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Bill Gross: Equity Analyst?

The fixed-income guru has recently weighed in with stock recommendations. Should you take his advice? Chances are, you already have.

Shannon Zimmerman, 06/30/2011

Bill Gross saved the best for last during his keynote address at this year's Morningstar Investment Conference.

Early in his talk, the PIMCO chief pointed out that, as the tailwind provided by the Fed's aggressively accommodative monetary stance subsides, stocks will be left to suffer the slings and arrows of rising real interest rates, as well as the higher inflation that Gross (among many others) thinks the Fed may be engineering to help the U.S. inflate its way out of debt.

Yet, on their own or not, some companies--and the funds that invest in them--wouldn't merely survive that double whammy; they and their investors could thrive. Near the end of his talk, Gross--who manages nearly $250 billion in fixed-income assets at PIMCO Total Return PTTAX alone--turned equity analyst, calling out a clutch of companies that he thinks could fare well amid the coming quantitative unease.

Cold Stock Tips
Gross also aired his views in an interview with CNBC at the conference, mentioning  Procter & Gamble PG, Johnson & Johnson JNJ, and pair of utility concerns, Southern Company SO and Duke DUK. In Gross' view, each is an attractive option for income seekers, given their generous yields relative to the paltry payouts currently available with Treasuries.

"There's a huge gap and a huge differential," Gross said, "if an investor is willing to take a minor downgrade in terms of credit."

That's sound advice, but chances are you already have stakes in those companies through the mutual funds you own. Large-cap stalwarts all, they reside in the top fourth of the S&P 500's components. They're well represented in the portfolios of several widely held, topnotch mutual funds, too.

Vanguard Wellington VWELX and Davis NY Venture NYVTX, for example, rank among the major shareholders of Procter & Gamble. American Funds Income Fund of America AMECX and T. Rowe Price Equity & Income PRFDX--which weigh in with asset bases of $72.1 billion and $23.1 billion, respectively--are big owners of Duke. And needless to say, all the stocks Gross mentioned soak up ample assets at S&P tracker Vanguard 500 Index VFINX, whose massive asset base tops $110 billion.

To say that Gross' recommendations are already widely held would be a similarly massive understatement.

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