The euro zone is falling apart, and although the US economy is improving, we are still far off from a full recovery. So the question becomes, are there any good stocks to buy now in a climate like this? The answer is yes! Whether you are in a bull market, bear market or in limbo, which is what we are in now, you can make money in the stock market. As this tumultuous year winds down, here are some stock investment ideas for 2012.
Many investors are sitting on the sidelines right now figuring out the next phase in our global economy. They are sitting on cash, US Treasuries or gold. These are all super defensive plays.
Then there are the risk takers who are trying to find deals. Among the sectors where you might find undervalued stocks are in the financial sector and technology. Banks have been struggling since the 2008 financial crisis. They have not fully recovered. There is also nervousness about the exposure to European debt and new financial regulations that are coming down the pike. But for the true believers, they are confident that banks will recover and thrive in the long run, making these good stocks to buy now while they’re cheap. This includes all the bankers right now taking stock options in lieu of cash bonuses. If these insiders didn’t believe it, they wouldn’t be taking their bonuses in stock.
Defensive Stocks – Strong Now, Strong Later
Many experts and analysts are recommending defensive stocks as good stocks to invest in right now. Defensive sectors would be things like healthcare, consumer staples and utilities. Many are also advocating that you should invest in large multinational corporations that have a strong presence in the emerging markets. This will give you financial strength to weather any downturns, but also offer opportunities to leverage the massive growth in developing economies.
You generally think of defensive stocks as those that you invest in when there is a downturn in the economy. But I like the following defensive stocks because I think they will continue to be strong even when the economy is no longer in a recession. The thing is that if you do strict valuations, it looks like the entire stock market is undervalued. So when the economy recovers, it should cause a rising tide that raises all ships, including defensive stocks. They are one of those win-win plays.
Johnson & Johnson (JNJ) - I really like JNJ. They are the largest health care company in the world, in an industry that is ever growing. They have extremely strong brands for consumer products all around the world. They also have a strong business on the medical technology end as well. As the world grays with increasing numbers of the elderly, a massive and emerging middle class in the emerging markets and just the nature of the health care industry in general, I think JNJ is very well positioned to take advantage of significant growth over the next decade. They are also lending money to European banks. That means they have a lot of cash.
Exxon Mobil (XOM) - Again, another company that will win either way. This is the largest company by market cap on the US stock market. That makes them a safe haven asset when the economy is going south. But in addition to their defensive qualities, they also have great long term prospects for growth. They are always finding new reserves of oil. But they are also investing in other energy sources as well like natural gas. I think they will be a huge player in the natural gas power generation business in years to come. I’m bullish here because I think gas will become a major player in the power generation industry in the US. It burns cleaner than coal and safer than nuclear.
Growth Stocks – Speculation Play
If you are a speculator and looking for high growth stocks to buy, here are the ones you want to watch. Remember, with the potential for high returns also comes equal downside risks. Especially right now, only use money you can afford to lose on these stocks.
Google (GOOG) – This stock has been going up higher and higher for at least the last 10 years. They don’t seem to be letting up. On the fundamental side, their market share is growing as well as the market itself. They are starting to get into the social networking space as well with the recent release of Google+. The thing you want to watch for is their operational costs. It’s been rising very quickly due mostly to hiring costs. I don’t foresee that stabilizing at any point. Just make sure the earnings are growing faster than rising costs.
Apple Inc (AAPL) – This is another technology stock with great potential. With each new release of an iPhone or iPad device, the stock continues to climb. They have the “wow” factor down and I don’t see this changing any time soon. Their new server farm in Charlotte, NC just went online as iCloud. I think this is going to make a huge long term difference. But in the short term, you have very regular releases of new versions of their flashy devices. As long as they keep that up, the stock will continue to rise. Although Steve Jobs is no longer here with us, he probably left a road map for Apple to follow for the next 3-5 years. The question will be whether Tim Cook will be able to execute on those plans.
Netflix Inc (NFLX) – I’m not as crazy about this one. Their stock price has risen considerably for sure. Even the great speculator George Soros is said to be holding this stock. But I think the growth is going to be short-lived. Publishers don’t like them and that will only hurt their licensing costs. In addition, their business model of streaming movies and TV shows has relatively low barriers to entry. I think if Google buys Hulu as it’s rumored to be, I suspect Netflix might feel their final blow as a speculative growth play. I would put this in the category of stocks to not buy right now or one to look for short selling opportunities.
Stocks to Buy in a Recovery
Cyclical stocks are ones you want to invest in during a time of economic growth. The ideal time to get into these stocks is right when a recession is turning into a sustained recovery.
Ford (F) - I like Ford for several reasons. First of all, I respect this company. They were the only ones not to receive a government bailout. They stuck it out on their own and survived. Now they are thriving. But I need a little more than respect to want to invest in it. They have a strong presence and penetration into emerging markets. They have been able to adapt to the new environment they find themselves in with low cost, smaller vehicles. They have the pulse of the emerging market consumer. In addition, and this is very important to me, their financials are very strong.
JC Penny (JCP) – JC Penny is what they call a consumer discretionary stock. These are companies that do well during good economic times because they sell stuff that people don’t absolutely need. I like JC Penny in particular because they have not been doing well. Yes, that’s right. I like them because of their failure. That is because they are turning their failure into an opportunity and the best success stories start out that way. In their failure, they have hired a master retailer to become it’s next CEO. Ron Johnson has been the brains behind Apple’s spectacular success with their retail stores. He also has a design background, which you can see when you walk into an Apple store. If you wonder what his potential contributions could be, just walk into one of their stores and get the Apple experience. Johnson is an innovator and I think he’s going to lead a retailing revolution.
Emerging Market Stocks
The emerging markets are growing at an incredible pace. Most retail investors do not have access or the information necessary to access these markets. You can invest in them indirectly with stocks that have a lot of business interest in these regions. These stocks are a bit risky, especially if we start to see a slowdown or even a bubble pop in countries like China, India, Brazil, Russia and Southeast Asia.
Caterpillar – This company makes heavy equipment like backhoes and diggers for the construction industry. This sector has taken a hit in the US and the Western world, but is booming in other emerging economies. As long as there is this building boom in developing countries, you will see companies like Caterpillar do well. The only thing to watch out for is if and when a potential building bubble in China bursts. Then you might see it screech to a halt temporarily.
IBM – I like IBM here because they are providing the hardware and IT infrastructure necessary to equip these economies with the technology to grow. Their server business will only get better as these economies develop. In addition, they are providing the hardware for cloud computing, which is the next mega-trend in technology.
Yum Brands! – This used to be the restaurant arm of Pepsi Co. They were spun off a few years ago. You would recognize the brands that they own like Pizza Hut, KFC and Taco Bell. They also do A&P Restaurants as well. That is why you are seeing combo restaurants in many places now.
They are actually doing quite well. They are also well-positioned to take China by storm. If you know any Asians, you know that many of them love Kentucky Fried Chicken. I’m not exaggerating. Just think about how much you can scale this demand in a place like China. As the middle class grows in that country, there will be tons of opportunities for this brand to expand. KFC is doing even better than McDonald’s in China.
Index Fund Investing
Everyone is trying to beat the market by finding the best stocks to invest in. From professional money managers, to institutional investors on Wall Street, to the retail individual investor on main street, to those looking to skim on penny stock investing, everyone is trying to out-do the stock market. But the harsh reality is that a few actually end up finding the top stocks to invest in.
Research studies are starting to recognize that only a handful of investors actually beat the market consistently over time. So if a professional money manager for a large mutual fund management company can’t consistently beat the market, an individual investor should be wary of stock picking for himself.
That is where index fund investing comes in. You don’t have to spend hours to find good stocks to invest in. Instead, you let the market pick them.
The reason why index investing is highly recommended by so many smart investors, Warren Buffett being one of them, is that over time, they will almost surely give you a return. Now instead of beating the market, you are trying to grow with it. Historically, the market has always grown over time.
Penny Stock Investing
If you are looking for hot stock tips, you will probably run into many penny stock investing opportunities. These are abundant, especially online. They tout really cheap stocks and how you can get in on the ground floor.
Historically, many frauds have come from penny stock investments. They are hard to catch or even see on the radar because they are so small. The SEC has a hard enough time watching the big blue chips let alone tiny IPO’s. In addition, many of them are based outside of the US, which also helps them fly under the radar.
All I have to say here is to be careful of penny stock investing. The only smart way to do it is if you know the company personally or can walk down to their operations and see with your own eyes that it is a legitimate company.
The other problem is that liquidity is horrible on these stocks. That means you won’t get the optimal entry and exit prices on these stocks.
