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The Stocks to Buy in 2007

You've got money, you've resolved to make this a banner investing year, and you're champing at the bit to buy.


The problem with free advice
You're going to read a lot (and probably already have) about U.S. large-cap growth stocks. Indeed, Cisco Systems (Nasdaq: CSCO  ) , PepsiCo (NYSE: PEP  ) , and Qualcomm (Nasdaq: QCOM  ) have all had strong years, and each could see further multiple expansion.

And then there's American Express (NYSE: AXP  ) , a storied brand widely owned by many of today's great investors, including Ken Fisher, Wally Weitz, and Richard Pzena.

Last year's laggards
Atop solid performance this year, U.S. stocks had a great 2006. Buoyed by Hercules (NYSE: HPC  ) -- up 71% -- and Pactiv (NYSE: PTV  ) -- up 62% -- the S&P 500 returned a rousing 15%. That's five percentage points better than its historical average.

So if these growthy giants are recovered from a few years of underperformance, and economists aren't expecting our economy to grow any faster than the usual 2%, what will make these names fly high going forward?

Get thee behind me, prediction
It's tempting to get caught up in these shortsighted crystal-ball games. We read about them in the news, and we pass judgment based on otherwise quite random 12-month periods.

But if you're eager to put your money to work, remember that you're doing so for more than a random 12-month stretch. If you aim to get rich, you're thinking about the next decade or more.

That's why I was heartened to read The Wall Street Journal advising investors that "2007 may be the year that the rest of the world helps pull up the U.S. stock market." Why? Because "Every major emerging economy is booming."

And that's true. The world's best returns last year made our own bull market appear puny indeed.

The emerging trend in emerging markets
But 2007 won't be the first year that emerging global economies help pull up U.S. investors. The global MSCI EAFE index has outperformed the S&P 500 annually since 2002.

Despite inevitable volatility, this trend is continuing in 2007 -- and U.S. investors should expect it to keep going for the next decade or more.

Countries such as India, China, and Slovenia have advantages the U.S. lacks, such as younger workforces, greater population growth, or economies with more significant upside potential. In other words, unlike U.S. large caps, the stocks in these countries have significant tailwinds.

Buy these stocks this year
Unfortunately, the recent outperformance of international equities has driven up these countries' average valuations -- making the ETF route a little less appealing, and the process of finding superior international stocks trading at great prices a little more difficult.

But if you want an investment strategy that will enrich you for the next decade, you must add superior international stocks to your portfolio in 2007. That's why we offer our new Motley Fool Global Gains international investing service, where our goal is to help more American investors earn the great returns that international stocks have to offer.

So if you're getting restless to put your money to work and want to see the stocks Global Gains is recommending in today's brand-new issue, click here to try the service free for 30 days. There is no obligation to subscribe.

This article was first published on Jan. 10, 2007. It has been updated.

Tim Hanson does not own shares of any company mentioned. No Fool is too cool for disclosure.

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10/26/2016 4:00 PM
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