The 10 Best Stocks for 2010

'Tis the season for predictions of all kinds -- and we stock pickers are no different. This year, 10 of The Motley Fool's top analysts have each identified one stock pick for our Stocks 2010 special report.

This is nothing new. We've been doing so annually since 2003. So far, so good. In six out of seven years, our picks have beaten the market; the average pick has gained 22.5%, while the market's been slightly down.

But before I highlight the most intriguing of this year's Fool picks, let's take a look at what the competition is recommending.

One contender               
Fortune recently unveiled its 10 best stocks for 2010:

Company

Country

Industry

P/E ratio (trailing)

MasterCard (NYSE: MA  )

United States

Credit cards

24.0

Amedisys

United States

Health care

10.9

Qualcomm (Nasdaq: QCOM  )

United States

Telecommunications

49.2

Petrohawk Energy

United States

Oil and natural gas

N/A

Baxter International

United States

Health care

16.5

Quanta

United States

Utility networking

25.11

salesforce.com (NYSE: CRM  )

United States

Business services

>100

American Tower

United States

Communications towers

54.2

Renhe

China

Air raid shelters/shopping malls

13.1

Vornado

United States

Realty trust

>100

Sources: Fortune and Yahoo! Finance.

I won't dwell too long on this list, but it includes some interesting choices.

MasterCard, for instance, heads up a category that I label "interesting but pricey." As the world converts to a largely cashless society, I admire the company's business model, and that of its co-dominator Visa. But at 20-plus times trailing earnings in a still-deleveraging economy, neither strikes me as a screaming bargain at current prices. Of course, they've got such strong network effects that a few years from now, I could be kicking myself for missing out ... much like my fellow Fool Joe Magyer, who missed out on a 2,000% gain by selling Apple (Nasdaq: AAPL  ) too early.

The only non-U.S.-based company on the list wins the "Huh?" prize for its business model. Renhe double-dips by building air raid shelters for the Chinese government, and then renting them out as shopping malls. With strong growth expectations and a 6% dividend, the stock seems too good to be true at 13 times earnings -- especially since you have to buy the stock on a Hong Kong exchange. When considering a too-good-to-be-true Chinese small cap, I like the comfort of knowing that a company has gone through the disclosure hurdles of being listed on a major U.S. exchange.

The most intriguing company? Home-care specialist Amedisys. It pops up on a screen I do regularly for the most undervalued stocks in the market. Unfortunately, all health-care companies from Pfizer (NYSE: PFE  ) to UnitedHealth (NYSE: UNH  ) face the same key question: How much will health-care regulation affect earnings?

In Amedisys's case, Medicare reimbursement makes up the great majority (almost 90% recently) of its revenue. So it certainly has risks, but at a cheap enough price, those risks matter less. Take it with a grain of salt, but the chief investment officer of one of Amedisys's largest shareholders agrees, saying, "The market is trading as if earnings will be cut in half."

The Motley Fool's 10 stocks for 2010
So what are we recommending for 2010? Our Stocks 2010 special report includes one pick each from 10 of our top analysts -- including a Chinese blue chip, a dividend-paying commodities play, and a rule-breaking franchise.

But of the 10, Jim Gillies's pick intrigued me the most.

Jim has chosen Somanetics, a health-care small cap whose machines monitor oxygen levels in patients' blood during and after surgery. There are certainly risks (the possibility of increased competition or future negative clinical data chief among them), but the company has a lot of positives.

It's a growth company that is already throwing off lots of cash flow. Its balance sheet is rock-solid, with no debt and enough cash and short-term investments to buy back a quarter of its shares at current prices.

If you're fearing the unknown effect of government regulation -- as with Amedisys earlier -- Somanetics' management isn't. Executives believe regulation won't affect the company much, positively or negatively.

All of which makes it a prime takeover candidate -- Covidien (its distribution partner) and Johnson & Johnson (NYSE: JNJ  ) both come to mind. Of course, it also has the type of upside that ticks off investors if it does get taken over.

The other nine
You can read the entire Somanetics write-up, and discover the nine other featured stocks, in our Stocks 2010 special report. For a limited time, it comes free with a new membership in Stock Advisor, the Motley Fool's flagship newsletter. Every month, the Fool's co-founders make two stock picks; like Stocks 2010's predecessors, Stock Advisor recommendations have handily outperformed the market -- the average pick has bested the market by 50 percentage points since the service's inception back in 2002. Just click here to sign up -- you can cancel at any time.

Anand Chokkavelu owns shares of Pfizer. salesforce.com is a Motley Fool Rule Breakers recommendation. Apple and UnitedHealth Group are Stock Advisor recommendations. Pfizer, Covidien, and UnitedHealth Group are Inside Value recommendations. Johnson & Johnson is a Income Investor pick. The Fool owns shares of UnitedHealth Group. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2009, at 4:30 PM, QwertyHero wrote:

    The 6 best stocks to own in 2010 are as follows:

    ATVI

    SUNH

    SBLK

    DNN

    CTIC

    SNRY

    Disclsure: I own ATVI, SUNH, SBLK, DNN, CTIC, and SNRY.

    : )

  • Report this Comment On December 30, 2009, at 4:42 PM, TMFEditorsDesk wrote:

    @QwertyHero,

    I like it...putting your money where your mouth is! What's your favorite of the six and why?

    -Anand (TMFBomb)

  • Report this Comment On December 31, 2009, at 6:43 PM, greenwave3 wrote:

    SUNH is my favorite on Qwerty's list.

  • Report this Comment On January 06, 2010, at 7:25 AM, trade4wlth wrote:

    So I am a current MFSA subscriber, so why is it I can't access your Stocks 2010 special report without an additional subscription? Am I missing something?

  • Report this Comment On January 08, 2010, at 5:26 PM, Winnerfrommidlan wrote:

    When you say the average pick has bested the market by 50%, does that mean it has gained 70% when the market has gained 20%, or 30% when the market has gained 20%.

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