Scott's Stock Picks - Expected Earnings

The S&P 500 index is generally a good investment. You can count on an average of 6-10% historically if you put your money into the index and never look at the stock market again.

So if you're going to pick individual stocks, they should beat the index. Here are Scott's stock picks. Stocks in the "Great buys" section should beat the index. The "Not So Great Buys" will most likely earn less than the index.

If you'd like to know where and how to purchase individual stocks, please read Avoid Broker Fees! Here Are the Best Places to Buy Stocks.

Great Buys

BA (Boeing) - I hate the high p/e, but the growth is there.

BAC (Bank of America) - Oh it's sad. I learn so much about stocks, but I should just ignore it all and simply follow Warren Buffett. At least now I see why he picks who he picks, and this is a good stock with great earnings and a huge dividend.

CAT (Caterpillar) - I like the fundamentals. Should return 9% this year if purchased around $67. Should be good into the future too.

CCL (Carnival Cruise Lines) - Good fundamentals.

COP (Conoco Phillips) - I'm baffled that the market is so slow to correct the price here. 6.97 P/E on an oil stock? What's taking so long here? It will happen, I just don't know when.

GOOG (Google) - It's too darn expensive (literally) for me to buy with my own money, but it's a good buy despite the high p/e.

ICO (International Coal) - This is sort of a risky play since they don't make much money, but since they own so much coal, the downside really isn't bad. Lots of potential.

PG (Proctor & Gamble) - They just keep making money.

PRS (Primus Guaranty) - Primus is so undervalued, you get about $12.50 in net cash for your $12.50 share. The credit swapping business is a free add-on.

USG (formerly US Gypsum) - Ride the Buffett train. Earnings were low, so this quarter will be quiet. But after that, great things will happen. Don't forget, when you lose money one year, you carry those losses forward on your taxes. Those carrovers will be huge for 2007's taxes. For more analysis:

Warren Buffett's Top Stock Pick of 2007? USG Corporation.

WLT (Walter Industries) - If you care about earnings, these earnings are as cheap as they get.

WU (Western Union) - Should outperform the market easily this year.

XOM (Exxon-Mobil) - Exxon won't be huge like in 2006, but it will still outperform the market while bearing less risk.

Not So Great Buys

AMZN (Amazon.com)- Tech stocks seem to still trade with high P/E's (91?!), but they don't have the growth prospects. That makes them ripoffs. Sorry Amazon, I'm going to have to buy you used on ebay.

BBBY (Bed Bath & Beyond)- Overpriced and only modest earnings growth.

BC (Brunswick) - I see growth, but this looks overpriced. Looks like I'm in the minority here, but I'm not impressed by Brunswick.

DG (Dollar General) - They'll be better off when they can offer $1 earnings per share. For now it's more of a 75-80 cents type of store, which is hardly a deal.

EK (Eastman-Kodak) - This stock is getting hammered. Could be a nice turnaround play in a couple years though, depending on how low the price goes.

F (Ford) - Earnings will double this year! Usually that's good, but we're talking about -$4 per share earnings growing to -$2. Ford is still a few years away from being a good buy.

GM (General Motors) - GM's turnaround isn't far off, but it's not here yet. I expect big things from GM in 2008 though.

HOG (Harley Davidson) - Buy a Harley, but don't buy Harley stock.

IBM - IBM will do fine, but won't outperform the index. Expect 4%-5% in 2007.

KR (Kroger) - Jim Cramer recommends this stock, but I disagree. Kroger doesn't make much money per share, growth prospects are limited, and 18.5 p/e is painful to me in a defensive industry. I'd stay away.

YHOO (Yahoo) - How long will people pay $32 per share to earn 50 cents? At some point, Yahoo has to make money. 62.24 P/E and the growth prospects aren't even good. Fundamentals will win out in the end.

For more on how Scott differentiates between a great stock and a not so great stock, please read You Can Make the Stock Market Predictable.

Disclosure: The author owns shares of PRS, USG, WLT & XOM