Investing in 2013: Best Bets in an Uncertain Economy

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If you're planning on investing in 2013, economic uncertainty probably will be a factor in deciding where to put your money – but some sectors stand out as solid prospects regardless of the economic climate.

Here's a breakdown of the best sectors for your money in the New Year.

Hot Sectors for Investing in 2013

Silver: With economic uncertainty expected for the near term, gold is typically considered the best hedging choice.

But, as Money Morning Global Resources Specialist Peter Krauth pointed out in his 2013 silver price forecast, silver actually provides more potential for appreciation – and at a far better starting price.

Krauth says the white metal, currently selling for around $30 an ounce, could move to a new high of $54 an ounce in 2013 – and not just because of its hedging value.

Investment demand for silver should continue to increase, driven by the creation and expansion of several silver-backed exchange-traded funds (ETFs) and increased minting of silver coins.
Industrial use of silver is expected to grow even faster. That's largely due to the use of silver in solar panel manufacturing, which consumed 60 million ounces in 2012.

Solar panel usage is expected to grow as a result of U.S. President Barack Obama's emphasis on alternative energy and increased demand from Japan, which has made a major shift away from nuclear power in the wake of the Fukushima nuclear power plant disaster.

Consumer staples: Even if the U.S. economy plunges back into a recession, consumer staples like food, beverages and household items will make for good defensive plays.

And if we avoid a recession, Americans will have more money available for discretionary consumer spending. That would translate to more sales of higher-end luxury goods sold by many of the same companies that carry staples.

Whatever happens with the economy, there's little downside and plenty of growth potential for consumer staples.

But be aware margins in this sector are thin, so focus on companies with good management and effective cost controls when investing in 2013.

Meat: Many food companies have already had to raise product prices in response to the 2012 drought, one of the worst on record.

But meat prices actually fell during the summer and fall as ranchers chose to slaughter more cattle rather than pay soaring prices for feed to replace parched pastureland.

This created a shortage of breeding stock and reduced herd sizes across the board – which, given the long growth cycle (about 15 months), could result in lowered supply for several years to come, sending prices sharply higher in the year ahead. (Hog prices also fell, but not as much, as the shorter pig-breeding cycle allows for faster regeneration of herds, so potential gains there won't be as large.)

Housing: Analysts have been predicting a U.S. housing rebound since 2009, and they may have finally been proved at least partially correct in the second half of 2012.

The National Association of Home Builders reported year-over-year housing construction was up 42% in October, and the government said seasonally adjusted housing starts rose to an annualized level of 861,000 in November, up from 708,000 in November 2011 and just 555,000 in 2010.

That sounds encouraging, and homebuilder stocks have responded well, but that's been in large part due to continued caution on the part of the builders.

They haven't increased hiring to levels proportionate with the increase in construction, the U.S. Bureau of Labor Statistics reports, nor has there been a corresponding rise in building permits.

Still, if the economy doesn't backslide, pent-up demand due to tight mortgage lending could spark a new 2013 surge in homebuilder activity – and profits.

One caveat: If an eventual fiscal-cliff deal results in an elimination or even reduction in the deduction for home mortgage interest, all bets are off, as residential real estate markets could collapse again.

Hospital operators: With President Obama's re-election and the Democrats retaining control of the Senate, there now seems little possibility that provisions of Obamacare – formally known as the Patient Protection and Affordable Care Act – will be scaled back.

And that's particularly good news for the major players in this sector.

The new law mandates health coverage for millions of previously uninsured individuals, including an estimated 7 million with pre-existing conditions. That, in turn, will significantly reduce costs for emergency services at hospitals, which formerly had to treat patients even if they couldn't pay.

Hospital margins and earnings could also improve because of increased revenue from people who had previously avoided healthcare because of the cost, but will now have insurance to cover care.

Benefits of Obamacare could also spread to some pharmaceutical companies, thanks to improved prescription coverage.

But beware of medical companies that depend heavily on government research or specialized-treatment grants. The National Institutes of Health is already cutting back on funding for many laboratories by 10% or more in the face of the uncertainty over the fiscal cliff.

Coal: This one might seem a counterintuitive pick for investing in 2013, given that President Obama dislikes coal-fired plants even more than he supports alternative-energy production.

But beyond U.S. borders, demand for coal is growing almost everywhere, even in wind- and solar-friendly Europe, where Germany is following Japan in phasing out nuclear power.

Increasing energy demand in emerging countries, particularly China and India, should also help boost coal consumption.

The International Energy Agency (IEA) recently issued a report predicting coal usage will grow by 1.2 billion metric tons a year, closing in on oil as the world's top energy source by 2017.

Such demand will surely boost prices, as U.S. coal is increasingly sold through the export markets.

Foreign stocks: Although the United States still has the world's dominant economy, the rest of the world is catching up fast.

As Money Morning Chief Investment Strategist Keith Fitz-Gerald is fond of noting, if you ignore foreign markets, you're forfeiting two-thirds of global opportunities.

And regardless of what happens with the U.S. economy, the economies of many other countries will undoubtedly grow faster than that of the United States in 2013, so it makes sense for U.S. investors to look abroad as well as to Wall Street.

However, that doesn't mean you should just blindly throw money at foreign stocks when investing in 2013.

Instead, focus on countries that are encouraging the growth of private enterprise. Look for those that have quality securities laws in place, favorable tax rates for investors and leaders committed to maintaining a strong currency and keeping inflation in check.

Putting at least some of your cash in foreign stocks should offer good chances of a better payoff than many domestic investments.

Investing in 2013: Don't Overlook Funds, Especially ETFs

I've focused on broad categories rather than specific companies because every top sector will have some weak companies, and there will also be a few winners in even the worst sectors.

So if sorting out the cream of the crop in any of these sectors seems too big a challenge, don't hesitate to focus on funds, particularly industry-specific ETFs.

Funds now cover each of the sectors above – some sectors are covered by several funds – and most offer a valuable combination of targeted potential and defensive diversification for those investing in 2013.

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Join the conversation. Click here to jump to comments…

  1. James Clark | January 6, 2013

    Related to CSX and NSC, coal demand is headed up world wide. It has been reported Buffet has been selling blue chips like J&J. The implication was debt ceiling and other political matters will trigger a large sell off. Is there any real basis to that report? We see a lot of bullish indicators but , there are equal worries like debt ceiling. What is prudent approach?

  2. Gary Hallford | January 6, 2013

    While I agree with your predictions, I must take issue with the idea of investing in coal. That might make sense if your sole purpose is to attain fast wealthy regardless of the secondary consequences, but in the larger sense it is morally irresponsible to seek to profit on an antiquated and poisonous industry. It may fatten your wallet, but your children and grandchildren will pay for it dearly.
    The only realistic option is to devote time, investment, and resources into alternative energy. Some can be lucrative immediately, while others are more of a long term option. Coal is not the answer, and those who promote it are soulless bastards without any moral fiber….
    *** Gary William Hallford ***

  3. Russell | January 7, 2013

    I fully agree silver is one of the best options for 2013,
    The housing market is another thing, more and more people in the uk are selling to rent, then to reinvest when the slide starts, in my view a better bet.
    Diverse energy sources are becoming even better with demand rising.

  4. 000061699487 | January 16, 2013

    You had an article on banks stock in the far east and had some recomendations for them. I cannot seem to find the article, can you help?

    Thanks!

    Scott

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