3 unloved stocks for 2010
These uncrowded and unloved stocks are set to outperform the market in 2010.
By Chris Johnson & Jon Lewis, InvestorPlace.com
Most investors are looking forward to closing the books on a wild 2009, and hoping for a better, less volatile 2010, as The Street, both "Main" and "Wall," strive for a return to normal markets.
Unfortunately, from our perspective, a number of issues have yet to be worked out of the system. But investors who are nimble and migrate from sector to sector as the market shifts its focus over and over throughout 2010 will be successful. In other words, the days of buying and holding stocks for incredible returns are still a ways off.
With this in mind, our approach to successful trading in 2010 includes zeroing in on those stocks that are most likely to be relative strength leaders among some of the stronger sectors. The following three stocks represent opportunities in the market for 2010.
Each of these positions has a fundamental story that should serve as the strong foundation to outperform the market in 2010. Along with the fundamentals, each of these stocks has shown relative strength performance in 2009.
Finally, despite the positive fundamental and technical outlooks for these stocks, evidence shows us that investors have yet to take notice of this performance by buying the shares. This means that these stocks remain "uncrowded" or "underloved." We love this aspect of the analysis, as it indicates that there is huge potential for these stocks to rise into the spotlight, causing large amounts of cash to flow into these stocks as investors finally take notice of their potential. This means that we have an opportunity to move into a stock before the rest of the market, a situation that truly supports the most basic rule of investing: Buy low and sell high.
So here are our top three trades of 2010.
Trade #1 -- Ford (F)
Ford's (F) ability to avoid a government handout in 2009 should serve it well in 2010. By toughing it out under difficult circumstances, the company emerged as a star of perseverance. But more than being a good patriot, Ford relearned how to make reliable, innovative and stylish cars that consumers want to buy. And they did it against brutal global competition.
The signs of a solid 2010 are already showing up. Domestic vehicle sales (outside of the clunker program) have stabilized amid an improving economy. What's more, Ford's gamble to push smaller cars in the United States should win approval both in showrooms and on Wall Street. International sales are expected to climb as well. Perhaps most important, though, is the fact that Ford is no longer considered an also-ran among automakers around the globe. The perception of Ford as a builder of quality, economical cars should resonate around the world in 2010.
Ford's stock price is up more than four-fold so far in 2009. A repeat performance in 2010 is far-fetched, but there's no reason to believe that the stock can't continue its monster run next year. We may just have to settle for a double. But we can leverage those gains with the F January 2011 LEAPs.
Trade #2 -- PNC Financial Services Group (PNC)
Regional banks have been hammered over the past 18 months as the credit crisis wreaked havoc on the financials. While many stocks deserved the beat-down, there are more than a few that were victims of being a boat dropped by the falling tide.
From our perspective, PNC Financial Services Group (PNC) should remain a relative strength leader among financials. Stocks such as Goldman Sachs (GS) have been touted as the "best in show," and attracted significant buying interest as a result. Unfortunately, such stocks represent the "low hanging fruit" in the financial sector. And that fruit has already been picked.
PNC, on the other hand, has been a relatively quiet performer out of the March bottom. The stock is up more than 150%, without the same attention of the more popular financial stocks. Investing in the stocks that the market has yet to recognize as outperformers is how you beat Wall Street at its own game.
How do we know PNC is flying under the radar? With 77% of the analysts covering GS rating it a "buy," the stock has clearly been "discovered." Compare that to PNC's analyst "buy" recommendations of 27% and you get the feeling that the Street has missed a diamond in the rough in PNC. Check out the PNC January 2011 LEAPs to get in ahead of what could be a slew of analyst upgrades in 2010 as PNC gets the positive attention it deserves.
Trade #3 -- PowerShares DB Agriculture Fund (DBA)
Few things appear to be a lock over the next year. However, one thing that most investors accept as a given is the return of inflationary pressures to the market in 2010. In 2008, investors on the ball were able to profit from the inflation play in food prices by investing in the PowerShares DB Agriculture Fund (DBA). It's time for a repeat performance.
DBA offers a vehicle to participate in the agriculture futures market via a single vehicle, representing a basket of widely traded wheat, corn, soybean and sugar futures. After peaking in popularity and price at almost $44 in early 2008, DBA was cut in half in the latter half of 2008, as the "crowd" rushed out of this sector. Currently, DBA presents a neglected investment alternative, just as some fundamental aspects of the agriculture trade may be ready to kick back into high gear.
Demand for agricultural products is not likely to ebb as the global population grows. In addition, cooler and wet weather in the Midwest caused late harvests, meaning that winter wheat production will be less than expected. The slightest tip in the balance of supply will likely cause investors to rush back into the food inflation play. Go long DBA with January 2011 LEAPs, which have potential for long-term triple-digit gains.
Start the New Year off right with the Top 10 Trades for 2010 -- see the complete list here.
At the time of this writing, the authors held a position in DBA in personal or client portfolios.
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