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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Blue Chips

July 7th 2010 After six months into 2010, the markets have not only gone no where, but have retrenched to levels not seen since October. The first quarter earnings back in April could not have been better with a large number of blue chip companies raising guidance for the full year. Everything looked great after April, but now three months later investors are worried about a double dip recession. The recent economic data indicates our economy has slowed and is not producing as many new jobs as anticipated. Throw in a debt crisis in Europe and an oil spill in the Gulf and the major averages are down 14% from the April highs. The good news is corporate earnings will start up again next week and should be pretty darn good. However, the blue chip companies are trading at valuations as if corporate earnings are declining, not improving. That's why this week we will feature a number of blue chips that are too cheap to ignore.
Barrons ran an article last week indicating a number of blue chips including ExxonMobil, Microsoft, Intel, Verizon, AT&T, Altria, Philip Morris, Merck, Chevron, IBM, HP, Oracle, Walmart, Johnson & Johnson, GE, and Cisco System are trading for 10 or 11 times 2011 earnings. ExxonMobil is actually trading below the Great Recession lows from last year and sports a dividend yield of 3.1% which is more than a 10 year Treasury bond. That's cheap. Chevron's and Merck's dividend yields are above 4%. Intel's is 3.3%, and Microsoft and IBM are sporting 2% yields. The best dividend yields go to Verizon and AT&T at 7%. Altria is at 6.9% and Philip Morris is at 5%.
The financials are still the riskest of the blue chips due to loan losses and concerns regarding the financial regulation. However, over the next several years as loan losses decline the banking earnings will jump dramatically allowing the banks to pay dividends once again. So on the surface the banks don't look cheap, but looking forward to more normalized earnings the banks have a lot of room to the upside.