Cisco Systems [CSCO: 25.825, -0.145 (-0.56%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate and collaborate. Cisco Systems, Inc.’s products, which include primarily routers, switches, and products that the Company refers to as its technologies, are installed at enterprises, public institutions, telecommunications companies, commercial businesses and personal residences. In November 2008, the Company acquired Jabber Inc. In January 2009, the Company acquired Richards-Zeta Building Intelligence, Inc

CSG Systems International [CSGS: 21.43, +0.44 (+2.10%)] Recent Price $15.47 Value Range $21.39 – $28

CSG Systems International, Inc. (CSG) is a provider of outsourced solutions that facilitate customer interaction management on the behalf of its clients, generating approximately 95% of its revenues during the year ended December 31, 2007, from the North American cable and Direct Broadcast satellite (DBS) communications markets. The Company’s solutions also support a number of other industries, such as financial services, utilities, telecommunications, and home security. CSG’s solutions manage customer interactions, such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client’s field technicians to the customer’s home. In May 2008, CSG completed the acquisition of DataProse, Inc.

Forest Laboratories [FRX: 31.21, +0.02 (+0.06%)] Recent Price$26.21 Value Range$51.57 – $64.09

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription, as well as non-prescription pharmaceutical products sold over the counter. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its sales forces, Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Forest Laboratories, Inc.’s products include Lexapro, the Company’s selective serotonin reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate to severe Alzheimer’s disease; Bystolic, its novel beta-blocker for the treatment of hypertension, and Campral, for the maintenance of alcohol abstinence.

Robert Half International [RHI: 30.07, -0.25 (-0.82%)] Recent Price $18.22 Value Range $26.27 – $30.14

Robert Half International Inc. provides specialized staffing and risk consulting services through such divisions as Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields

Advance Auto Parts [AAP: 42.11, -0.27 (-0.64%)] Recent Price 33.63 Value Range 10.02 – 12.07

Advance Auto Parts, Inc. (Advance) operates within the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pickup trucks, vans, minivans and sport utility vehicles). The Company is a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself (DIY) and do-it-for-me (DIFM) customers in the United States, based on store count and sales. Advance operates in two business segments: Advance Auto Parts (AAP) and Autopart International (AI). The AAP segment consists of its store operations within the United States, Puerto Rico and the Virgin Islands, which operates under the trade names Advance Auto Parts, Advance Discount Auto Parts and Western Auto. The AI segment consists solely of the operations of Autopart International, which operates as an independent, wholly owned subsidiary.

American Eagle Outfitters [AEO: 18.69, -0.02 (-0.11%)] Recent Price 9.64 Value Range 0.63 – $0.75

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates ae.com, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE’s original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

Bed Bath & Beyond [BBBY: 42.27, +0.93 (+2.25%)] Recent Price$24.00 Value Range $ 8.03 – $9.73

Bed Bath & Beyond Inc. and subsidiaries is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. The Company sells a range of merchandise principally, including domestics merchandise and home furnishings as well as food, giftware, health and beauty care items and infant and toddler merchandise. In March 2007, the Company acquired buybuy BABY. In May 2008, the Company announced the formation of a joint venture with Home & More, S.A. de C.V., a privately held home products retailer operating in Mexico

Brown-Forman Corporations [[BF-B]] Recent Price $48.18 Value Range $8.17 – $10.28

Brown-Forman Corporation manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Its principal beverage brands are Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia Vodka, Herradura Tequila, Gentleman Jack, Jekel Vineyards Wines, Jack Daniel’s Single Barrel, Jack Daniel’s Ready-to-Drinks, Bel Arbor Wines, Bolla Wines, Bonterra Vineyards Wines, Old Forester Bourbon, Canadian Mist Blended Canadian Whisky, Pepe Lopez Tequilas, Chambord Liqueur, Sanctuary Wines, Don Eduardo Tequila, Sonoma-Cutrer Wines, Early Times Kentucky Whisky, Tuaca Liqueur, el Jimador Tequila, Stellar Gin, Five Rivers Wines and Woodford Reserve Bourbon. The Company’s core brand in its portfolio is Jack Daniel’s, which is a spirits brand and American whiskey brand. Its other brands are Southern Comfort and Canadian Mist. Its largest wine brands are Fetzer, Korbel and Bollab.

CLARCOR [CLC: 33.89, -0.29 (-0.85%)] Recent Price $32.82 Value Range $12.18 -$17.86

CLARCOR Inc. conducts business in three segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Company’s Engine/Mobile Filtration Segment sells filtration products used on engines and in mobile equipment applications, including trucks, automobiles, buses and locomotives, and marine, construction, industrial, mining and agricultural equipment.. The Company’s Industrial/Environmental Filtration Segment centers on the manufacturing and marketing of filtration products used in industrial and commercial processes and in buildings, and infrastructures of various types. The Company’s consumer and industrial packaging products business is conducted, through a wholly-owned subsidiary, J.L. Clark, Inc. (J.L. Clark). In May 2008, the Company acquired a 30% share in BioProcess H2O LLC (BPT), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. The Company acquired 100% of the Keddeg Company on December 29, 2008

Cree [CREE: 70.615, -1.105 (-1.54%)] Recent Price $21.84 Value Range $4.51 – $6.20

Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in Durham, North Carolina, in a six-part process, which includes SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing Additionally, it packages certain LED components and power and RF products at its North Carolina facilities, its facility in Huizhou, China and in other foreign countries through the use of subcontractors. It also operates research and development facilities in Goleta, California and Hong Kong. In February 2008, it acquired LED Lighting Fixtures, Inc.

Edwards Lifesciences [EW: 97.50, +0.29 (+0.30%)] Recent Price $61.10 Value Range $16.74 – $21.24

Edwards Lifesciences Corporation (Edwards Lifesciences) is a global player in products and technologies designed to treat cardiovascular disease. The Company focuses on specific cardiovascular opportunities, including heart valve disease, critical care technologies and peripheral vascular disease. The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular, and through 2007, Other Distributed Products

Interactive Data Corp [IDC: 31.80, +0.05 (+0.16%)] Recent Price$24.42 Value Range $4.90 – $6.34

Interactive Data Corporation is a global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company’s customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. It markets and sells its services either by direct subscriptions or through third-party business alliances. Its offerings are developed and delivered to customers through four businesses that consist of its two operating segments: Institutional Services and Active Trader Services. In May 2007, the Company completed the acquisition of the assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. In August 2008, announced the closing of its acquisition of Kler’s Financial Data Service S.r.l. In December 2008, the Company acquired a 79% interest in NTT DATA Financial Corporation

ITT Educational Services [ESI: 110.14, +0.63 (+0.58%)] Recent Price $128.87 Value Range$23.33 – $33.99

ITT Educational Services, Inc. (ITT/ESI) is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2007, the Company offered diploma, associate, bachelor and master degree programs to approximately 53,000 students. All of its institutes are authorized by the applicable education authorities of the states, in which they operate and recruit, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). All of its programs were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. As of December 31, 2007, it offered 29 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. In October 2008, the Company announced that it has opened its first ITT Technical Institute in Mississippi.

Makita Corporation [MKTAY: 33.73, +1.1199 (+3.43%)] Recent Price $22.81 Value Range $1.71 – $2.00

Makita Corporation (Makita), incorporated on December 10, 1938, is principally engaged in manufacturing and sale of a range of power tools for professional users worldwide. Makita’s power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. The Company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 31, 2008 (fiscal 2008), approximately 85% of Makita’s sales were outside of Japan. The Company specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. As of March 31, 2008, Makita had over 100 service depots outside of Japan. As of fiscal 2008, 28 of these service depots were located in the United States, and 19 of these service depots were located in China.

NIKE Incorporated [NKE: 69.885, +0.135 (+0.19%)] Recent Price $48.68 Value Range $15.83 – $21.46

NIKE, Inc. (NIKE) is engaged in the design, development and worldwide marketing of footwear, apparel, equipment, and accessory products. NIKE sells athletic footwear and athletic apparel. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 180 countries around the world. Its products include running, training, basketball, soccer, sport-inspired urban shoes, and childrens shoes. It also markets shoes designed for aquatic activities, baseball, bicycling, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. On March 3, 2008, the Company acquired Umbro Ltd. (Umbro). On April 17, 2008, it completed the sale of its Bauer Hockey subsidiary.

Paychex [PAYX: 32.18, +0.30 (+0.94%)] Recent Price $26.93 Value Range$4.55 – $6.26

Paychex, Inc. (Paychex) is a provider of payroll and integrated human resource and employee benefits outsourcing solutions for small to medium-sized businesses in the United States. The Company’s Payroll and Human Resource Services product lines offer a portfolio of products and services that help clients to meet their payroll and human resource needs. Its Payroll services are provided through either its Core Payroll or Major Market Services, and include payroll processing, payroll tax administration services, employee payment services, and other payroll-related services, including regulatory compliance. Paychex’s Human Resource Services primarily include human resource outsourcing services, which include Paychex Premier Human Resources and its Professional Employer Organization; retirement services administration; workers’ compensation insurance services; health and benefits services; time and attendance solutions, and other human resource services and products.

Raytheon [RTN: 56.47, -0.52 (-0.91%)] Recent Price $47.80 Value Range 12.68 – $19.58

Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of technologically advanced products, services and solutions for governmental customers in the United States and worldwide. The Company operates through six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). During the year ended December 31, 2007, the Company completed the sale of Raytheon Aircraft Company (Raytheon Aircraft) and Flight Options LLC (Flight Options), two former operating commercial aviation businesses. In October 2007, the Company acquired Oakley Networks, Inc., a privately held technology company based in Salt Lake City, Utah, which provides cyber security and data leakage prevention systems. In April 2008, the Company acquired SI Government Solutions. In July 2008, the Company acquired Telemus Solutions, Inc

Rockwell Collins [COL: 60.75, -0.46 (-0.75%)] Recent Price $38.90 Value Range $12.94 – $15.93

Rockwell Collins, Inc. (Rockwell Collins) is a player in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. The Company’s products and systems are primarily focused on aviation applications. Its Government Systems business also offers products and systems for ground and shipboard applications. Rockwell Collins also provides a range of services and support to its customers through its network of service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. Rockwell Collins operates in multiple countries. Rockwell Collins serves its worldwide customer base through its Commercial Systems and Government Systems business segments. On November 24, 2008, Rockwell Collins acquired SEOS Group Limited. In April 2008, the Company completed the acquisition of Athena Technologies, Inc.

Strayer Education [STRA: 246.57, +3.57 (+1.47%)] Recent Price $222.04 Value Range $15.89 – $23.60

Strayer Education, Inc. is a post-secondary education services corporation. The Company offers academic programs through its wholly owned subsidiary, Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. The Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 47 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, D.C., via the Internet through Strayer University Online, providing its working adult students a program offering over the Internet. It also owns Education Loan Processing, Inc. (ELP), which was organized to administer the Company’s student loan portfolio. As of December 31, 2007, the Company had more than 32,087 students enrolled in its programs.

- Ronald Sommer

Disclosure: This article was taken from the website Measured Approach with the permission of the original author.  Please refer to the original author for disclosure information. We hold a position in FRX.

A company that fits the aforementioned profile is Sempra Energy [SRE: 50.33, -0.26 (-0.51%)], a diversified gas utility company based in Southern California. Sempra has two core utility subsidiaries in Southern California Gas (SoCalGas), the largest gas utility in the United States and San Diego Gas & Electric (SDG&E), which serves 3.4 million customers in the San Diego area. Combined, these two entities comprise 60% of Sempra’s revenue stream. The remaining 40% comes from its natural gas infrastructure businesses, which includes Sempra Generation and Sempra Commodities.

Sempra had a bumpy 2008. For starters, the company’s stock lost over 28% of its value. One of the key drivers behind this decline was Sempra’s location in Southern California, which proved to be one of the hardest hit housing markets in the United States. A poor housing market tends to accompany abundant foreclosures, which is problematic in terms of electricity demand for a utility company servicing that area. In addition, Sempra has a unique joint venture with the Royal Bank of Scotland, in which essentially RBS provides Sempra the capital to operate its commodities trading business. On October 6, 2008, rumors that RBS might be nationalized surfaced, putting into question the bank’s capital commitment to Sempra. Sempra’s stock was down over 16% on this day alone.

However, these same tribulations will be the basis for Sempra’s comeback when the economy turns around. On February 26, 2009, RBS reaffirmed its capital commitment to Sempra, as the UK Financial Services Authority determined that this capital commitment was of regulatory status. This means that RBS’s capital commitment to Sempra is backed by the UK Government. On the heals of this backing, Sempra has come out and projected that its commodities joint venture with RBS will realize a 26% return on invested capital and bottom line increases in a range of 25-33% from 2009 to 2013. In addition, Sempra reaffirmed its 2009 company-wide earnings guidance of $4.35 to $4.60 per share given this more transparent perspective on it’s revenue stream. In summation, Sempra’s joint venture with RBS is safe and will only be enhanced if an economic turnaround helps to strengthen the bank’s capital position.

Furthermore, the Southern California housing market has seen a deceleration in its decline. March home sales were up over 27% from February levels. Price levels did remain the same however, possibly indicating that home prices have yet to settle at a bottom. A large majority of these home sales were believed to be foreclosure resales. An economic turnaround will do nothing but help improve Southern California’s housing market, as people will have greater access to credit and more spending power. As SoCal’s housing market comes back, so will an increase in electricity consumption, making Sempra’s regulated entities more profitable.

In addition to the continued clarity with RBS and an improvement in SoCal’s housing market, Sempra has an extensive project portfolio that will fuel the company’s long term growth. Some of these projects include:

• Gulf Coast Expansions – Sempra has made three separate major investments in the Gulf Coast region of the United States. With these investments, Sempra has given itself the infrastructure and supply chain capabilities to push natural gas and LNG from the Gulf Coast to the Northeast and Southeast regions on the United States. The three investments are the Cameron LNG storage facility, which has 1.5 Bcf storage capacity, the $250 million Liberty Storage Facility and the purchase of EnergySouth, two large natural gas facilities with 57 Bcf capacity. The EnergySouth purchase alone could potentially add $.30/share to Sempra’s annual earnings.
• La Rumerose Wind Project – The La Rumerose wind plant is one of Sempra’s green initiatives. The plant is a 20-year project based in Northern Mexico that has the potential to supply Southern California and Northern Mexico with 1000 MW of wind energy.
• Sunrise Powerlink – The Sunrise Powerlink, which could potentially add $0.32/share in earnings, is a renewable energy investment. Specifically, it will bring wind, geothermal, and solar energy into SDG&E and SoCalGas’s distribution portfolio.
• Energia Azul LNG Terminal/Bajanorte Expansion – The Energia Azul LNG Terminal is the first LNG storage facility on the west coast of North America. The terminal, located in Mexico, is being built by Sempra in order to supply SDG&E with LNG to be distributed throughout Southern California. The Bajanorte Expansion is an addition to the Bajanorte, a natural gas pipeline that runs through northern Mexico. The expansion brings the LNG from the Energia Azul LNG Terminal though Mexico, ultimately getting delivered to SDG&E.

The last six weeks in the equities markets have shown us glimpses of what stocks will benefit from a bull market. Since March 1, 2009, Sempra has seen it’s stock appreciate 15.76%, while the utilities spider [XLU: 29.83, -0.20 (-0.67%)] has returned just a little over 5% in that same time frame. This is a terrific relative out-performance of over 10%. Expect more of the same from this California gem if the economy continues to show improvement.

The rest of this free research report “Stocks For An Economic Recovery” which includes commentary on all sectors is available for download at the following link.

- T.J. Smith

Disclosure: None.

Consumer Discretionary – [APOL: 63.23, -0.21 (-0.33%)] YTD: -25.52%, [MCD: 65.5098, +0.2998 (+0.46%)] YTD: -11.69%, [COH: 38.22, -0.27 (-0.70%)] YTD: 25.32%, [XLY: 32.15, +0.03 (+0.09%)] YTD: 11.22%

Our consumer discretionary sector has lagged thus far in 2009, and this was mostly due to having two very defensive and conservative type plays in Apollo Group and McDonald’s.  Coach has been a great surprise this year with consumer spending down so drastically, but the fundamentals at year end were much healthier than the stock price and as you can see from the price appreciation it was a screaming buy.  McDonald’s has reported good earnings and carries a solid dividend but hasn’t kept pace up to this point, but that is likely to change if the recession is prolonged through the end of this year.  As more people are laid off each month, Apollo stands to benefit from individuals going back to school for new skills who are looking for an affordable education.

Consumer Staples – [SJM: 59.19, +0.24 (+0.41%)] YTD: -5.41%, [KR: 22.25, +0.47 (+2.16%)] YTD: -17.38%, [WMT: 53.94, -0.03 (-0.06%)] YTD: -10.56%, [XLP: 27.46, 0.00 (0.00%)] YTD: -4.65%

Consumer staples has been one of the quieter sectors this year after it steadily outperformed the market in 2008.  Smuckers has been in line with the composite while Kroger has fallen sharply due to competition with other grocery stores like our third pick, Wal-Mart.  Wal-Mart was getting very expensive at the end of last year, but there is a premium on the cash flows of a company that is arguably the most stable and consistent in the world.  Our consumer staples is another sector that would benefit from a sustained recession.

Energy – [NE: 43.41, -0.06 (-0.14%)] YTD: 40.07%, [NOV: 43.81, -0.08 (-0.18%)] YTD: 47.46%, [APA: 106.40, -0.54 (-0.50%)] YTD: 14.13%, [XLE: 58.38, -0.09 (-0.15%)] YTD: 8.52%

One of our best performing sectors has been energy.  After oil and natural gas prices dropped more than 70% from their highs, it was very evident that many of the names in the sector were oversold, especially the smaller names and the names in the services sub-sector.  Noble and National Oilwell Varco both fall into this category as companies with excellent free cash flow that were oversold when the markets priced in oil staying at $30 for a sustained time period.  Apache bring excellent Southeast Asian natural gas exposure to the table, and the companies recent earnings and the rebound in natural gas prices has done wonders for the stock.

Financials – [GS: 174.54, +1.03 (+0.59%)] YTD: 65.41%, [MS: 29.96, -0.06 (-0.20%)] YTD: 78.26%, [TRV: 53.02, -0.60 (-1.12%)] YTD: -14.12%, [XLF: 15.4995, -0.1005 (-0.64%)] YTD: 3.99%

By far our best sector relative to its benchmark has been financials, and this has been due to our index having no exposure to the big banks.  Goldman Sachs and Morgan Stanley both passed the stress tests with flying colors and are in line to be two of the first companies to pay back the TARP funding when the government allows firms to capitalize privately again.  Travelers has outperformed many of its insurance peers as their real estate exposure is less toxic than its competitors.

Healthcare – [ABT: 54.42, -1.12 (-2.02%)] YTD: -15.21%, [TEVA: 61.36, -0.29 (-0.47%)] YTD: 3.43%, [GILD: 47.389, +0.289 (+0.61%)] YTD: -13.94%, [XLV: 31.84, -0.24 (-0.75%)] YTD: -3.62%

Another sector that has lagged in 2009 is healthcare, although this could turn around very quickly.  Teva is the world’s largest generic company and stands to benefit a lot under President Obama’s new healthcare spending plans.  Abbott and Gilead are both leaders in their respective sub-sectors, and any rebound in healthcare will see these names outperform some of their smaller peers.  Gilead’s work on HIV drugs has been groundbreaking, and its exposure to this market will help them to be one of the fastest growing large healthcare companies for years to come.

Industirals – [NOC: 63.94, -0.81 (-1.25%)] YTD: 12.21%, [FLR: 45.87, +0.01 (+0.02%)] YTD: 0.67%, [AME: 39.98, -0.06 (-0.15%)] YTD: 9.47%, [XLI: 30.23, +0.06 (+0.20%)] YTD: 0.38%

The industrials sector took it on the chin in 2008 but is starting to show the signs of an early recovery in 2009.  Some of the rebound was due to President Obama’s stimulus plan, as seen with Fluor, while another portion of the rebound was due to fundamentals sitting at historically attractive levels.  Ametek’s strategy of using acquisitions for growth obviously won’t play out in 2009 but in the near future the company could find smaller competitors at extremely cheap valuations.  Northrop Grumman remains one of the big four defense contractors and has a number of reliable government contracts to help its revenues remain steady over the next few years.

Information Technology – [CERN: 84.74, -0.41 (-0.48%)] YTD: 48.32%, [SY: 46.035, +0.335 (+0.73%)] YTD: 32.66%, [WU: 16.79, +0.02 (+0.12%)] YTD: 24.83%, [XLK: 22.75, -0.02 (-0.09%)] YTD: 10.90%

Information technology has been one of the best sectors to be in during 2009.  The rebound in IT started before all of the other sectors and has only slowed recently.  Our index had exposure to many smaller names that have skyrocketed in 2009 because of their exposure to niche sub-sectors.  Cerner stands to benefit tremendously from President Obama’s healthcare plans and could see growth rates well over 25% for years to come.  Western Union has safe revenues from transaction services and Sybase excels in their small niche as demand increases for mobile information solutions.

Materials – [PX: 79.57, +0.06 (+0.08%)] YTD: 23.25%, [GEF: 53.22, -0.07 (-0.13%)] YTD: 47.29%, [AGU: 71.7582, +4.9782 (+7.45%)] YTD: 32.43%, [XLB: 33.27, +0.11 (+0.33%)] YTD: 17.85%

By a wide margin the best sector so far this year has been materials, which coincidentally was one of the worst performing sectors in 2008.  This is another sector where depressed commodity prices led to valuation that made no sense even in a severe recession.  Packaging company Greif gave our index exposure to a small portion of the composite that well outperformed its peers in 2009 based on fundamentals alone.  Praxair is one of the two most profitable companies in the gases space and Agrium has made aggressive moves in 2009 to boost shareholder confidence.

Utilities – [WGL: 33.54, -0.10 (-0.30%)] YTD: -5.51%, [ED: 43.79, -0.10 (-0.23%)] YTD: -2.03%, [FPL: 47.08, -0.29 (-0.61%)] YTD: 13.57, [XLU: 29.83, -0.20 (-0.67%)] YTD: -6.13%

Even with their lofty dividends, the utilities stocks were able to keep pace through the first third of 2009.  WGL and Consolidated Edison have chugged along steadily, but Florida Power and Light has been the real star this year.  They are owners of the most envious wind generation portfolio in the country and have extensive build-out plans over the course of the next few years.  Again, this is a company that will no doubt benefit from President Obama’s stimulus plan and his plan to move to renewable energy sources as quickly as possible.

Outlook

We will continue to track this picks for the rest of the year and by no means are chalking this one up as a win just yet even with our hot start.  At this point we remain cautiously bullish on our companies and fairly neutral on the market over the short term mainly because the rally has occur so quickly.  If you want to read extremely detailed analysis about these 27 companies you can visit the following link and download our newsletter free of charge.  We will be releasing a new newsletter later this week entitled “Stocks For An Economic Recovery” that will highlight stocks that stand to benefit the most when the economic data begins to turn around.  Lastly, we would like to thank all of our readers and newsletter subscribers for their continued support through these tough economic and financial times.  Best of luck investing!

- Charles W. Petredis

Disclosure: The mutual fund the author manages has long positions in MCD, WMT, NE, APA, GS, XLF, ABT, TEVA, GILD, FLR, AME, CERN, PX, ED, and FPL.  The authors family has long positions in MCD, WMT, NE, NOV, APA, ABT, CERN, XLY, XLP, XLE, XLF, XLV, XLI, XLK, XLB, and XLU.  The author has long positions in APA, and NE.

Southern Company

Southern Company is one of the largest electricity producers in the United States, distributing to approximately 4.3 million customers. When I first wrote about this company back in October, it appeared to be positioned extremely well for the turmoil that was occurring in the market. It boasted a Beta of just 0.39, ROE of 14.18%, and a dividend yield of 4.69%. On top of this, the company estimated positive EPS growth for both 2008 and 2009. All of these numbers were favorable and gave very little reason to expect anything but success from this company. However, I think there are a few reasons why Southern has underperformed the Utilities SPDR [XLU: 29.83, -0.20 (-0.67%)] by around 9% since last October. The company remained relatively flat through the rest of the year, but has suffered significantly so far in 2009. Southern is down nearly 20% year-to-date, which can mainly be attributed to the decline in the housing market and the overall economy. Decline in the housing market directly affects this company, as it is a major distributer to residential areas. The company reported first quarter earnings on April 29th and beat expectations by one cent. This may be a sign that the housing market is beginning to rebound, but I expect Southern Company to realize very little EPS growth this year. It is hard to say exactly why this company has suffered recently, and I expect them to rebound slowly because of their proven track record of constant returns.

Equitable Corporation

EQT Corporation, which was formerly known as Equitable Resources, operates in the Appalachian region and engages in natural gas production, distribution, gathering and processing, transmission, and storage. It holds extremely large positions in the Lower Huron, Cleveland, and Marcellus Shales. I was initially drawn to this company for a number of reasons, the very attractive ROE of 18.46% and ROI of 8.14%, but more importantly EQT was positioned so well for success moving into the future. It had committed between $900 million and $1 billion to Capital Expenditures for 2009 while its Midstream segment realized tremendous growth in 2008. This has been rewarded by the market, as Equitable is up around 6% YTD, which is approximately 9% higher than the Energy SPDR [XLE: 58.372, -0.098 (-0.17%)]. Equitable Corporation reported earnings on April 30th of $0.55 cents per share, which is down from $0.57 cents per share for that same period last year. This can be attributed to a decrease in revenue that came as a result of lower commodity prices. Although revenue will probably continue to fall throughout 2009, there is plenty of reason to believe that this company will rebound in 2010 and continue its success.

Tying It All Together

There is a lot that can be taken away from comparing the performance of these two stocks. I always would have considered an electric utility to be a lot more stable than a natural gas producer. However, the overall market recession and suffering housing market has greatly affected Southern Company. It is impossible to predict what is going to happen in the future, but even after writing this, I am still attracted to high dividend utility stocks. EQT Corporation, on the other hand, is definitely a stock that should not be ignored. It is hard to say how it will perform throughout the rest of this year because of commodity prices, but it is positioned so well for the future that I still think it is a great long term play.

-Mark Kinsella

Disclosure: None

Florida Power & Light:  FPL [FPL: 47.085, -0.285 (-0.60%)], the electric utility provider in South Florida and leading wind energy generator in the United States, has built its investment profile on providing its equity holders a comfortable yield.  Currently, the company is boasting a yield that just tops 4%.  With an aggressive wind enterprise that requires substantial capital expenditures, this company’s yield in the long-term could be considered on shaky grounds. However, this will not be the case, as FPL will continue to stick to its core values.  The company has a strong history of dividend growth, listing this initiative as one of the company’s “value propositions.”  On a compounded annual growth basis, FPL has raised its dividend 7.2% since 2002 to the over 4% yield it is today.  While some may say that is backwards looking, just this quarter FPL raised its yield another 6%, cementing the commitment to its investors even in this financial crisis.  Finally, as Exelon Corporation [EXC: 44.19, -0.74 (-1.65%)] continues to pursue NRG Energy [NRG: 22.16, -0.78 (-3.40%)], one can make a case that FPL has the strongest balance sheet in the entire utilities sector.  As one of only three power companies with a rating of A, and 70% of its EBIDTA locked up through the end of this year, rest assured that this 4% yield will make it through and continue growing.

CPFL Energia: Ok, ok, bear with me on this one.  As of Wednesday, CPFL Energia [CPL: 62.32, -0.05 (-0.08%)] boasts an astounding 10.2% yield.  Old school investment theory would tell you that this is a result of a significant price depreciation that will ultimately spur a dividend cut.  However, CPL defies this principle.  For starters, the stock price has held up relative to the overall market and the utilities sector.  Last year, CPL lost 25.6% of its value, while the utilities spider [XLU: 29.83, -0.20 (-0.67%)] lost a little over 28%.  Year-to-date, CPL has actually appreciated approximately 2.2%.  But why keep this amazing yield?  CPL has an interesting company policy in which, at minimum, the company will pay out 50% of its net income on a semi-annual basis.  Despite this policy, since the second half of 2006, the company has paid out nearly 75% of its net income in the form of a dividend. Obviously, the health of the dividend does depend on the company’s ability to produce strong earnings.  However, as the largest utility company in Brazil based in the center of the country’s industrial operations, do not expect CPL to be losing money anytime soon.

Consolidated Edison – Consolidated Edison [ED: 43.78, -0.11 (-0.25%)] has been a mainstay on Wall Street for over 100 years, quite literally, as Con Ed has been the electricity provider for Wall Street as well as the rest of the New York Metropolitan area since 1884.  With this history comes a foundation in which Con Ed has built itself on as a stable, trustworthy, long-term investment suitable for a wide variety of investors.  The basis for this foundation: dividends.  Consolidated Edison is one of only two utilities companies in the S&P 500 to increase their dividend consistently since 1975.  That is over 30 years of dividend growth.  Currently, the yield stands around 6.5%.  Con Ed is a company that has built itself on dividend payments and will continue to do so.  Just this year, the company boosted its yield another 100 basis points.  With its firm place in New York City, the face of this company is safe, and so is its dividend.

Dominion Resources – Dominion Resources [D: 39.72, +0.07 (+0.18%)] is a large cap electric utility company based in Richmond Virginia.  Currently, the company is yielding an attractive 5.8%.  With 2009 being the company’s 100 year anniversary, expect more of the same in terms of distributions to their loyal investors.  For starters, Dominion operates in an ideal regulatory environment, allowing the company to comfortably predict revenue streams, while making assertive forward looking statements on the future of its dividend payouts.  In 2007, the company’s board of directors set a policy in which the company is to attain a 55% payout ratio by 2010.  Due to this policy, Dominion announced that it expects to increase its dividend 11% in 2009 alone.  With this 11% growth in 2009, Dominion will grow its yield 26.8% since 2006.  This historic growth, coupled with the company’s stated expectations, should be the assurance any investor needs to put trust in the dividend yield of this southern belle.

Southern Company – Southern Company [SO: 32.44, -0.06 (-0.18%)], with operations on the southeast coast of the United States, currently offers a commendable yield of 6%.  In 2008, Southern was the definition of stability, outperforming the utilities sector by an astounding 28%.  While the company has had its struggles in 2009, it has still set its target payout ratio to a range of 65-70%.  Although the last dividend increase was in April of 2008 (a 4.3% hike), Southern has 245 consecutive quarters of dividend payments under its belt, and there is no indication that these cash flows will run dry anytime soon.

-TJ Smith

Disclosure: The mutual fund the author is associated with is long SO, ED, and FPL.

WGL Holdings (WGL)

WGL Holdings is the dominant natural gas provider in the greater District of Columbia area. The company provides its natural gas services in parts of Virginia, Delaware and Maryland. The company has two subsidiaries: a regulated distribution entity, and a non-regulated retail energy commercial and governmental wholesaler.

With a market cap just under $2 billion and a customer base pushing 200,000 clients, their scope and stability may be overlooked by the casual investor. The truth of the matter is that WGL Holdings has one trump card that has it sitting amongst the big boys in the utilities sector: location, location, location. The core of their business base is centered in the Greater Washington D.C. Metropolitan area, one of the wealthiest in the nation… and one of the least dependent on the financial services industry in the United States.

WGL’s base in Washington DC has it centered in the 4^th largest regional economy in the United States with the lowest unemployment rate of any metropolitan area. Furthermore, WGL provides natural gas in 7 of the 15 wealthiest counties in the United States. In this area, over 60% of residents choose natural gas as the fuel source for home heating, all of which predominately from WGL. In 2007 alone, WGL was able to capture 91% of new residential customers, clearly making the company the superior choice for natural gas in this wealthy market.

While the current recession has America reeling, WGL’s customers aren’t in danger of significant financial distress relative to most other locations in the country. Demand levels have remained relatively flat and should continue to weather the storm into 2009, making WGL’s performance slow but steady. In fact, whether the economy is good or bad, WGL’s stock price typically remains tempered and predictable. Over a five year time horizon WGL has appreciated a mere 14%, while losing a modest 7.2% in the treachery that was 2008. The company has proven to be a safe haven investment that can outpace a down market, while bringing a safe, casual return in an up market. Therefore, even as the timing of the market’s turnaround remains debatable, WGL provides a good balance of potential appreciation with downside safety that makes it a unique and appealing choice as investors brace for 2009.

By the numbers, WGL is set up very well to go about business as usual in 2009. The company has a price to earnings ratio right around 13 and a book value to sales ratio of .61, making them relatively cheap despite an above average 2008. In addition, the company has tiny beta at .14, a testament to their safety and stability.

The rest of this free research report can be downloaded at the following link for Bullish Banker’s Best Stocks of 2009 Newsletter.

- T.J. Smith

Disclosure: None.

Inside The Numbers

Dominion experienced such results in the fourth quarter mainly from lower taxes and lower operating and maintenance expenses.  On top of this, it had lower outage costs at its generating units.  Despite the economic conditions of 2008, all of the company’s business areas met expectations.  This was due in large part to a number of new projects that were  either completed or launched successfully.  Some of these were the completion of construction projects that will bring Virginia closer to energy independence and the approval of new pipelines that will help relieve congestion in some areas down the road.

Dominion also discussed its guidance for the future.  The company expects earnings per share between $3.20 and $3.30 in 2009 and EPS between $3.33 to $3.50 in 2010.  This will be driven in large part to the company’s expectations of about 30,000 new customers in 2009.  Also, Dominion is confident that earnings per share will grow by at least 6% from 2011 onwards if the economy returns to normalcy.

Final Thoughts

Dominion Resources is positioned very well for success in 2009.  It holds a very strong share of its market and looks to grow this moving forward.  Also, it is currently in the middle of a number of projects that will contribute to consistent bottom line growth in the upcoming years.  On the electrical side of the business, there is currently no reason not to believe that Dominion will be able to continue adding capacity in the upcoming years.  In natural gas, Dominion holds a very substantial share of the Marcellus Shale in the Appalachian region.  These are very low risk, long term reserves that will bring in consistent earnings in the upcoming years.  Another reassuring point is that Dominion has been able to grow its earnings in four of the past five years.  This is a big positive and Dominion is positioned very well to continue this success even with our current economy.  We all know how bad the economy is, so it is very reassuring when a company still finds ways to beat expectations.  Of course, another big positive is Dominion’s dividend yield of 4.90%.  I find it very hard to ignore companies that boast high dividends and steady growth (the utilities sector as a whole) when the markets are so volatile.  This is something to remember and I’m curious to see how Dominion performs with our current economy.

-Mark Kinsella

Disclosure: None.

Consolidated Edison’s earnings in the fourth quarter were affected by mark-to-market losses in their competitive energy business and a 2 cents per share loss on the sale of Con Edison Development’s generation projects and discontinued operations. For the full year, the cumulative gain on the sale of Con Edison Development’s generation projects and discontinued operations, the settlement of their litigation with Northeast Utilities, a net loss in mark-to-market in their competitive energy business, and reduced electric demand in New York and the wholesale market caused the variation between 2007 and 2008 earnings per share. Kevin Burke, the company’s Chairman, President and Chief Executive Officer said, “Our 2008 financial performance reflects the significant capital investments we have made in our infrastructure to meet the growing energy needs of our customers and the successful completion of the sale of our investment in Con Edison Development’s generation projects.”

Looking to 2009, the company is projecting capital expenditures of $2.6 billion in order to improve current infrastructure at it’s regulated utilities. Con Ed expects to issue common stock of somewhere between $300 million and $550 million and issue long-term debt at of between $1.1 billion and $1.8 billion in addition to a debt issuance for maturing securities. They will also report guidance for 2009 in late March, after the New York Public Service Commission issues a ruling on the company’s pending rate case.

Outlook

It should not come as a big surprise that Con Ed reported sub-par earnings during the fourth quarter. While utilities are known for their stability of cash flows and strong dividends because of guaranteed revenue contracts through rate cases, the economic downturn is affecting every facet of the economy, including the utilities. The New York housing market has been among one of the worst hit regions with prices down over 14% and inventories at record highs, all of which has contributed to reduced electric demand throughout New York. The labor market in New York is also not something to write home about. Given the plight of the banks and the rest of the financial universe, the labor market in the city has seriously deteriorated, which means less residential and commercial demand for electricity. Overall, through October, electricity demand in New York city is down 5.3%, compared to a national average of 1.1%, highlighting the disparity between the bleak situation and New York and the rest of the nation. Con Ed also lacks diversified fuel generation sources, which does not bode well, given President Obama’s policies. Overall, I would not expect much from Con Ed going forward, given lack of growth prospects, the deterioration of electricity demand in New York, and the state of the labor and housing market in the region.

-Vinay Ayala

Disclosure: The mutual fund that the author manages is currently long ED

Inside the Numbers

The earnings surprise this morning was primarily due to higher energy margins at Exelon’s Generation division with increased nuclear output and lower purchased power costs. There were also lower costs associated with plans for a new nuclear plant in Texas and lower interest expense at Generation. These gains however were diminished by decreases in income tax benefits, higher operating and maintenance expense at Generation, and higher depreciation and amortization expenses.

A couple large after-tax items continued to have their effect on Exelon’s bottom line this past quarter with mark-to-market gains of $93 million, or $0.15 per diluted, and an unrealized loss of $68 million, or $0.10 per share, due to the decommissioning trust fund investments for AmerGen nuclear plants.

NRG Bid Continues

With the probable takeover of NRG Energy looming, the potential benefits remain clear for the combined efforts of the two energy giants. The pro forma NRG/Exelon giant would be the largest US power company based on generating capacity with 51,000 MW while attaining the lowest carbon emitting intensity in the industry. With a meeting between NRG shareholders and Exelon scheduled in the next few months, a deal is expected to be finalized during the fourth quarter of 2009 with projected synergies of $1.5-3 billion.

Looking Forward

As market conditions continue to deteriorate around the globe, energy consumption has fallen but upper management at Exelon feel very comfortable with their company’s position as they reaffirmed its guidance for full-year 2009 non-GAAP earnings of $4.00 to $4.30 per share and first quarter 2009 earnings of $1.10 to $1.20. Some things to be concerned with will be continued mark-to-market adjustments, the realization of losses from the AmerGen trust fund investments, any extensive roadblocks with the NRG [NRG: 22.15, -0.79 (-3.44%)] takeover, and the volatility of energy demand.

John W. Rowe, Exelon’s chairman and CEO, reiterated,

“Despite the impact of the deteriorating economy, we achieved our 2008 goals of operating excellence in generation and delivery, setting the industry standard for our low-carbon platform and evaluating and pursuing appropriate growth opportunities. We expect 2009 to be a year of many challenges, but we will work to mitigate the impact and are reaffirming our operating earnings guidance range of $4.00 to $4.30 per share.”

Liquidity Position

As companies continue to fight the never-ending pain of liquidity, Exelon has positioned itself as best it could for this credit crisis. After issuing over $2 billion in bonds in 2008 to refinance or repay outstanding debt, Exelon has only $29 million in long-term debt in 2009 with $7.3 billion in bank commitments from a group of 23 different institutions.

Where Next

As the markets continue to buoy between insanity and reality, Exelon has maintained a sane position in this economy and has proven today with its latest earnings release that they are sticking to their marks and positioning themselves for a strong run once this economy turns around. A few doubts still remain with the NRG bid, but barring any unforeseen hurdles in the coming months, anything short of a global collapse should not prevent this deal from going through. Once done, Exelon will be the premiere player in the U.S. and be a contender for the top spot worldwide. As I wrote last fall after their third quarter report, I see great value in this company and would stay aware for a good buying opportunity.

- Chris Barrella

Disclosure: The mutual fund the author is associated with is long EXC.

Exelon’s fourth quarter results were driven by significantly higher margins on their generation operations, primarily due to their increased usage of nuclear energy, with lower purchased power costs also contributing to their margin expansion.  Furthermore, the company saw an increase of distribution revenue at their Commonwealth Edison Company, better known as ComEd.  The Illinois utility subsidiary’s revenue increase came on the heals of a 2007 rate case increase.  Finally, Exelon saw a substantial decrease in their interest expense at generation, in large part because they purchased less energy outside of operations in the fourth quarter of 2008.

Furthermore, the fourth quarter of 2008 saw Exelon make an offer, later turning hostile, to wholesale power company, NRG Energy [NRG: 22.15, -0.79 (-3.44%)].  The proposed merger would make Exelon the largest power generator by megawatts in the United States.  In the earnings call, management at Exelon expressed that they will continue to pursue NRG, and that they have turned their efforts into finding independent nominees to serve on NRG’s board of directors.  Exelon said it was committed to finding board members that “will fulfill their fiduciary duty by acting in the best interest of NRG shareholders.”  Earlier in January, Exelon extended its $6.5 billion offer to NRG until February 25^th.

In total, Exelon lost 27% of its total equity value in 2008, in line with the utilities composite which also lost approximately 27% of its value.  As can be said about most utilities companies, Exelon was anything but the safe haven that companies in this steady sector historically known to be.  However, with the industry’s top balance sheet and largest credit line, Exelon’s stature and growth have made it a top player in this industry now and looking forward.  This same scope has put Exelon in position to make an acquisition like NRG, which will only increase the scale and market dominance of Exelon in the long term if it is to be finalized.  In either case, Exelon has the make up of a best of breed company within the utilities sector, one of which that will continue to bring investors steady and stable earnings in the long term.

-T.J Smith

Disclosures: None.