundamental basis, they're the best in the sector right now. We're very excited about the fact that they should see above-average growth over the next three to four years as the economy comes back. With Ford, you're in the second inning of a nine-inning game. There's a long way to go. Ford will be one of the stocks to lead."

Bacarella says that while the Monetta Young Investor Fund's key objective is to beat the return of the S&P 500, there is also a financial-literacy component that aims to help younger investors build financial skills. To do that, the fund has based its approach on investment titans Warren Buffett, John Bogle and Peter Lynch, whom Bacarella calls the world's greatest investors.

The Monetta Young Investor Fund invests about half of its net assets in funds that track the S&P 500. The remaining net assets are devoted to industry leaders with highly recognizable brands. In addition to Apple and Ford, the fund counts McDonald's ( MCD), UPS ( UPS) and Google ( GOOG) among its holdings.

With $13 million in total assets, the Young Investor Fund is also unique in that it allows investors to buy in at a lower initial investment. Like most other mutual funds, the fund has a minimum investment requirement of $1,000. But Monetta will accept a minimum initial investment of only $100 as long as investors establish an automatic investment plan.

In terms of performance, the Monetta Young Investor Fund performs as billed. The fund has average annual total returns over one- and three-year periods (21% and 5.6%, respectively) that handily beat the S&P 500 (10% and minus 7.2%, respectively). Since its Dec. 12, 2006 inception, the fund has an average annual total return of 6.5%, compared with a return of minus 3.4% on the S&P 500.

Michael Cuggino, portfolio manager with the Permanent Portfolio Family of Funds, offers two company names with products that will be in high demand this holiday season.

Mattel ( MAT)

Holiday Gift Equivalent: The Barbie Fashion Fairytale doll ($24.99), Fisher-Price My First Skates ($25) or the Matchbox Superfast 10-Pack ($26.99) cost as much as one share of Mattel ($25.57).

Cuggino's Take: "Mattel is a leader in toys, and they've got a suite of products and brands that have continued to be fun to kids of many ages. We're long-term investors, so for me it's the underlying business, the products and their ability to generate popular toys.

"Remember that toys are a good investment in multiple economic scenarios. Parents want their kids to be happy and grow and learn. It's an area that has some defensive abilities in negative markets. Mattel is not expensive, but it's not unbelievably cheap, either. It still might have room to grow. Plus, the dividend yield of 3% is very favorable."

Harley-Davidson ( HOG)

Holiday Gift Equivalent: The Kids Preferred Harley-Davidson Tool Kit ($19.99) and the Barbie Collector Harley-Davidson doll ($34.98) retail for the price of one Harley share, which trades at $33.05.

Cuggino's Take: "The stock has run up quite a bit and, based on earnings, it's getting on the more expensive side. But Harley-Davidson has a dividend yield of about 1.25%, which is still in excess of the 2-year Treasury. That's not bad in the current environment. We still think Harley's long-term prospects are pretty good, although you see it trade down once in a while when people question its future ability to add customers.

"Harley got unnecessarily beaten down in the economic slowdown, and that impacted their story. We tend to think the brand won't disappear, which is why we still own the stock. At $33, you can get 30 shares for $1,000 and you get a dividend on that."

Cuggino says the Permanent Portfolio Aggressive Growth Fund ( PAGRX), with $21 million in total assets, counts Mattel and Harley-Davidson among its holdings, along with FedEx ( FDX), Freeport-McMoRan ( FCX) and Costco Wholesale ( COST).

The Aggressive Growth Fund seeks to achieve long-term appreciation in the value of its shares while outpacing the broad market, Cuggino says. The strategy calls for staying fully invested in stocks at all times, thereby avoiding losses that can compound by switching capital in and out of the market. Returns have lagged the S&P 500 in 2010 as well as over the last five-year period. But the fund's returns over three years and 10 years outpaces the S&P 500.

Jeffrey Sica is the chief investment officer of Morristown, N.J.-based SICA Wealth Management, with nearly $1 billion in client assets under management. He has two stock picks that may satisfy those with wish lists that contain high-priced luxury items with big brand recognition.

Apple ( AAPL)

Holiday Gift Equivalent: The 32-gigabyte iPod touch is priced at $299, or parents could buy one share of Apple at $318. Each share of Apple costs less than the base model of the iPad, which retails for $499.

Sica's Take: Even though shares of Apple are hovering near an all-time high, Sica believes that Apple's innovation will mean plenty of upside over the long term.

"Apple is my favorite technology company simply because of the level of innovation that Steve Jobs has instilled in the Apple culture. The design and technology is without parallel. Apple is such an interesting stock to hold for the long term because of that innovation. It's a good company to own because it keeps changing and reinventing itself with every new product they bring into the market.

"It has been a long-term holding of mine, and I haven't sold virtually any shares in a lot of years. Looking ahead, getting the iPhone on other networks like Verizon ( VZ) will greatly increase their scope and it will be a very big step for Apple."

Nike ( NKE)

Holiday Gift Equivalent: One share of Nike can be purchased for $87.83, equal to the price of a pair of Jordan Flight School boys' basketball shoes ($85) or Nike Lunarglide girls' running shoes ($82).

Sica's Take: "Nike is one of the best 25 global brands. It has raised its dividend for the past nine years. They even had a 15% dividend hike recently. It's a well-known and well-established brand that has been so integrated.

"I remember the first time Nikes came on to the scene, and my family could never afford them. They had that level of mystique as an incredible brand. That's continuing, as they get the best athletic talent as their spokespeople and they still make it the cool thing to wear. What brand in the history of the U.S. has been able to be the cool brand for decades? Nike has stayed on top for a lot of years. Twenty years from now, it'll still be on top."

When considering investments like Apple and Nike, Sica says his firm takes a "holistic approach" for its clients while dodging risks.

"Our primary focus is on understanding the goals and needs of each individual clients and adopting an investment plan around that," Sica says. "One size does not fit all. We don't model. We'll specifically customize a plan to a clients needs. We also strive to achieve goals with the least possible risk."

Sica notes that there isn't a level of enthusiasm of owning stocks as there once was, although that enthusiasm will return when investors realize they can still have good returns.

"It's important for people to realize that if they have a long time horizon, they should own stocks they track and watch, rather than buy-and-hold," he says. "The mindset is different. Buy-and-hold doesn't work. You have to be a lot more disciplined."

Craig Hodges, the Dallas-based portfolio manager of the Hodges Fund ( HDPMX), says two stocks owned by his fund make terrific substitutes for actual gifts this holiday season with potential upside over the near-term.

Sirius XM ( SIRI)

Holiday Gift Equivalent: A monthly subscription to Sirius satellite radio is $12.95 per month, or nearly 10 shares of Sirius XM, which trade for $1.39.

Hodges' Take: The Hodges Fund's Sirius XM investment has risen 130% this year. "Sirius XM's product has slowly but surely become more accepted. I've noticed it with my peers. I love the financial content and I find myself listening to that. When I'm in a car without it, I ask myself why they don't have it.

"Our theme with Sirius XM is that it's a long-term holding. I don't think it's going to double in a year, but it could be a good long-term 20% or 30% grower per year. The major ingredient is the car companies. You're seeing a resurgence in the automobile industry. That will drive this product for the next few years."

Chico's FAS ( CHS)

Holiday Gift Equivalent: One share of Chico's FAS can be bought for $12.29, while shoppers can select from a seemingly endless number of earring and bracelet designs that cost $13.99 or less.

Hodges' Take: Chico's accounts for 2% of the Hodges Fund as of Sept. 30. While the return on the investment is minus 11% in 2010, Hodges is forecasting a rebound.

"This is one that is in the middle of a resurgence. This is a fallen star and you don't hear about it as much, but they are slowly improving fundamentals under the radar. I think they can earn $1 a share next year, and the Street is looking at 82 cents a share. Chico's stock could trade in the upper-teens. While you wait, you can make a little money with a dividend.

"It's a feast or famine in this business. If you're wrong, especially with women's apparel, you can get pounded. But they have ironed out their inventory situation and they take fewer risks than they used to. I don't know that it'll get hot like it did years ago, but you could see the stock in the $20s a couple of years out."

With more than $325 million in total assets, the Hodges Fund has roughly 40 stock holdings of different market values that Hodges expects will help with a long-term growth strategy. Specifically, Hodges looks for domestic stocks that may currently be out of favor but appear to have turnaround potential.

In addition to Sirius XM and Chico's, the fund has investments in Transocean ( RIG), Wal-Mart ( WMT) and Krispy Kreme Doughnuts ( KKD).

The Hodges Fund has performed well over the past year, beating the market by over 400 basis points, although the fund has a three-year annualized return of minus 12%. Looking at annual returns over the past few years, performance has been lumpy. The Hodges Fund returned 36% in 2009, 8.5% in 2007 and 18% in 2006. However, these gains were offset by a 50% dive in 2008.

"We had a real rough 2008," Hodges says. "But in the 19 years we've been a fund, we've outperformed the market in 16 of those years."

Don Cleven, portfolio manager of the Touchstone Mid-Cap Value Fund ( TCVAX), and Herbert Chen, portfolio manager of the Huntington Growth Fund ( HGWIX), have different holiday stocking stuffer picks that range from below $25 up to $200, depending on the recipient.

American Eagle Outfitters ( AEO)

Holiday Gift Equivalent: American Eagle military graphics shirts for men and V-neck T-shirts for women are priced at $19.50 each, slightly above the price of one share of American Eagle at $15.88.

Cleven's Take: "American Eagle occupies a sweet spot in teen retailing. The brand is stronger than others, like Aeropostale ( ARO), but they're not quite as expensive as Abercrombie & Fitch ( ANF). Normalized earnings could reach $1.40 a share, which assumes we're in a normal environment on the other side of the recession. If you have 15 times the price-to-earnings ratio, which is lower what they normally receive, you get $21 a share. That's 35% upside.

"They have a restructuring in place to tighten inventory controls and that will lower costs. That $1.40 target is on the other side of that issue. You also have a 2.8% dividend while you wait. You can't get a dividend from a sweater."

Cleven says American Eagle represents a 1.3% weighting in the Touchstone Mid-Cap Value Fund, which has assets of $44 million. The fund uses a classic value strategy and invests in stocks that tend to be more volatile and can be less liquid than large-cap stocks. The fund is still young, with an inception date of Sept. 30, 2009, but it touts one-year total returns of 19%, excluding sales charge.

Netflix ( NFLX)

Holiday Gift Equivalent: Netflix offers gift givers the ability to purchase a 12-month subscription for $179.88, enabling gift receivers to watch streaming content and receive two DVDs by mail at a time. That is comparable to the price of one share of Netflix ($193.42).

Chen's Take: Despite the 250% surge in Netflix shares this year, Herb Chen still thinks the stock has room to run higher. "While you will get a huge entertainment value from all the movies you can watch, you may leave some money off the table ... a very tough choice this holiday season," he says.

"If you look at the analysts out there, their target prices are lower than where the stock is today," Chen notes. "But I still like Netflix mainly because of the growth prospects. They're the leaders in leveraging technology and streaming video. They're so far ahead of anyone else. Management is phenomenal. A lot of people have an Xbox, a PlayStation 3 or a Wii console, giving them access to Netflix's streaming library on their TVs.

"When you talk about growth stories, Netflix is one of them. As a manager of a growth fund, I have to look at the market environment. And I think we're just getting started with streaming video. This will eventually be mainstream. This is how people will be watching television and movies. We're just getting started."

The Huntington Growth Fund, with more than $130 million in assets, counts Netflix as a top-10 holding alongside Apple, Caterpillar ( CAT) and ( CRM).

The fund, which is devoted largely to technology, energy and industrials, targets growth in large-cap stocks over the long term. The fund has lagged the total return of the S&P 500 in 2010 and 2009, while it matched the index's performance in 2008. In 2007, the fund handily beat the S&P 500.

-- Written by Robert Holmes in Boston.

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

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