Morningstar Advisor - June/July 2009 - 56

Investments á la Carte Four Picks for the Present Stock Becton, Dickinson and Company BDX $25K 17 S&P 500 TR 9 04 05 06 07 08 09 Our favorable take on Becton’s prospects also stems from our confidence in the firm’s management. The company’s reputation for searching out pockets of growth, along with its sizable manufacturing and distribution infrastructure, convinces us that Becton will be able to fend off competition and continue to defend and widen its economic moat. Haywood Kelly we don’t mind paying up for names this good. Finally, the broad mix of stocks appeals to us, with this ETF’s substantial stakes in industrials, materials, and consumer discretionary sectors. Despite the name, the yield of the underlying portfolio is an unspectacular 3.1%, but that yield will remain safe for years to come even as much of the S&P 500 sees its dividends slashed. Bradley Kay Becton made a name for itself manufacturing basic surgical instruments: needles, Exchange-Traded Fund Vanguard Dividend Mutual Fund Third Avenue Small Cap TASCX syringes, scalpels, and more. As the industry $17K Appreciation ETF VIG evolved, so did the company’s products, 17000 12000 15000 and many significant technological innovations $12K 13000 were first introduced by Becton. The launch 13 BarCap Aggregate Bond 10000 10 of safety-engineered products designed to 11000 S&P 500 TR prevent needle-stick injuries is among the 9000 firm’s 9 8000 8 latest achievements; these products are 7000 04 05 06 07 08 09 now mandatory in most U.S. hospitals. Becton 6000 06 07 08 09 has also been advocating greater use of This fine fund is down but far from out. It safety products overseas, and its push is paying Vanguard Dividend Appreciation charges only trails most of its rivals over the past year. That’s off. The essential and thus recurring nature 0.28% a year to invest in an index of U.S. not unfamiliar territory for the fund as of Becton’s medical products, which account for Jan-04 Jan-05 its total sales, is allowing blue-chip companies that have increased their it has had dry spells before. The difference nearly half of Jan-06 Jan-07 Jan-08 Jan-09 dividends for at least 10 years in a row. is it has periodically lagged in buoyant markets the company to weather the storm of a hospital but now finds itself in relatively uncharted spendingMay-05 It also Feb-07Oct-07Jun-08Feb-09 Feb-04Nov-04Jul-05Mar-06 affordsNov-07Jul-08Mar-09 Mar-04Dec-04Sep-05 Jun-06 Mar-07BectonSep-08 Apr-04 Feb-05 May-04 Mar-05 Jun-04 Apr-05 Apr-06 Apr-07 Feb-08 Jul-04 freeze. May-06 May-07 Apr-08 Apr-09 Aug-04 Jun-05 Sep-04 Aug-05 Jul-06 Jun-07 May-08 May-09 An incredible 90% of the assets in this portfolio Oct-05 Aug-06 Jul-07 Sep-06 Aug-07 Aug-08 Oct-06 Sep-07 Nov-06 Oct-08 Oct-04 Nov-05 Dec-06 Dec-05 Feb-06 Mar-08Dec-08 boast either a wide or narrow moat according waters, losing more than its rivals in a flexibility in capital deployment,Dec-07 the which Nov-08 to our equity analysts, and 85% of assets downdraft. We didn’t see it coming but retain company takes full advantage of by investing are invested in companies with low or medium full confidence in manager Curtis Jensen. in rapidly growing diagnostic and flow uncertainty. These statistics beat out He has built a tremendous long-term record cytometry product lines. While growth nearly every other nonsector ETF in our here applying Third Avenue’s safe and opportunities still persist within the medical database, with only the Dow Jones Industrial cheap approach, which targets firms trading at business lineup, the needle market is Average tracker DIAMONDS DIA approaching big Jan-05 Jan-06 Jan-07 assets. Jan-09 rapidly becoming saturated, particularly in the Jan-04 discounts to their underlying Jan-08 This the same quality of names. VIG’s portfolio portfolio of cheap stocks has simply gotten U.S. Hence, we expect diagnostic and Feb-04 Feb-05Nov-05Jul-06Mar-07itsMar-08Dec-08 Mar-04 Mar-05Dec-05Sep-06 Jun-07 holdings Apr-09 Apr-04 Apr-05 Feb-06 year, butNov-07Jul-08Mar-09 May-04 overOct-05 Aug-06May-07 Apr-08 Feb-09 Jun-04 Jun-05 Apr-06 Apr-07 May-08 May-09 Jul-04 Aug-04 Jul-05 pastOct-06 Jul-07 Oct-04 Aug-05May-06 Sep-07 Sep-08 Dec-07 Oct-08 Nov-08 cheaper May-05 Mar-06 Feb-07Oct-07Jun-08 are the Jun-06 Aug-07 Aug-08 has a debt/capital ratio lower than all other bioscience operations will become the firm’s Sep-04 Sep-05 Nov-04 Dec-04 Nov-06 Dec-06 Feb-08 May-06 of similar quality except health-carefar from impaired. So we think this fund looks ETFs primary growth drivers in the upcoming May-07 May-08 May-09 great going forward. Its price to prospective sector-specific funds, which should help as the years. Becton’s recent expansion into genetic earnings is just 7.7 and its price/book ratio is a credit crunch begins Nov-07 leveraged Jan-09 and oncology diagnostics has already Jun-06Nov-06Apr-07Sep-07Feb-08 Jul-08 Dec-08 Jul-06 Dec-06 Jun-07to hurt Jun-08Nov-08Apr-09 Aug-06Jan-07 Jul-07 Dec-07 Sep-06Feb-07 Oct-06Mar-07 Jan-08 Aug-08 Feb-09 Mar-08 Sep-08 Mar-09 Oct-08 Aug-07 mere 0.66. Both are well below the small-value firms. This portfolio Oct-07 at a sizable 23% trades Apr-08 produced several intriguing product launches, category average. We also like that Jensen discount to fair value as of the April 30 market particularly its staph infection (MRSA) is flexible. He recently bought a few distressed close. While this is a slightly higher price detection technology. debt positions, leveraging Third Avenue’s relative to fair value than most broad indexes, 56 Morningstar Advisor June/July 2009

Morningstar Advisor - June/July 2009

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