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It used to be so much easier—5 for ’05 or 8 for ’08. Twelve for ’12 is certainly a lot of ideas. However, the current news and upcoming events on the table, namely the problems with the Euro, the U.S. Labor and Housing Markets, the Presidential Election and the Olympics, we have plenty of resources.
1. Occupy Wall Street will feel like renaming itself Occupy White House midway through the year. This is not either liberal or conservative thinking. It’s just that people are and will continue to be fed up with politics as usual. This will keep the market on edge for the majority of the year. Currently, we expect that by the close of 2012, the S&P 500 will reward patient investors with a total return (capital appreciation plus dividends) somewhere in the upper single digits, let’s call it 8.00% to 10.00%.
2. Stay short. It sounds like it should be a Randy Newman song, but we’re talking interest rates here. We believe rates are headed somewhat higher here (FINALLY). Thus funds like Payden GNMA (PYGNX), Double Line Total Return (DLTNX) and MetWest Total Return (MWTRX) do a good job of balancing the quest for returns with risk management.
3. Medals and ballots. We get treated to the Olympics and an election in2012. Nike should be a winner but with it hovering around $100 it isn’t inexpensive. Broadcasters and advertisers also should do well.
4. A time and a place. International funds have grossly underperformed their domestic counterparts. We believe there is value in making investments internationally. Perception is very negative and must be overcome. This will take time. Nevertheless, we own shares of Diageo (DEO) the spirits maker as well as companies with a majority of their revenue coming from outside the United States such as McDonalds (MCD), Intel (INTC), Mastercard (MA), Conoco Phillips (COP) and General Electric (GE) and would look to incorporate mutual funds such as Harding Loevner Emerging Markets Fund (HLEMX), the Tweedy Browne Global Value Fund (TBGVX) and the Sextant International Fund (SSIFX) as the year unfolds.
5. Start big, end small. (This is our Atlanta Falcons impression.) We favor large cap over small cap but as it becomes clearer the economy is on the road to recovery, small caps could begin to outperform. Look for the Adirondack Small Cap Fund (ADKSX) as well as Baron Asset (BARAX) as the year progresses.
6. Unleash the inner karma. What does this mean? As with 2011, calendar year 2012 will be a year that alternately makes you smile, makes you cry then makes you wonder. It will be important to remain calm during market meltdowns as well as realistic during up spikes. An Exchange Traded Fund that might help you survive these Maalox moments is the S&P Dividend ETF (SDY) whose objective is to invest in companies that have INCREASED their dividend every year for at least the past twenty-five years and currently sports a yield of nearly 3.25%.
7. Energy shines. “Black gold, texas tea”!! China, India and Brazil will continue to consume larger amounts of commodities, but energy will be the commodity that is the most in demand, whose price, relative to other commodities, will be most predictable. For those reasons, Conoco Phillips (COP), Exxon Mobil (XOM), Chesapeake Energy (CHK), Northern Oil & Gas (NOG), and National Oilwell Varco (NOV) fit the bill. For those who wish exposure in the sector on a broad, more diversified basis, the SPDR Energy Exchange Traded Fund (XLE) makes sense. Conoco Phillips sports a particularly healthy dividend (3.7%) and is more than 10% from its 52-week high.
8. Where’s the beef? Money markets and short-duration Certificates of Deposit will become increasingly less attractive. Over the past few years, investors have flocked to these investments, with many most likely running FROM the volatile stock market rather than TO these rather paltry yielding investments. We believe investors will grow weary of these meager 1.00% returns during 2012 and accept more risk for potential returns.
9. Return of the dinosaur. Even the average Joe can facebook, use twitter and access his/her favorite blogs. We believe that some of the major tech winners of 2012 are going to be big, established companies with hordes of balance sheet power. Consider Intel (INTC) or Microsoft (MSFT), for example, they sport dividends of 3.30% 2.80%, respectively and have billions of dollars on their balance sheets ready to be cagily invested. Compare this to ten-year U.S. Treasury Notes at 1.92%. Apples to Oranges, but nonetheless investments to consider.
10. Exhaustion. Americans (never a patient lot to begin with) will declare the end to pessimism and negativity by simply going out and spending. We saw the first signs of this around the holidays. Be aware this will benefit YUM Brands (YUM), McDonalds Corp (MCD), Deckers Outdoors (DECK), and Cabelas (CAB). The desire of Americans to enjoy their lives, be optimistic and forward thinking will finally win out over the darkness that has held this country in its grips since the 2008s real estate meltdown.
11. Real estate and the job markets will rebound. Well, at least they won’t head further down. We are beginning to see signs of stability in the worst hit property markets of Florida, Nevada and California as well as more consistent growth in the labor market. Despite the underlying warts, the U.S. Unemployment Rate nonetheless is now officially 8.4%.
12. By the end of this year, banks will eventually be good investments. This is a sector that requires patience as well as caution. We are just beginning to dip our toes into this pool. However, with many U.S. banks, including J.P. Morgan Chase (JPM), PNC Bank (PNC), FNB Bank (FNB) and First Niagara (FNFG) sporting long-term track records of relatively low percentages of non-performing loans, these should begin to make their ways back into favor.