Lessons from 2012 for profiting in the recent rally

So now what?

We’ve had a December sell down on fears that the United States would go off the fiscal cliff—the Dow Jones Industrial Average was off 2.48% in the fourth quarter.

We’ve had a huge pre-New Year’s move—the Standard & Poor’s 500 Stock Index climbed 1.7% on December 31 on hopes that the crisis would get resolved and an even bigger January 2 move on an actual “solution. The total gain comes to 4.3% for the two sessions.

But where does the market go from here? I think you can guess, right? After all we did go through this pattern of sharp rallies and deep retreats in 2012.

So with the benefit of that experience, let me give you my seven steps for the first half of 2013. Read more

If the fiscal cliff does deliver a buying opportunity, here are 10 stocks for putting money to work in 2013

While we’re waiting for Congress and the President to come up with a deal to extend the Bush tax cuts, avoid automatic spending cuts, fix (again) the alternative minimum tax, keep the Social Security withholding tax break, and extend extended unemployment benefits, let’s think for a minute about what happens if there is a deal.

If sometime in the next few days or more likely at some point in January or at a worst case sometime in February, there is a deal, the financial markets get to breathe a big sigh of relief. We might even see a rally—of exactly the sort that you raised some cash for during this past week or so.

What would you look to buy? What’s a reasonable list of 10 best stocks for 2013?

The stocks part is simple I think. It’s the 2013 part that’s hard.

As in 2012, macro trends will drive the financial markets in 2013. In 2012 the year—and the markets—were defined by fears that China’s economy would slow to a hard landing, that the U.S. economy would stall or that the U.S. government would prove so dysfunctional that the country would default on its debts, and that in the EuroZone Greece, Spain, or Italy would fall into financial chaos.

When those worries moved to the top of investors minds, financial markets fell. When those worries receded and it looked like the financial world wasn’t headed off one cliff or another, financial markets rallied.

Two things should worry you as we head into 2013.

First, if you look past the worries about the U.S. fiscal cliff, investors, Wall Street, and economists are actually relatively optimistic as 2012 ends and 2013 begins. That’s the big reason that stocks—especially U.S. stocks haven’t sold off heavily on continued bad news about negotiations—or the lack thereof—on the financial cliff.  Consider this story that crossed the wires just about a week ago: Corporate earnings in China will climb by 10% in 2013, according to Russell Investments, and Goldman Sachs raised its economic forecast for China for 2013. Why is this a worry? Because some stocks and some markets are starting the year discounting a hunk of good news and that lays the foundation for disappointment. It’s important to remember that once we get past the fiscal cliff, 2013 could still turn out to be disappointing.

Second, it’s likely that the narrative for 2013, like that for 2012, isn’t going to unroll in a straight line. We’re likely to be disappointed to learn by the end of 2013 that the EuroZone “solution” for Greece doesn’t work, and that the U.S. economy just can’t seem to build up enough speed to generate gobs and gobs of jobs. And to get giddy when we learn that China’s growth has reaccelerated to 8.5% and that the auto industry is back (and not just in the United States.)

So what do you do with a year like 2013? (To be sung to the tune of “How do you solve a problem like Maria?”)

I think you divide your 10 best stocks for 2013 into three parts. Read more

I’d keep Arcos Dorados (ARCO) on my watch list for just a little longer even after Friday’s big tumble

When I put Arcos Dorados (ARCO), the largest McDonald’s (MCD) franchisee in the world and the largest restaurant operator in Latin America, on my watch list back on August 16, 2011 ARCO">http://jubakpicks.com/2011/08/16/faster-growth-than-mcdonalds-but-arcos-dorados-faces-some-unusual-risk-too/#symbol-ARCO  I said I loved the stock, but would sure like to buy it a bit lower.

Well, it’s down 45% from that August price—having tumbled17% on Friday, May 4, when its first quarter earnings missed estimates by 6 cents a share. The company reported earnings of 12 cents a share when analysts were expecting 18 cents. Earnings for the first quarter of 2011 were 15 cents a share.

Is it time to bite into a Latin American Big Mac? (The stock is down 0.63% today, May 7, as of 3:40 p.m. New York time.)

The huge tumble on Friday is intimately related to the reason I decided not to buy in August 2011. Read more

Hey, there are stocks beyond the headlines from China, Europe, and the U.S.–here are 6 from elswhere

So what’s happening everywhere else in the world?

Eyeballs are glued to the euro/Spanish/French/Greek debt crisis. Investors are shifting every data dump from the Federal Reserve, the Bureau of Labor Statistics, and corporate earnings in the hope of figuring out if the U.S. economy is slowing—and how quickly. China’s momentum mavens are busy calculating how close the Chinese economy might be to a bottom and the odds that each piece of bad news might be the one to lead to the next round of stimulus from the People’s Bank of China.

But what about the rest of the world? What stock markets and what stocks should investors be watching—and maybe putting some money into–that aren’t Europe, or the United States, or China?

Investing somewhere besides the markets in the headlines assumes that you believe that none of the current crop of potential bad news rises to the level of catastrophe. If one of the world’s big economies and financial markets goes down hard, the likelihood is that it will take down everything. If China really hits a hard landing—with 5% growth and increased social unrest, for instance—it’s unlikely that you’ll be able to find safety—let alone profits—in one of the world’s other financial markets. One lesson from the post-Lehman crisis is that if it’s a big enough crisis, everything heads down at once.

If on the other hand, these potential crises don’t either turn into great big crises or really into a crisis at all, then the “everywhere else” markets could be either 1) profitable ways to leverage a positive result from any of the world’s headline grabbers, or 2) profitable ways to diversify a portfolio. Let me give the names of six stocks that exemplify those two groups. Read more

Faster growth than McDonald’s but Arcos Dorados faces some unusual risk too

Just looking at growth rates, if you want to load up your portfolio with Big Macs, you should buy Arcos Dorados (ARCO) instead of McDonald’s (MCD). On August 1the largest McDonald’s franchisor in South America reported second quarter earnings of 7 cents a share, four cents a share above analyst estimates. Revenue climbed by 28.7% from the second quarter of 2010. (The company only went public back in April 2011.)

For all of 2011 the company told investors to expect revenue growth of 22% to 24%–up from prior guidance for 15% to 17% growth—and net income growth of 35% to 45%.

Sure beats the 11.3% earnings growth that Wall Street analysts are projecting for McDonald’s in 2011.

No wonder McDonald’s is trading at 17 times projected 2011 earnings and Arcos Dorados trades at 31 times earnings. That’s a PE to earnings growth rate ratio of 1.5 for McDonald’s and .89 for Arcos Dorados (using the lower end of the company’s 25% to 45% net income projected growth rate.)

Time to snap up some shares, right, even though the stock has rebounded to $24.91 as of 1:00 p.m. New York time today, near the top of its 52-week range, from $22.03 on August 8 and $19.98 on July 18.

Well, not unless you understand exactly how tough a battle Arcos Dorados faces fighting inflation in Argentina and Brazil. Read more