Economists and researchers believe data for the fourth quarter demonstrate that the fiscal cliff could hammer growth between now and year’s end. If so, the stock market may take a steep tumble as it faces poor earnings, flattened gross domestic product and slow employment growth. Add to these a recession in Europe and slowing growth in China, and the American expansion may be hit by a huge wall, interrupting whatever halting progress was made in the first three quarters of the year.
Investors have turned to Treasuries for safety, but the yield on these is so low people might as well put their money in a savings account. A search for higher yield may have dangerous consequences because low earnings can force corporations to cut dividends in the hope of saving cash. Investors in the stocks of these troubled companies are hit twice. The first hit is lower stock prices and the second is a loss of yield.
However, a few stocks are likely to hold high yields because of the strength of their balance sheets and businesses that may be dented, but not broken, by a rough economic period. Here are four of those.
Verizon
Verizon Communications Inc. (NYSE: VZ) has a yield of 4.6%. The company has stayed out of the M&A fray that has engulfed several other companies in the sector. AT&T Inc. (NYSE: T) management spent a great deal of time on the T-Mobile buyout, only to be thwarted by the U.S. government. For the privilege of the broken deal, it paid T-Mobile’s parent, Deutsche Telekom, more than $3 billion. T-Mobile may finally find a growth partner in MetroPCS Communications Inc. (NYSE: PCS), but a merger will still leave it in fourth place in the U.S. market. The third place player — Sprint Nextel Corp. (NYSE: S) — will go through a complex buyout by Softbank. Sprint management will stay in place, but it is the same management that has ruined the company. Verizon’s wireless business, in the meantime, will be bolstered by sales of the Apple Inc. (NASDAQ: AAPL) iPhone 5. The company faces attrition of its landline customers, which almost certainly is priced into the stock. Its fiber-to-the-home Fios product has shown reasonable growth.
Microsoft
Microsoft Corp. (NASDAQ: MSFT) has a yield of 3.2%. The world’s largest software company will get a substantial earnings boost from the launch of Windows 8 later this month. Its enterprise Office and Server divisions continue to post rising revenue. The Xbox finally has become profitable and, with faltering sales at rival Nintendo, the Microsoft Game division should be lifted by holiday sales. Microsoft has two other big opportunities. One is the release of its Surface tablet. It moves into a crowded market in which Apple and Amazon.com Inc. (NASDAQ: AMZN) already have most of the share, but customers who like the Windows OS likely will buy the new machine. Furthermore, if Nokia Corp. (NYSE: NOK) and Microsoft can boost sales of Nokia smartphones, the Windows mobile OS may finally get reasonable sales. And, finally, among Microsoft’s strengths is a balance sheet with $65 billion in cash and short-term investments.
J.P. Morgan
Despite a loss of what could be more than $4 billion from botched trades by its London operation and a management reorganization caused largely by that problem, J.P. Morgan Chase & Co. (NYSE: JPM) shares yield 2.9%. Whatever trouble the bank faced because of London has been nearly forgotten because of third-quarter earnings and upbeat statements about the housing market made by CEO Jamie Dimon. Shares in the financial firm have risen close to the 52-week high of $46.49, with the stock trading near $42. The stock’s 52-week low is $28.28. A report on the bank in Barron’s said:
By announcing strong quarterly results, and saying it “effectively closed out” its ‘London Whale’ position, the bank should attract more investors.
Boeing
Boeing Co. (NYSE: BA) currently has a yield of 2.4%. After years in the earnings wilderness because of the ongoing launch problems of its 787 Dreamliner, a huge number of plan orders have buoyed both earnings and revenue. The 787 already has a backlog of orders. And there is a renewed interest in the Boeing workhorse, the 737. The short-haul plane is part of the efforts of many airlines to upgrade their fleets. One of Boeing’s oldest planes — the 747 — has been stretched to add more capacity for either passengers or freight. The biggest advantage Boeing has is the rise of plane orders in Asia, particularly in China. The market in the People’s Republic is expected to surge as the rising middle class travels more frequently. Boeing’s final advantage is the it is in one of the few global businesses in which there are only two companies — Boeing and Airbus.
Douglas A. McIntyre
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