5 predictions and 5 stocks for 2012
Ariad Pharmaceuticals, Monsanto and Accenture are a few names that could benefit if these events come to pass.
By Peter Leeds, guest columnist
The coming year will see major events play out, such as the presidential election, continued turmoil in Libya, and the potential fall of the euro. Each of these will create some key investment opportunities. Based on analysis I conduct for my financial newsletter, I'm expecting the following events to occur in 2012. I normally focus on penny stocks, but here I list some larger stocks I think will enjoy strong performances as a result of these events.
1. Obama will be re-elected
Based on percentages coming in from 9 battle ground states, and the number of electoral college votes from each, it appears that Obama would win if the election were held today. I expect his lead to increase as the campaign enters full swing.
One company that could benefit from a few more years of a Democratic president would be Ariad Pharmaceuticals (ARIA). It is a pharmaceutical company that earned $13.9 million in the third quarter (10 cents per share), and sits on an impressive $86 million in cash. The Bush administration fought against stem cell research, which is a big part of Ariad's approach, and the company and its shares were hammered. Now, after several years of friendlier policies, and the prospect of another four, Ariad is building momentum and gobbling up market share. I think it could trade up to $16.20.
2. U.S. corporations will start spending again
According to The Washington Post, over $1.8 trillion dollars is sitting idle in America's corporations. The original reasons companies were hoarding cash, such as economic uncertainty and European debt contagion fears, are beginning to take a back seat to growth plans. These companies (such as Microsoft with $40 billion cash, Caterpillar with $3 billion, Exxon at $11 billion, etc...) will look to use their cash to capture market share and expand.
A consulting firm like Accenture (ACN) will be one of the primary beneficiaries of increased corporate activity. It has top Fortune 500 clients from a broad range of industries, such as financial services, manufacturing, health care, energy and more. With the majority of its clientele increasing spending, a portion of those funds will find their way to ACN. My price outlook: $78.50.
3. Global tension over oil supplies will lead to higher prices
Libya without Ghadafi, much like Iraq after the removal of Hussein, will be much less stable. A power vacuum will cause Libya's already divided tribal nation to fragment into warring factions, set on competing for power and settling old scores. Meanwhile, America, Russia, and China will jostle for influence in this oil-rich flashpoint.
This will create higher oil prices, greater volatility, and a higher risk premium built into costs of the commodity. Due to less reliable overseas oil supplies, America will look to further increase exploration and production from friendlier sources, such as Canada.
I am expecting Questar (STR) to be a big beneficiary of this trend. It is a leading producer and distributor of natural gas to the American domestic market. It is profitable ($36 million in Q3), and had strong 33% growth in third quarter earnings per share, year over year. It also sports a nice 3% dividend. My price outlook: $31.
4. Global demand for food will spike
A growing population (7 billion), and an increasingly sophisticated diet among China and other developing nations have led to rapidly increasing demand for food around the world. According to Food and Agriculture Organization (FAO) data, China's per capita intake of calories, protein, and fat were below the world average in 1975, but are now well above the world average. Expect this trend to accelerate in China, as well as India, Pakistan, Indonesia, and other developing nations.
The problem is that there's not even close to enough food, while challenging agricultural environments routinely wipe out crops.
That's where Monsanto (MON) comes in. It enables more food to be produced on smaller parcels of land with less water usage and limited crop loss. Global demand for MON's products and services just keeps growing. I am expecting its $20 billion in assets and constant net earnings ($1.6 billion in 2011) to translate into further gains in the share price. My price outlook: $94.
5. Precious metals prices will climb
We are currently seeing currency devaluations from USA to Switzerland and from South Korea to the eurozone. In America in 1960, $1,000 worth of goods would now cost you $7,360, according to the web site MeasuringWorth.com. I expect inflation to continue and, since precious metals are bought in American dollars, I anticipate higher prices for all metals.
I think Newmont Mining (NEM) will be one of the biggest beneficiaries of this trend. It is currently producing and selling gold and developing new reserves all over the world. NEM posted net earnings of $2.3 billion in 2010 and currently sits on $29 billion in total assets. I think it could trade up to $89.50.
I am expecting the events mentioned above to play out in 2012. As these trends form, they should bring specific stocks, such as those mentioned above, along for the ride. From undervalued companies to those in the perfect place at the perfect time, the opportunities for investors are significant.
Disclosure: I am personally invested in precious metals, but hold no positions in the stocks mentioned.
Investment analyst Peter Leeds is the owner and founder of Peter Leeds Penny Stocks, and author of the new book Invest in Penny Stocks: A Guide to Profitable Trading (Wiley – March 2011).
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