Time to take more risks on shares

INVESTOR FOCUS:AS INVESTORS make their resolutions for 2011, many should resolve to take on more risk.

Owning a piece of American businesses has been a wise strategy, long-run. In that spirit, here are my 10 favourite stocks for the coming year.

I will start with two technology companies. One is Western Digital, which I believe is undervalued at six times earnings. It is the world’s second-largest maker of computer disk drives.

The other tech company I like is Intel. This year nine Intel insiders have bought company shares. Intel has also raised its dividend six times in the past five years. Both indicate that management believes better times are ahead.

In the energy industry, Transocean, with headquarters in Switzerland, appeals to me as a leader in deep-water drilling. Its 16 per cent decline this year sets it up for a rebound in 2011.

GT Solar International has had a good run, up about 62 per cent, yet it sells for only 10 times earnings and I believe there is room for further gains.

In finance, my choice is Goldman Sachs. The investment bank has been vilified for betting against a mortgage security it created, for high-speed trading and for handsomely paying its executives. These criticisms have helped to whittle Goldman’s stock price down to less than nine times earnings. That’s a low valuation for a talent-rich company.

I like several of the big drug companies, notably Johnson Johnson, which has increased its dividend five times in the past five years. Its stock, which has sold for a median of 18 times earnings the past decade, currently fetches only 13 times earnings.

Among Chinese stocks, I like China Advanced Construction Materials, which produces concrete and provides technical advice for large development and infrastructure projects.

Mantech International provides IT services for the US government, especially the intelligence and military agencies. In today’s world, this seems a promising niche.

Sparton is a micro-cap company which manufactures sonic buoys for the navy, medical equipment and electronics. I think the last division could be improved and then sold, providing cash to fuel the growth of the first two, which are more profitable.

Last is a risky pick, Amedisys. The home-nursing company is under investigation on suspicion that it overcharged Medicare. The likely outcome in my opinion is an out-of-court settlement.

Disclosure: personally and for clients, I own all 10 stocks discussed in this column. – (Bloomberg)

John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own.