2012 will look a lot like 2011: volatile stock market, uncertainty in Europe, high debt levels in the U.S. Emotions will rule the day, every day, with fear dominating and hope springing eternal with every bit of positive news that suggests that maybe, just maybe, the economy is starting to gain real strength.
With that as a backdrop, this year's list of stocks looks a lot like last year's list. The key to the portfolio is summed up in three words: defense, defense, and defense. While there are a few brave souls who will be betting (and that's the right word at this time) that next year will be strong year for earnings which will translate into a great year for stocks, most investors will find this a losing strategy. Think defense more than offense. Think preservation of capital. Find stocks with strong earnings growth and decent dividends.
The first place to look for defensive investments is mutual funds or Exchange Traded Funds (ETF's). They have broad diversification and professional management. Stay with funds that focus on growth and income. According to TheStreet.com, the best growth and income ETF's for 2011 (until November 30) were:
PowerShares Act U S Real Estate Fund (PSR)
First Trust Large Cap Core AlphaDEX (FEX)
VelocityShares VIX Short-Term ETN (VIIX)
iShares S&P Target Date 2003 Index (TZL)
iShares FTSE EPRA/NAREIT NA Index (IFNA)
First Trust Value Line Dividend (FVD)
iShares S&P Target Date 2015 Index (TZE)
iShares S&P Target Date 2020 Index (TZG)
Vanguard Total Stock Market ETF (VTI)
iShares S&P Target Date Ret Income (TGR)
For individual stocks, look in these areas:(For more stock ideas, see www.theonlineinvestor.com)Heatlhcare:
The demographics on the U.S. population makes this sector very attractive. About 10,000 people a day will retire for the next 30 years according to the latest data. That means a lot of health care will be needed, medicine, medical devices, pills, biotechnology, etc. Some of the leaders (in terms of earnings growth) are: (Remember: larger companies have more capital and can withstand more of the economic volatility that will most likely occur next year)
Humana Inc. (HUM)
Universal Health Services, Inc. (UHS)
Johnson and Johnson (JNJ)Information Technology:
No matter what global economies do, businesses need to be more efficient. The best way to better productivity is IT. These stocks should continue to show ever higher earnings:
Intel Corp. (INTC)
Microsoft (MSFT)Consumer Staples:
The economy can go up and/or down, consumers still need food and clothing. They may not buy the most expensive brands or items but they still have to eat and dress. Solid companies that offer value will do well. These were some of the best performing stocks in this sector for 2011.
Whole Foods Market Inc. (WFM)
Rite Aid Corp. (RAD)
PriceSmart Inc. (PSMT)
Costco Wholesale Corp. (COST)
You get the picture. Nothing fancy. Bread and butter. Solid stocks. Some dividends. Stay the course. Preserve capital. Think defense. Some more. It's going to be a bumpy ride in 2012 so fasten your seat belts and stay safe.
- Ted Allrich
December 20, 2011