With stock valuations higher than historical norms, what's an investor to do?
Matt Coffina, editor of Morningstar's StockInvestor newsletter, cites three solid stocks with reasonable valuations: healthcare real-estate investment trust HCP Inc. (Ticker: HCP), master limited partnership Enterprise Product Partners (EPD) and oil-services firm Schlumberger (SLB).
As for HCP, it's a solid choice if you think the S&P 500 will return only 6.5 to 8 percent going forward, as Coffina does, he said on Morningstar.com.
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HCP is likely to offer a total return between 8 and 9 percent, with the dividend growing about 3 percent a year, Coffina said.
Enterprise Products Partners is the largest MLP. "It yields about 4 percent, and it's growing the distribution about 6 percent a year," he said. And the company has strong cash flow.
As for Schlumberger, "this is really the leading oil-services firm worldwide," Coffina said. "They have more scale, more executional expertise, operational expertise, and just talent around the world than any other oil-services company."
S&P Capital IQ analyst Stewart Glickman gives Houston-based Schlumberger a four-star (out of five) buy rating.
"We project that revenues will rise 8 percent in 2014 and 10 percent in 2015, accompanied by moderate operating margin expansion," he wrote in a report.
"While North American land margins have been under pressure of late due in part to excess service capacity, we think SLB is focused on improving its services mix toward higher-end technologies and thereby widening margins."
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