The market has surged in recent action, but these gains haven't eradicated the chances of a stock market crash in 2013.
Global markets are up on news that central banks will deliver more stimulus measures, such as QE3 in the United States.
Even though stimulus measures trigger market rallies, they're actually admissions that economies are so weak they need government assistance.
As Federal Reserve Chairman Ben Bernanke recently stated, the economic conditions in the United States, particularly high unemployment, should be of "grave concern" to all.
Legendary investor Jim Rogers declared in an interview that, "In America, we have had recessions every 4 to 6 years at the beginning of the republic. 2013 is going to be a mess. It always has been, there's no reason it won't be this time too. Be careful…"
In order to heed Rogers' warning, investors should consider adding the following stocks to their portfolios.
Prepare for Stock Market Crash 2013
The best way to profit from Rogers' sage advice is to buy stocks that have a healthy income stream and a history of increasing their income flow, even in times of economic downturn like what could happen next year.
Stocks such as these are called "Dividend Aristocrats."
That title is earned when a company increases its annual dividend for at least 25 consecutive years. Over that period, there has been The Great Recession and a number of other declines in the United States.
In the "mess" that Jim Rogers predicts for 2013, three "Dividend Aristocrats" that can be expected to perform well based on appealing valuations, solid franchises and past performance are Aflac Inc. (NYSE: AFL), Sysco Corp. (NYSE: SYY) and The Coca-Cola Co. (NYSE: KO).
Aflac Inc. is a very sound insurance company with a dividend yield of around 3%. The average dividend for a member of the Standard & Poor's 500 Index is around 2%. Insurance companies that are well managed, like Aflac Inc., do well in stock market downturns due to the stable business base. The products offered, such as annuities, are more in demand as consumers, particularly those nearing retirement, turn away from riskier investments.
Even if 2013 is a "mess," people will still have to eat.
Much of that food will be delivered by Sysco Corp., which is a North American food distributor.
Sysco has a dividend yield of 3.7%. Sysco is very appealing as it has a price-to-sales ratio of just 0.42. That means that every dollar of sales is presently valued at only forty-two cents in the stock price.
Asked about the unrivaled brand name and global presence of Coca-Cola that has led to its global recognition, Warren Buffett stated, "If you gave me $100 billion and said, "Take away the soft-drink leadership of Coca-Cola in the world,' I'd give it back to you and say it can't be done."
The dividend yield of 2.68% for Coca-Cola also increases its appeal.
In addition to the above average dividend yield with a history of being increased annually over the decades, each of these stocks has another feature that is alluring for the "mess" ahead: a low beta or a low price-to-earnings growth ratio.
Beta is a measure of a stock's volatility. The beta for the stock market as a whole is 1. Research has proven that stocks with a below average beta perform better over time.
It turns out that it is possible to have a higher return with lower risk, after all.
Sysco and Coca-Cola offer that unique component. Coca-Cola has a beta of 0.51. Sysco Corp. has a beta of 0.70.
Investing legend Peter Lynch considers the price-to-earnings growth to be one of the most critical financial indicators for a stock. A price-to-earnings growth ratio of 1 is considered to be adequate. The lower the price-to-earnings growth ratio of a stock, the better the future growth prospects for its share price.
Aflac Inc. has a price-to-earnings growth ratio of just 0.86.
Dividend-paying stocks will also be more valued due to the low interest rate environment that Bernanke has pledged will be maintained well until 2015. Investors seeking income will turn increasingly towards stocks, particularly those with a history of raising its dividend.
As a result, Dividend Aristocrats such as Coca-Cola, Sysco and Aflac will be even more attractive as investors brace for a possible stock market crash in 2013.
[Editor's Note: Want to be better prepared to handle your money as the uncertainty of 2013 approaches? Check out our latest offer that lets you profit while you learn.]
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