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.
The network giant began paying a dividend in 2011 and announced a whopping 75% increase in mid-August. The shares currently yield just under 3%, well above the market average.
The company also bought back $4.4 billion worth of shares in the fiscal year that ended in July.
Stocks to Buy: Emerging Markets Energy
As utilities in the U.S. switch to cheap natural gas, domestic coal demand has fallen, but overseas it's a different story. Natural gas trades at much higher prices overseas.
That makes coal the better choice for emerging markets.
About 70% of China's energy consumption comes from coal, and it fuels 55% of India's power plants.
Despite the recent slowdown, global coal demand will rise to 8.9 billion tons by 2016 from 7.9 billion this year, according to a recent study quoted by The New York Times. By 2035, world coal demand will rise 50%, according to the World Coal Association.
Surging coal demand makes Joy Global Inc. (NYSE: JOY) a good stock to buy in the energy sector. Joy Global makes mining equipment, including draglines, power shovels, and front-end loaders.
JOY happens to be solidly entrenched in its most important market, China. In 2011, it acquired China's International Mining Machinery, which makes giant shearers that cut coal from the coal face.
JOY's strong balance sheet will help it weather any short-term slowdown. Long-term debt is a reasonable $1.3 billion, and it's sitting on cash reserves of $263 million.
Global stimulus programs, including China's recent plan for $157 billion in infrastructure projects, should soon start to revive JOY's client markets.
Despite the Great Recession, JOY's sales have more than doubled since 2007 to $5.6 billion, while earnings have almost tripled to $7.18 per share.
Stocks to Buy: An MLP Play
Oil prices continue to be volatile, roiled by events like Hurricane Sandy and increased Middle East tension.
But economic growth in the U.S. suggests that demand for oil and natural gas will rise.
And that means that energy-focused Master Limited Partnerships (MLPs) will continue to profit.
MLPs are pipeline operators, storage operators or other midstream asset holders that are required by law to return 90% of their income to investors.
What's more, 80% to 90% of the distribution you get is tax-free until you sell.
If you're looking for a big, sturdy energy infrastructure MLP, Enterprise Products Partners LP (NYSE: EPD) would be your stock to buy.
The partnership owns 50,000 miles of oil and gas pipelines, primarily in the Eagle Ford Shale, where natural gas production has reached record levels.
That means EPD sees steady demand for its services. And the cash the partnership generates is just as steady.
Revenue has jumped by 161% since 2007 and earnings have skyrocketed 180% to $2.69 per share.
The partnership has increased its dividend more than 40 times since going public in 1998 — and 34 consecutive times going back to 2004.
Its current yield of 5.19% and steady record of boosting distributions makes it an attractive target for long-term investors.
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