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5 Trade-Ups: Sell TM, PFE, GIS, AAPL, PCG and Buy F, MRK, KFT, INTC, EXC


If you’re investing in a vacuum, it’s easy to just call out stocks to buy and sell. But the reality is that most investors have a limited amount of cash to invest, and thus have to pay close attention to diversification and sector trends as well as individual company performance. Also, those investors with a smaller nest egg don’t have the luxury of just ignoring dividends or share prices and chasing the flavor of the week because they simply can’t afford it. That means sometimes folks get stuck with an imperfect stock because it seems better than the alternative.

If you’re feeling trapped and held hostage by your own portfolio, don’t fret. Here are five different trade-ups that allow you to move your money into similar companies that are a much better investment than what you may currently be holding: In the auto sector, sell Toyota (TM) and buy Ford (F). In pharmaceuticals, sell Pfizer (PFE) and buy Merck (MRK). In consumer staples, sell General Mills (GIS) and buy Kraft (KFT). In tech, sell Apple (AAPL) and buy Intel (INTC). In the ulilities sector, sell PG&E (PCG) and buy Exelon (EXC).

Sell Toyota, Buy Ford – Auto Sector Trade Up

Auto Stock to Sell – Toyota (TM): Toyota has come under fire recently on continued coverage of its brake recall, big incentives to boost TM sales and rumors of a Toyota dividend cut. Some investors are fleeing this stock like a rat from a sinking ship, while others want to buy Toyota while TM stock is cheap. My advice is to sell this stock now. Car sales fell 13% in 2009 as a whole for the company, and bad press is weighing on shares severely in 2010. TM stock is down about 15% since mid-January.

Auto Stock to Buy – Ford (F): Ford shares are much more affordable than Toyota (about one-fifth of TM right now), and are a much better buy. Rumors about tomorrow’s earnings report are swirling, and Ford is expected to post earnings exceeding $1 billion—making it four straight quarterly profits for the first time since 2005. U.S. deliveries surged 37 percent through March, more than twice the industrywide increase, and buyers are flocking to Ford since it has avoided the bad press of a recall like Toyota and avoided bankruptcy like its Detroit counterparts GM and Chrysler.

Sell Pfizer, Buy Merck – Pharma Sector Trade Up

Pharma Stock to Sell – Pfizer (PFE): Pfizer hasn’t been having a good 2010, with shares down about 8% while the broader market has posted about the same figure in profits. The company has seen a number of problems in recent weeks, including the discontinuation of the SUN 1170 Phase 3 trial of its Sutent cancer drug. As blockbuster drugs like Lipitor approach patent expiration in the next few years, there aren’t a lot of promising medications in the pipeline to replace them. Adding fuel to the fire is that after cutting its dividend in half from 32 cents a quarter to a mere 16 cents a share in 2009, PFE added a measly 2 pennies back to its payout recently. That’s not much of an incentive.

Pharma Stock to Buy – Merck (MRK): Six years ago, this giant drugmaker gave shareholders the scare of their life when MRK’s painkiller Vioxx was linked to heart ailments. But the company has bounced back big time. In 2009, MRK absorbed rival Schering-Plough, opening the way for the combined enterprise to cut costs and concentrate its research efforts on the most promising medicines in the pipeline. Earnings per share touched a new all-time high in 2009 and will likely progress another 20% or so over the next two years as the merger savings kick in. Surprisingly, perhaps, MRK never slashed its dividend during the Vioxx crisis and may, at last, be poised to sweeten the payout sometime within the next 12 months. That’s saying something considering the current yield is above 4% and one of the best high yield dividend stocks in the Dow.

Sell General Mills, Buy Kraft – Consumer Staples Sector Trade Up

Staples Stock to Sell – General Mills (GIS): General Mills shares have been stubborn for months, trading in a narrow range between $68 and $74 since December despite a clear upwards trend for the broader market. Maybe that’s because General Mills reported earnings on March 24 that were about as ho-hum as you can get. The company reported a change in quarter-over-quarter sales of 2.59%. Considering other blue chip stocks are surging due to easier year-over-year comparisons, it’s not surprising that GIS has been left behind.

Staples Stock to Buy – Kraft (KFT): Kraft is the second-largest food company in the world and number one in North America. Revenues of the combined Kraft Foods/Cadbury Plc. should approximate $50 billion annually. More than a quarter of sales will come from the rapidly growing developing markets, including $1.5 billion in Brazil, $1 billion in Russia, $400 million in India and $500 million in China. This is where the real growth is. Kraft shares really haven’t done much since the company went public in 2001, but the addition of Cadbury gives the stock a lot of potential. It’s also worth noting that Kraft has increased its dividend every year since 2001 at an average annual rate of more than 10%. It’s 3.9% yield is much better than the GIS dividend of just 2.8%.

Sell Apple, Buy Intel – Tech Sector Trade Up

Tech Stock to Sell – Apple Inc. (AAPL): Yes, Apple has been flying high in recent months, with shares surging 28% year to date and a recent earnings report that boasted a 90% jump in profits. This smashed Wall Street expectations. However, the goal of investing is to buy low and sell high and many insiders wonder whether Apple has grown too much too fast. Taking some profits may be a smart move in the near term in case of a market correction and in case Apple’s breakneck growth is about to come to a close. Absent another product launch that can rival the iPad, the stunning quarterly results we just saw are unlikely to occur again soon.

Tech Stock to Buy – Intel (INTC): If you fell in love with Apple because of the gadgets the company offers, you may be reluctant to go with a boring chipmaker like Intel. But the fact is that the profits at Intel are anything but boring thanks to a resurgence in business spending and consumer confidence. INTC has grown its quarterly earnings for four consecutive quarters and has made a habit of topping Wall Street forecasts. Shares are up 17% year-to-date. And an added bonus – INTC stock offers a 2.8% dividend yield, while AAPL shares offer no quarterly payout. Even if Intel shares lag Apple by a bit, the dividend helps even the score.

Sell PG&E, Buy Exelon – Utility Sector Trade Up

Utility Stock to Sell – PG&E (PCG): Pacific Gas and Electric is set to report earnings on May 7, and it could be a fairly unimpressive report as the recession has really taken a toll on power demand across California and the West. And looking forward, things aren’t going to get much better, as two consumer advocate groups asked the California Public Utilities Commission to delay PG&E’s proposal to charge customers more money at peak times of day. If granted, the rate hike won’t come through for two years!

Utility Stock to Buy – Exelon (EXC): The nation’s largest owner-operator of nuclear power plants, Chicagobased EXC stands to benefit from increasingly stringent limits on carbon emissions in the years ahead. At the moment, electricity demand is down, depressing wholesale power prices. Thus, the company may report a modest dip in early 2010 earnings — providing longer term investors with a great buying opportunity. The stock is very cheap at less than 12 times this year’s trough earnings. As recently as mid-2008, EXC sold for 22X net, so you’re getting a 45% discount off the peak valuation… not to mention a high dividend yield of 4.8%.

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