The Year in Review
Looking to the Year Ahead
Five Stock Picks for 2013
The stock market produced reasonably good results in 2012,
despite the slower global economy and myriad other problems
throughout the world. During 2012, the Dow Jones Industrial Average
gained 7%, the Standard & Poor's 500 Index rose 13%, and the
Nasdaq climbed an impressive 16%.
If your stock performance varied widely from stock to stock,
you're not alone. Stocks in the Home Construction Industry soared
84% but Coal stocks dropped 32%. Apple (
) started the year at 405, rocketed to 705 on September 21, then
fell to close out 2012 at 532.
But that's old news. What will happen in 2013? Which stocks will
make big moves?
Whoa! I forgot one thing. Did you have some serious losses in
2012? If so, figure out where you went wrong and try your best not
to make the same mistakes in 2013. Investing is a constant learning
experience. We all need to review our past performance, and adjust
or tighten up our methodologies to do better in 2013 and
What about 2013? The year is already starting off with a lot of
uncertainty, and stock investors don't buy stocks when uncertainty
prevails. It seems like all of the usual factors that affect the
stock market, including politics, the economy and corporate
profits, are especially hard to predict for the coming year.
Therefore, I think we can expect a so-so year for stocks.
The 2013 U.S. stock market will have plenty of ups and downs,
but I don't believe a severe drop will occur despite some analysts'
predictions. Even though the many political problems will continue,
there will always be hope that solutions will be found, eventually.
Stock market values are built on the outlook for sales, earnings
and dividends rather than political banter, bickering and
Based upon my quantitative fundamental analysis, the low for the
Dow Jones Industrial Average will be 11,440 in 2013, and the high
will be 13,871. The Dow will end 2013 at 12,655, in the middle of
my forecast range and slightly below the current reading of
A lot could happen in 2013 that would force me to revise my
forecast. If the quagmires in Washington and Europe can be resolved
with some real long-term solutions, the U.S. stock market could
rise considerably higher than 13,879. But if big banks start to
fail in Europe, the Dow will drop.
In a recent issue of my Cabot Benjamin Graham Value Letter, I
suggested buying 18 stocks. Included in the list were
), Cognizant Technology (
Mindray Medical (
. Rather than buy these three stocks at the current price, I
strongly urged my subscribers to buy only if the stock prices
declined to their Maximum Buy Prices (targets) of 71.54, 64.33 and
CELG, CTSH and MR declined to my computer generated targets
briefly and have since produced profits of 10%, 15%, and -1% in
less than two months while the Standard & Poor's 500 Index was
up 1%. CELG and CTSH, as expected, are well on their way to
producing more profits for my happy group of subscribers. MR will
These examples illustrate what my Cabot Benjamin Graham Value
Letter is all about: Buy at the suggested Buy Price, then Hold,
until the stock reaches my suggested Sell Price. No, the system
doesn't work perfectly every time, but the results indicate that
this is the most profitable system with the least amount of risk
For my faithful subscribers, I publish Maximum Buy and Minimum
Sell Prices for CELG, CTSH MR and 247 other stocks. Right now, one
of my stock recommendations is very close to its Minimum Sell Price
after gaining 96% during the past 30 months!
To find out how you can increase your profits and dividends
using a safe, sensible system, click here and get started today!
Which stocks will perform well in 2013? As the Editor of the
Cabot Benjamin Graham Value Letter, I follow value stocks closely.
For the past several decades, value stocks have outperformed growth
stocks consistently, but during the past 15 months, growth stocks
have outperformed value stocks.
During the past three months, though, value stocks have begun to
outshine growth stocks. I believe 2013 will be an exceptional year
for value stocks. Top-notch companies in leading industries are
clearly undervalued and look very attractive.
I scanned my database to find five stocks with the right
credentials to perform very well in 2013. My five picks are the
stocks of U.S. companies with exceptional prospects for 2013. All
of my stock choices pay dividends, and all are selling at bargain
prices. The Gold ETF does not pay a dividend but is selling at a
My first recommendation is
BlackRock (BLK: 206.71)
. BLK is the largest publicly traded investment management company
in the world, with assets under management totaling $3.7 trillion.
The company offers a variety of investment and advisory products
and services to institutional and individual investors. The 2009
acquisition of Barclays Global Investors, manager of all iShare
, doubled BlackRock's revenues and added significant profits.
Black Rock is best known for its expertise in fixed income asset
management. The company has benefited from the globalization of
capital markets and the growing demand for more sophisticated risk
management tools and solutions. The firm has been gaining market
share, aided by its size and untarnished reputation in the
Sales and earnings growth slowed during the past 12 months, but
a rebound is under way. Sales will likely rise 9% and EPS will
increase 11% in 2013. New business from banks and governments
seeking help to manage asset risk and to help unload troubled
assets could push sales and earnings higher than expected. BLK is
Low Risk, share price volatility is below average, and the dividend
yield is attractive at 2.9%. Buy now.
Kroger (KR: 26.02)
, founded in 1883 in Cincinnati, is one of the largest U.S.
grocers, with 2,422 supermarkets in 31 states. The company also
operates 790 convenience stores, 344 jewelry stores and 1,141
supermarket fuel centers. Kroger's typical format includes food and
drug stores containing bakeries, delis, seafood, meat and floral
shops, pet centers and high-quality fresh items such as organic
Management recently introduced an ambitious program to boost the
number of new stores. Kroger will also expand its business by
launching discount stores and restaurants. Management is committed
to improve sales and earnings growth considerably during the next
couple of years and beyond.
Recent quarterly financial results have been impressive.
Kroger's "Customer 1st Strategy" continues to raise customer
loyalty, boost same supermarket sales and increase market share.
Management lifted its earnings guidance for the current quarter and
forecast accelerating sales and earnings for 2013. Kroger is taking
market share despite formidable competitors such as Wal-mart.
At 11.3 times current EPS and with a dividend yield of 2.3%, KR
shares are undervalued. The balance sheet is solid, and Kroger
shares are less volatile than the shares of most companies. Buy now
and sell at my Minimum Sell Price of 35.35.
Microsoft (MSFT: 26.71)
, the world's largest software company, develops, manufactures and
licenses software products and services for different types of
computing devices. Computer software includes the Windows operating
system, the Office application suite and cloud computing services.
The company also designs and sells hardware, including
entertainment products, digital music devices and personal computer
MSFT's new Windows 8 operating system designed for computers and
tablets is enjoying strong demand from users. In addition,
Microsoft's new tablet computer, called the Surface, has won high
praise for its innovative features. The company's Xbox consoles and
Kinect move games continue to gain market share. MSFT's Skype voice
over Internet protocol service (VoIP), acquired in May 2011, is
providing rapid growth.
I forecast 11% sales growth and 10% EPS growth in 2013. The
company could beat my forecast if new products, such as the
Surface, exceed expectations. At 9.1 times my 2013 forecast EPS of
2.89, MSFT shares are undervalued. MSFT shares will likely advance
to my Minimum Sell Price within one to two years. MSFT is very low
SPDR Gold Shares (GLD: 162.02)
is an Exchange Traded Fund (
) that seeks to replicate the performance of the price of gold
bullion. The fund physically holds gold bullion and no other
assets. The fund, created in 2004, maintains a low management fee
Gold mining companies, such as Barrick Gold and GoldCorp, are
experiencing declining mine production while incurring higher
mining costs and higher labor costs. The uncertain near-term future
of gold mining companies can be avoided by buying a gold ETF. And
SPDR Gold Shares are a lot less volatile than most gold mining
I believe the price of gold has hit bottom and will rise in
2013, which will benefit SPDR Gold Shares. Gold production has
risen only 0.6% annually during the past 12 years despite a rapid
rise in the price of gold.
The threat of debt defaults, both domestic and foreign,
increases the appeal of gold as a safe haven. In addition, the new
Federal Reserve bond buying program is expected to cause gold
prices to rise during the next several months. The recent drop in
gold prices provides an excellent buying opportunity. GLD does not
pay a dividend and is low risk.
Walgreen (WAG: 37.01)
, founded in 1901, is the largest drug store retailer based on
sales. In addition to 8,200 drug stores, the company operates 700
health clinics within existing stores and on employer work sites.
Walgreen's clinics offer primary and acute care, pharmacy and
disease management services, and health and fitness
Sales decreased in 2012 due to the loss of Express Scripts'
prescription business from January 1 until September 15. In
addition, Walgreen will no longer be included in the Defense
Department's Tricare health plan network.
Walgreen is headed in a new direction. The company purchased a
45% stake in Alliance Boots GmbH for $6.7 billion in cash and
stock. Boots is a leading drugstore and wholesale pharmaceutical
operator in Europe. Based in Switzerland, the company operates
3,330 health and beauty retail drug stores in the U.K., Norway,
Ireland, the Netherlands, Lithuania and Thailand. Boots'
pharmaceutical wholesale business supplies medicines and healthcare
products to more than 170,000 pharmacies, doctors, health centers
and hospitals from 370 distribution centers in 21 countries.
Sales and earnings at Boots are growing at a 10 to 15% pace,
which will greatly enhance Walgreen's growth in the future. WAG is
expected to purchase the remaining 55% ownership within three
years. Together, the two companies will operate over 11,000
pharmacies in 26 countries. The opportunity for Walgreen to expand
globally is exciting, but I expect earnings to lag during a 12 to
18 month "transition" period before accelerating rapidly in future
Walgreen shares are undervalued at 13.0 times my 2013 EPS
estimate of 2.84. The recently increased dividend now yields an
attractive 3.0%. WAG's stock performance has lagged the stock
market during the past five years, but the current price presents
an excellent opportunity to buy a blue-chip company with improving
growth prospects. I believe WAG shares will reach my Min Sell Price
within two to three years. WAG is very low risk.
I will continue to follow BlackRock, Gold, Kroger, Microsoft,
Walgreen and other blue-chip, high-quality investments in my Cabot
Benjamin Graham Value Letter. My next issue, coming soon, will
focus on undervalued Canadian stocks. I hope you won't miss it!
Finally, I wish all you and your loved ones a safe, healthy and
prosperous new year!
Editor of Cabot Benjamin Graham Value Letter