I have concerns about 2012, when the demographic Gray Wave will begin swelling to tsunami proportions.
Retirees tend, on balance, to take money out of the stock market. But I think there’s still time to make generous profits with safe, strong, entrenched franchises like these:
Berkshire Hathaway
Last month, I gave you my estimate of Berkshire Hathaway’s (NYSE:BRK.B) intrinsic value, $110 per Class B share. Anytime you can buy Warren Buffett’s expertise at a 30% discount, you should. However, I’m also intrigued by what might happen to Berkshire after Buffett (who turns 81 on August 30) is gone.
Quite possibly, new management would start paying a dividend or — even more radically — might break the company into two pieces, an operating conglomerate and a passive investment fund. Either or both of these moves could close the discount rather quickly.
JPMorgan
Most bank stocks don’t interest me right now, but JPMorgan (NYSE:JPM) is a happy exception. Earnings for 2011 likely will set an all-time high, topping last year’s figure by at least 20%.
Not too shabby for one of the marquee players in an industry many investors long ago gave up for dead!
JPM also is making a concerted effort to return cash to shareholders. In March, the bank raised its dividend fivefold and announced a $15 billion stock buyback program.
At a current yield of 2.5%, the shares already boast a fatter dividend than the typical large-cap stock — and I expect another sizable increase in late 2011 or early 2012. Assuming a modest P/E of just 10, the stock could deliver a 30% or greater total return within a year.
Total
Next to gold, oil is one of the world’s most reliable inflation hedges — a scarce tangible asset, and an essential raw material to boot.
If you believe, as I do, that all the funny money sloshing around eventually will trigger a surge in retail prices, you need to own some oil wells. And the best way to do it is with a dirt-cheap stock like Total (NYSE:TOT).
The world’s fifth-largest oil company by market value, Paris-based Total is trading at less than seven times estimated 2011 earnings, versus an average multiple of 9.5 from 2003 to 2007. Thus, if the stock were merely to return to its former average valuation, you would pocket a gain of 35% or more.
In addition, TOT pays a dividend of nearly 6%, one of the richest yields among the oil majors. Starting in September, the company is switching to a quarterly (rather than semiannual) dividend schedule — an extra attraction for retirees and other income investors.
