Bob Doll, Chief Equity Strategist and Senior Portfolio Manager at Nuveen Asset Management, gives three of his favorite stock picks for 2014.
It looks like we could be entering a true stock-picker's market.
The CBOE Correlation Index is at its lowest levels in years. That means stocks are not moving as one so, if you want to beat the market, you will have to find the right stock.
Enter Bob Doll, the veteran investor who has made money all types of markets. The Chief Equity Strategist and Senior Portfolio Manager at Nuveen Asset Management has three stocks he thinks everyone should own.
Those three stocks are among the 25 he has selected in a unit investment trust called the Nuveen 2014 Equity Outlook Portfolio. That portfolio was developed to profit from Doll's ten predictions for this year.
Common factors among these mostly cyclical stocks are decent free cash flow and a generally low price-to-earnings bias, according to Doll. Energy and utilities stocks are underweighted while aerospace/defense, health care, and big technology are overweighted.
In an interview with Talking Numbers, Doll gives one example of a stock in each of the three overweighted sectors and why he picked them.
Doll: "It's simple: cash flow. I just love the cash flow story. I know the stock has done well and that's the knock on it for a lot of people. But, as they continue to get more cash out their business and benefit from the fact that the airline industry is being run as a business – different from 10 and 20 years ago –and the demand for air travel continues to grow, I think Boeing's a pretty good story."
Other picks: Northrop Grumman, Raytheon
Sector: Health Care
Doll: "The bull case is, of course, around the restructuring story. In the pharmaceutical area, we know it's not the industry that it was where it was new products and growth, it's how do I be efficient with the resources that I have. And, Pfizer's decision – which will play out over the next couple of years – to break the company up, its ability to gain value out of each of the pieces I think is the story. In the meantime, I've got almost a 3.5% yield which isn't so shabby."
Other picks: Medtronic, UnitedHealth
(See: CNBC Markets overview)
Sector: Big Technology
Doll: "It's one of many of what I call 'yesterday's technology' companies trying to figure out how they win tomorrow. And, I think of that group, Microsoft distinguishes itself in its ability and its creation of new products. Its recognition of the cloud is an important part of the future, figuring out how to adapt to that. There's obviously a big CEO question. My guess is if it's an outsider, the stock goes up a little bit; if it's an insider, the stock probably goes down a little bit. But, more importantly, can they develop their business? In the meantime, again, you've got a decent yield, very clean balance sheet, lots of free cash flow common to these stories."
Other picks: Hewlett Packard, Oracle
To see Bob Doll's interview with Talking Numbers on his picks for 2014, watch the video above.
More from Talking Numbers:
- Bob Doll