In the second week of January, U.S. stocks were in freefall — on their way to one of the worst Januarys ever. But as I advised at the time, the selloff created buying opportunities for many excellent stocks that investors were punishing unfairly. I didn’t see a bear market starting then, and even though the correction continued for a couple more weeks, it ended and was followed by a solid recovery. For the year to date, the S&P 500 is now in slightly positive territory.

I also advised that “certain stocks are buy-and-hold candidates whenever they’re relatively cheap: large, financially strong companies with established brands and commanding shares in growing markets.” 
That’s still true today.

#-ad_banner-#So let’s take a look at the true blues I profiled back in January and see if they’re still worth holding — or buying — now. 

3M (NYSE: MMM) is a household name with products found in every home and office in the country — and in much of the rest of the world as well. Known for iconic brands like Scotch and Post-it, 3M makes a mind-boggling 55,000-plus products aimed at consumers, businesses and everyone in between, generating more than $30 billion in annual sales. In addition to its famous adhesive products, 3M specializes in abrasives, laminates, fire protection, dental and orthodontic, electronic, medical, optical film and car-care products.

3M is much more than its prosaic Post-it Notes; its technological expertise and research & development budgets make 3M a player in many other areas, including the fast-growing renewable energy field. 

3M’s management team projects 2% to 5% annualized organic sales growth (i.e., not counting acquisitions) over the next five years, which at the high end would be impressive for a company of its size. That would translate to annual earnings growth in the 8% to 11% range, again higher than you’d expect — driven by faster-growing product lines in the healthcare and consumer units.

3M has long been one of the financially strongest companies in the world, with little debt and excellent recurring cash flow. It has paid a quarterly dividend without interruption for a full century. The stock yields 2.6%, and the company is also in the middle of a stock repurchase program that will boost per-share values.

The stock is up 16.7% since recommended in January. At recent levels, it trades at 20.4 times analysts’ consensus estimate for 2016 earnings per share. That’s a little expensive, so I’d hold off on new purchases unless the share price dips below $155.

Pfizer (NYSE: PFE) is the world’s largest pharmaceutical company — reason enough to keep a close eye on the stock, which is poised to benefit from the aging of America and medical trends toward the use of medication to manage or prevent illnesses before they require expensive hospitalization or other intensive intervention.

Pfizer generates a whopping $50 billion in annual revenue from a long list of blockbuster drugs that includes Lyrica (pain and seizures), Prevnar and Prevnar 13 (pneumococcal vaccines), Enbrel (psoriasis and rheumatoid arthritis), Viagra (erectile dysfunction), Enbrel (hypertension) Chantix (smoking cessation) and Ibrance (breast cancer).

Earlier this year, Pfizer had planned to acquire Allergan (NYSE: AGN), the maker of Botox and Alzheimer’s drug Namenda. The deal, expected to close this year, was scrapped after the Obama administration announced stiffer rules on so-called “inversions,” in which a U.S. company acquires a foreign-based company and moves its headquarters to that company’s home country for tax purposes. However, it’s unlikely Pfizer will sit on its cash for long; the company has grown steadily through strategic acquisitions over the past 20 years — including takeovers of Warner Lambert, Pharmacia and Wyeth earlier this century.

Pfizer’s size provides stability and resources unavailable even to other global pharma giants. Pfizer’s impressive cash flow helps fund the industry’s largest research & development operation, which promises to keep its product pipeline well-stocked with breakthrough drugs. Pfizer’s current pipeline include potentially huge drugs for cancer and cholesterol control.

Pfizer is up about 6% since the January recommendation; its shares now trade at only 13.5 times analysts’ consensus estimate for 2016 earnings per share and yield 3.6%. I’d buy this rock-solid pharma leader here, enjoying the reliable income and the likely capital gains to come as it gets through this uncertain period.

Risks To Consider: 3M could be harmed in the short run by earnings disappointments related to international economic weakness. Both stocks, but especially Pfizer, could be vulnerable to bad news on the regulatory or legal fronts — for example, from a rejected FDA application for a new drug.
    
Action To Take: Buy 3M below $155 and Pfizer below $35. (The third stock I advised buying in January was Verizon Communications (NYSE: VZ), which I recently re-recommended here. The stock is up 16.5% since our January recommendation; I’d buy it below $53.)

Editor’s Note: Everyone knows that dividend payers crush other stocks. It’s not a matter of opinion. You can just look at the stats. But what’s really interesting is why they do so much better. We’ve found the answer here.