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Four to buy

David H.M. Baker ( -- There are four large-capitalization stocks that have growth opportunities, strong brand recognition and are at compelling levels.

Ford (F , Trade); Dupont (DD , Trade); McDonalds (MCD , Trade); and Pfizer (PFE , Trade).

Investors should use extreme negative market sentiment and bear-market psyche to own some of the best, most well established companies in the world at a bargain. These are stocks to own and put away for your retirement.

The market will need to trade considerably lower for these stocks to hit their long-term "buy" targets, but be prepared to move if the market moves into a panic-selling mode.

Getting Into Gear

Ford is one of the leading automakers in the world and the company has made a substantial effort towards spinning off disparate pieces. Automakers were the first to feel the pain of the economic downturn and if it becomes more protracted than many expect the shares could feel more pain over the next 12 months.

The long-term buy target on this stock looks to be in the neighborhood of $22, which is 24% below current levels. Consensus earnings-per-share (EPS) estimates are $3.25, $2.57 and $3.06 for fiscal years 2001-2003, respectively.

Dupont, a more than 100-year-old stalwart in the chemical industry, has in recent years attempted to diversify businesses with little success. Given the recent actions of selling its Conoco (COC/A , Trade) unit and noise around potential divestiture of Dupont's pharmaceutical unit leads me to believe the company may begin to focus more on the core chemicals business.

That would be a prudent move and should provide better shareholder value over the long-term time horizon. The most attractive buy target looks around the $28 level, or 34% below current levels. Consensus EPS estimates are $2.31 and $2.78 for fiscal 2001 and 2002, respectively.

No Clowning Around

McDonald's is one of the most recognizable brands in the world, rivaling Coca-Cola (KO , Trade). The company has encountered difficulty growing at its historic rate and recently the Mad Cow scare and outbreak of foot-and-mouth disease in Europe has really hit these shares. The stock is trading at its 52-week low and the investor sentiment around the company is as negative as I can remember.

But the company is diversifying into diners, pizza and more-casual eating, which should pay off in the long-term. This stock is by far the closest to its long-term buy target of $22, which is only 14% below current levels and right on top of the 200-day moving average. Consensus EPS estimates are $1.53 and $1.70 for fiscal 2001 and 2002, respectively.

Pfizer has an exceptionally strong drug pipeline, and excitement around Viagra and a few other drugs propelled the stock in the past. The company will generate solid returns to patient long-term investors, but investors should try to own it at a discount to the historic valuation. The right entry point looks like $31, with support at $26. This correlates to a 16% gap to the projected buy point and nearly 30% to its long-term support line. Consensus EPS estimates are $1.30, $1.59 and $1.87 for fiscal years 2001-2003, respectively.

Keeping Up With Trend Lines

Investors should understand that these four companies may never reach these buy points, though buying in if these stocks approach but do not reach such prescribed levels may be a good idea. If we get a severe single day or week downturn where investors throw out the baby with the bathwater, the price targets here represent attractive long-term purchase points.

Another factor to consider is that many investors believe that it is extremely bearish if any stock breaks a long-term trend line. These levels should be watched and would be $20 for Ford, $22 for McDonald's, $26 for Pfizer and $27 for Dupont.

My advice would be to take small positions as these stocks approach long term target levels in the range of 1-2% portfolio positions and dollar cost average if the shares hit the targets.

(c) 2001

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