NYSE: CAT
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Three Stocks to Buy in Next Year's Most Promising Sectors
Whatever 2013 brings for the markets, there will be plenty of quality stocks to buy - if you know where to look.
Overall, the markets are expected to have another positive year.
A survey of 10 top financial strategists by Barron's projects the Standard & Poor's 500 will close at 1,562 in 2013, a 10% gain from current levels. (By the way, last year's picks outpaced the broader index by 6%.)
That would follow modest gains in 2012 of 13.5% for the S&P 500 and 8% for the Dow Jones Industrial Average.
For next year, Wall Street's top guns predict certain sectors of the market - technology, industrials, and energy - will lead the charge higher. Companies in more defensive sectors like consumer staples, telecoms, and utilities, will be laggards.
So let's take a closer look at three stocks to buy from among these favored sectors that should be an excellent place for your money in 2013.
Stocks to Buy in 2013: Cheap Tech
Tech stocks are hugely profitable and as a group currently carry a forward P/E ratio of about 11.
That's cheap versus historical levels.
Tech is also a bellwether for when companies start to invest capital.
"When we get an upturn in capital expenditures, it will show up in tech first," Barclays' Barry Knapp told Barron's.
One stock to buy that has a rock solid balance sheet and a mountain of cash is Cisco Systems Inc. (Nasdaq: CSCO).
Once the world's most valuable company with a market cap of $500 billion, Cisco's shares sank sharply when the tech bubble burst in 2000.
And the stock is still dirt cheap, trading around $20 a share, roughly 10 times next year's earnings. Plus, the company is sitting on more than $48 billion in cash, worth about $9 a share.
With a dominant market share of 60%, CSCO is the de facto choice in the switching market.
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How to Play Q4 Defense: Hedge Your Bets, Up Your Stops and Sell Your Gold
So far fourth quarter earnings have made a mockery of things.
Of the 20 S&P 500 companies that have provided Q4 guidance so far, 18 of them have guided lower, "slashing" their forecasts, according to Goldman Sachs and CNBC (as of Monday afternoon).
What's more, roughly one quarter of the reported earnings have come in flat to middling. According to Capital IQ, overall revenues are up only slightly at 0.34%.
Yet, for some reason the S&P 500 is only 3.89% off of its highs and is up 12.01% year-to-date through Wednesday afternoon.
Under the circumstances this suggests two things to me:
- There's a lot of volatility waiting in the wings; and,
- The near-term risk is to the downside.
The Q4 Earnings Story
So far this earnings season, roughly one quarter of the S&P 500 has already reported. That leaves the market with nearly 375 companies that have yet to spit out their numbers, roughly 150 alone this week.
Assuming the balance follows the pattern set so far, companies like Caterpillar Inc. (NYSE: CAT), Philip Morris International (NYSE: PM), and 3M Co. (NYSE: MMM) are going to show "respectable" (under the circumstances) numbers while talking about the "challenges" they see ahead.
Meanwhile, a few others, like DuPont (NYSE: DD) and United Technologies (NYSE: UTX), are going to reflect weakening earnings and revenue pressures leading to further cost-cutting as a means of protecting profits. These will include job cuts.
I also expect the bulk of the remaining companies will take the opportunity to lower their expectations -- especially when you consider that 61% of the companies as of Monday afternoon missed revenue expectations.
The irony here is that 61% of the companies that have reported over the same period have also exceeded analysts' expectations.
Naturally the markets will punish those who missed even when what they should recognize is that the analysts were wrong yet again. But that's another story for another time.
What's important to understand is that top-tier company management is using this earnings season to accomplish three things.
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Stock Market Today: These Earnings Expose a Huge Concern for 2013
The stock market today opened lower as yet another American corporation, Caterpillar Inc. (NYSE: CAT), disappointed investors with its earnings call.
Here's the market roundup, along with one stock that is soaring today because analysts say there is a "50% chance" it could be acquired.
- Caterpillar lowers earnings outlook for second time this year- The world's largest construction maker reported third-quarter earnings that beat expectations but cut its 2012 sales and earnings forecasts. CAT joins a growing list of American firms including McDonald's Corp. (NYSE: MCD), Google Inc. (Nasdaq: GOOG), and General Electric Co. (NYSE: GE) that have either missed expectations or lowered their outlook this earnings season. Caterpillar reported third-quarter net income of $1.7 billion, or $2.54 per share, compared with $1.14 billion, or $1.71 per share a year ago. Adjusting for one-time items CAT earned a profit of $2.26 per share, ahead of analysts' estimate of $2.22. The troubling facts for CAT include its order backlog fell 18% from the second quarter of this year and the Peoria, IL-based company now expects to generate much lower sales for the remainder of this year and 2013.
While earnings have taken their toll on corporate giants, this stock is up almost 30% today on hopes of a buyout:
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2013 Natural Gas Price Forecast: Higher Prices Mean an End to the Bear Market
After a sustained plunge, the 2013 natural gas price forecast shows the six-and-a-half year bear market may be finally coming to an end.
In all, over the course of the current downturn, natural gas prices declined from a high of $15.78 per million btus (mmbtu) in Dec 2005 to a low of $1.90 in April 2012 -- a breath-taking nosedive of 88%.
The reason was an enormous supply glut driven largely by major new unconventional shale plays like the Marcellus and the Bakken where hydraulic fracturing (fracking) has revolutionized the industry.
In fact, fracking helped drillers to produce over 24 trillion cubic feet of natural gas last year, with over 70 billion cubic feet coming from the Bakken Shale alone.
These new finds meant the U.S. natural-gas market was flooded with an average of three billion cubic feet more natural gas every day than the United States consumed.
But those days are coming to an end as supply and demand begin to balance out, setting the stage for rising natural gas prices.
In fact, natural gas prices have already rallied to $3.40 per mmbtu, up 79% in just six months
But regardless the day-to-day movements, the long-term outlook for natural gas prices remains bullish, particularly in light of a steady increase in demand.
Here's how investors can profit on the coming rally in natural gas prices.
