Money Power: Invest selectively in 2013 to beat lagging growth
BY ANNE KATES SMITH Money Power
Saturday, December 08, 2012
12/08/12 at 4:34 AM
Investors will have to be more selective in 2013.
In a lackluster economy and a climate of uncertain earnings growth, look for companies that can chart their own course. That means companies entering new markets, launching new products or devising a new or unique business strategy, says Edward Jones market strategist Kate Warne.
Edward Jones suggests ketchup king H.J. Heinz (symbol HNZ; recent price, $58), which is making inroads into emerging markets; Precision Castparts (PCP; $178), which makes components that enable planes to be more fuel-efficient; and CVS Caremark (CVS, $45), which combines a drugstore chain with a pharmacy benefits-management business.
Dividend-paying stocks are already popular - to the point that some high-yielders are a bit pricey. But the percentage of corporate income paid out in dividends, at an average of 28 percent for Standard & Poor's 500 companies, leaves plenty of room for growth.
Companies that are raising dividends, such as retailer Kohl's (KSS, $52), with a yield of 2.4 percent, are better prospects than, say, telecom giant Verizon Communications (VZ, $43), which yields 4.7 percent but isn't as likely to boost its dividend as fast as Kohl's can.
A good choice for fund investors is Vanguard Dividend Growth (VDIGX), a member of the Kiplinger 25.
The recovering economy is another promising theme for investors. Housing prices are firming or rising in most areas as inventories of unsold homes are whittled away. Building stocks have already come to life, but the rally is far from over, says Mark Luschini, chief investment strategist at Janney Montgomery Scott in Pittsburgh. Luschini says iShares Dow Jones US Home Construction ETF (ITB) is good for those investors who prefer to "buy the whole neighborhood rather than trying to pick the best house."
Autos are another key driver of the recovery, and the combination of an aging fleet needing replacement and easing credit bodes well for growth. Ford Motor (F, $11) is the only U.S. carmaker to survive the recession without a bankruptcy or government bailout. Ford faces huge challenges in Europe, but in recent years it has cut costs, gained market share in the U.S. and won over consumers with its smaller, more fuel-efficient vehicles.
It can't hurt to play defense with at least some of your portfolio. Many pros recommend health-care stocks for their strong demographic underpinnings, high yields and reasonable prices. David Darst, chief investment strategist with Morgan Stanley Wealth Management, likes medical-device maker Medtronic (MDT, $43) and drug giant Pfizer (PFE, $24). Darst is also sticking with what he calls "global gorillas," such as Johnson & Johnson (JNJ, $69) and Procter & Gamble (PG, $69).
Original Print Headline: Invest selectively to beat lagging growth
Anne Kates Smith is a senior editor at Kiplinger's Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback.