The hottest investments in 2009 have been, in no particular order:

  1. Emerging market stocks, especially Chinese stocks
  2. Bonds
  3. Risky, debt-laden U.S. stocks

Following the bludgeoning we took last winter, it's no surprise that investors have either sought lower volatility in the fixed-income market or have tried to regain some ground in more volatile equities.

Those sectors may have been the market's strongest buys last November, as the market was extremely risk averse, but not this November. No, the market's strongest buys today are in the very areas that investors at large have been ignoring this year -- namely high-quality, U.S.-based blue chips.

Boo this man!
In his most recent quarterly letter to investors, GMO Capital's Jeremy Grantham argued that "Quality stocks (high, stable return and low debt) simply look cheap and have gotten painfully cheaper as the Fed beats investors into buying junk and other risky assets."

It's these companies, after all, that not only have the balance sheets to withstand another shock to the economy in the coming years, but also generate a substantial amount of their earnings overseas -- a bonus for those who believe in the emerging market growth story and the need for diversification away from the U.S. dollar.

Incredibly, investors have largely shunned a number of high-quality U.S. blue chips in favor of the aforementioned three alternatives.


  • Stock funds dedicated to the BRIC countries -- Brazil, Russia, India, and China -- have had inflows of $4 billion year-to-date.
  • Through September, taxable and municipal bond funds took in $267 billion, versus just $4 billion for stock mutual funds.

And that means the savvy investor can find some excellent opportunities.

Best buys now
With many investors' attention turned elsewhere, here are five U.S. blue chips that deserve some extra research right now.

To find promising, long-term candidates, my search targeted companies with:

  • Return on equity greater than 15%
  • Interest coverage (EBIT/interest expense) over 10
  • Price-to-free cash flow below 20
  • More than 20% of sales overseas


Return on Equity

Interest Coverage

Price-to-Free Cash Flow

% of Sales Overseas (TTM)

Cisco Systems (NASDAQ:CSCO)










Wal-Mart (NYSE:WMT)





Best Buy (NYSE:BBY)





Procter & Gamble (NYSE:PG)





Data from Capital IQ, as of Nov. 6. TTM = trailing twelve months.

Now compare these high-quality companies with the financial health of two stocks that have led the junk rally since early March: Las Vegas Sands (NYSE:LVS) and International Paper (NYSE:IP).


Return on Equity

Interest Coverage

Las Vegas Sands



International Paper



Surely congratulations are in order for investors who bought into Las Vegas Sands and International Paper in early March when the market was avoiding risky assets -- both have since become multi-baggers.

But these "frog to prince" stories have not only played by now, but another downturn in the economy could further rattle these highly leveraged companies.

Coming full circle
At the end of the day, investing is not just about buying low and selling high. It's about being comfortable and understanding what you own. If you don't, you're more likely to panic and make poor trading decisions. In today's market you can have the best of both worlds through buying quality U.S. large caps at good prices.

Simply put, they're the market's strongest buys right now.

I've already given you five ideas to get started, but if you want to find similar ideas for yourself, start by looking for companies with the following qualities.

  1. Built to last 100 years or more
  2. Dominating growing industries
  3. Helmed by committed and proven management teams
  4. Governed by the highest corporate values
  5. Consistently increasing shareholder value

Our Motley Fool Stock Advisor service believes that Costco fits the bill perfectly, and it has a place in the team's list of recommended "Core" stocks for any portfolio. If you'd like to learn about the other stocks we're recommending at Stock Advisor, a free 30-day trial to the service is yours. Just click here to get started.

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Fool analyst Todd Wenning wishes you a happy Thanksgiving. He owns shares of Procter & Gamble, a Motley Fool Income Investor recommendation. Best Buy is a Motley Fool Stock Advisor selection. Best Buy, Costco, and Wal-Mart Stores are Motley Fool Inside Value recommendations. The Fool owns shares of Oracle, Best Buy, Costco, and Procter & Gamble. The Motley Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.