12/19/2011 7:48 PM ET|
The 10 best stocks for 2012
We'll need to play defense in the first half and work on making most of our money in the second. So the best stocks come in two lists for those divergent goals.
Picking a best stocks list is particularly challenging for 2012.
It's almost like 2012 will be two separate years.
The first half of the year, as I wrote on Dec. 12 in "How to save your portfolio from 2012," will look a lot like the last half of 2011 -- with head-spinning volatility and a full calendar of negative news that will overwhelm any good news from individual companies. Even good stocks will go down on the negative big-picture news in the first half of 2012, much as they did in the second half of 2011.
The second half of the year will be much different. The global economy may not be racing along like the Empire Builder, gaining speed east down the Continental Divide out of Essex Junction, Mont., but the big uncertainties for the year will be behind us. We'll know how fast China and Brazil are growing, how deep the eurozone recession will be and how well U.S. economic growth is holding up. I think growth and modest risk will be back in favor, and you'll want to be in the shares of individual companies -- and in individual stock markets -- with more growth in their fortunes. (For more on the road ahead, read also "The 3 big crises of 2012.")
So if the two halves of 2012 are going to be so different, why not focus on two best stocks for 2012 -- one for each half of the year and each attuned to the very different requirements for the two halves of the year.
First half: Playing it safe
List No. 1 is for the first half of 2012, with a goal of capital preservation with a bit of income.
The goal in the first half of the year is to preserve your portfolio -- so you have plenty of cash to deploy in the second half of the year. The risk-free way to do that would be to stuff cash under your mattress (though inflation would erode it by 1% or so in six months) or buy short-term Treasurys and hold them to maturity (but given the extremely low yield, that doesn't seem worth the transaction costs, in time if nothing else).
The challenge is finding a little bit of extra yield -- or maybe a bit of yield with some appreciation potential from a "special situation" -- without taking on much risk during a period when risk isn't likely to be rewarded. Be careful when you think about snapping up such traditional havens as Kraft Foods (KFT, news) or McDonald's (MCD, news). Many consumer companies have a big exposure to Europe and could be looking at an earnings disappointment as European economies slow.
Some of my Dividend Income portfolio picks (registration required) fit the bill -- although some have more risk than I'd suggest for the first half of 2012. So I'll start there -- and build on that.
1.Abbott Laboratories (ABT, news): Abbott is splitting into two companies to "unlock value for shareholders" in January 2013. That probably caps appreciation in the stock. But it also should put a floor under the shares, since existing shareholders will be inclined to hold until then. Add that a big hunk of Abbott's revenues come from its faster-growing nutritional business, making this one of the most balanced of the big drug companies, and I think this is a low-risk way to collect a 3.4% yield. (Abbott is a member of my Dividend Income portfolio.)
2.Oneok Partners (OKS, news): Nothing like being in the right place with the right pipeline capacity. Oneok's system is a good match with the increasing volumes of natural-gas liquids (as opposed to natural-gas gases) being produced in the shale boom in the U.S. Into 2013, there will be a shortage of natural-gas liquid pipeline capacity in the region, which guarantees that Oneok's system will be filled at solid prices. The company recently raised its estimate of distributable cash flow for 2011 to $850 million to $880 million from an earlier projection of $735 million to $760 million. That's the kind of growth in payout that an investor in a master limited partnership wants. Oneok units -- in the MLP world, units are similar to shares of a publicly traded company -- pay a dividend of 4.1%, and with the increase in distributions either the unit price or the yield is headed up. (This is another member of my dividend portfolio.)
3. Western Gas Partners (WES, news): This an MLP formed in 2008 with assets spun off by Anadarko (APC, news), which remains a major investor. Beginning with six gathering systems and a transmission line in Texas, the Rockies and the Mid-Continent when it went public, the partnership has added assets such as a gathering system in the Powder River Basin that have increased the system's natural-gas liquids exposure. Almost all of Western Gas Partners' revenue comes from long-term, fee-based and fixed-price contracts, so cash flow is extremely stable. The unit's current yield is about 4.1%. The partnership is a member of my Jubak's Picks 12- to 18-month portfolio.
4. US Bancorp (USB, news): What is a bank -- and a U.S. bank at that -- doing on this list? Take a look at the stock's recent performance. While most financials have staggered, shares of U.S. Bancorp have recently put in a bullish cross pattern, with the 50-day moving average moving above the 200-day moving average. Last quarter, the bank was the biggest U.S. bank to show loan growth, and the fact that it isn't a big New York bank means the company has escaped the worst effects of the downturn in investment-banking revenue. Management has said that the bank now meets new capital ratio requirements and won't need to raise capital. I expect that U.S. Bancorp will petition regulators to raise its dividend from the current 50 cents a share (1.9% yield) to something more like its old payout ratio of 67% from the current level near 22%. A bump up to a 50% payout ratio would raise the stock's dividend to $1.14 a share, for a current yield of 4.4%. I think the anticipation of that increase in payout is one thing that has been driving the stock recently -- and that will put a floor under the shares in the first half of 2012. U.S. Bancorp is a member of my Jubak's Picks portfolio.
5. Canmarc Real Estate Investment Trust (CANNF over the counter in the U.S. or CMQ-U in Toronto): Let me end with an example of the kind of special situation that I'm looking to add to my capital preservation portfolio in the first half of the year. Canmarc owns a portfolio of 84 commercial and retail properties in Canada. Office vacancies in Canada are running at about half the rate in the United States. So it's not surprising that Canmarc has attracted a takeover bid from Cominar Real Estate Investment Trust. Canmarc's management has rejected the bid, and the market certainly thinks that a) Canmarc is now in play and b) it will attract a bid above the Canadian $15.30 that Cominar has offered. Canmarc units climbed to Canadian $16.26 at the close on Dec. 16. Analysts think Canmarc could attract a bid as high as Canadian $17.50. I wouldn't chase this one too rabidly -- remember, you're looking to collect a premium on the current price in any bidding war. But in the meantime, the units pay a yield of 5.8%.
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