Regular readers of the Switzer Super Report know it has been a great year for those who took our guidance to be in great income-paying stocks for 2012. In fact, the dividend stocks portfolio we constructed for safety and say a 6-10% return, depending on your tax situation, actually topped 20%.
I love investing in companies that are safe dividend conveyances and deliver capital gain. The CBA stock is a classic case where you have been able to get 6-7% dividend yield, plus its share price went from $49.26 on December 30 of 2011 to $62.18 by the same day last year!
The dividend play is still a goer for 2013 but you will have to expose yourself to more cyclical stocks.
Unexpected stock rebound
Last year my family’s SMSF portfolio of stocks actually recorded a total return of over 27% and that was helped by a decision to go long BHP Billiton and Rio Tinto when their stock prices fell to $31.28 and $50.08 respectively. I didn’t expect such a quick rebound in share prices but I did believe in the China “won’t have a hard landing” story and that these two companies are leveraged to China’s overall future growth.
Helping my decision was analysis by a number of regular contributors to the Switzer Super Report. Recall, I often argued last year that this was a year to buy the dips. Ron Bewley and his sectoral analysis convinced me that materials were oversold and due for a rebound. Meanwhile, Lance Lai’s technical analysis generally told me when a sell-off was about to bottom. Before I buy a stock a lot of boxes have to be ticked — Buffett-style — but I like it when market analysts I respect add more weight to my assessment.
Overall I think 2013 will be good for stocks. Most of the US analysts I watch think US markets will be up around 10%. Sam Stovall of S&P, who was on the money with his tips for 2012 sees the S&P 500 index going up 8.5% this year. He points out that the first year of a presidency is usually the worst for stocks with the S&P up 5% on average but he says company valuations, expected earnings and the outlook for GDP growth are all very favourable for share price appreciation.
Meanwhile Matt Kidman who appears on my Switzer program on the Sky Business Channel points out that he thinks stocks could rise 20% this year. He argues after a period of protracted stock market performance you can have a big rebound year as scaredy cat investors get out of safe term deposits to join the market rally. The average 12-month rise of the All Ords in these years has been 42.55% and this happened in 1932, 1975, 1983 and 1993.
Now maybe we got the first leg of this big rise in the second half of 2012 after Mario Draghi said: “Whatever it takes!” and it could roll into 2013 but when you look at the positives lining up, it is easy to be pro-stocks.
Here are those positives in a nutshell:
- The fiscal cliff is fenced off temporarily;
- The Fed has promised easy money until unemployment hits 6% and it’s now 7.8%;
- The outlook for US economic growth is on the rise and US companies have enormous cash on their balance sheets which good growth could draw out and into the economy via investment;
- China avoided a hard landing and manufacturing is roaring back;
- Japan intends to ease up on monetary policy to chase growth and this is still our second best export customer;
- Our Reserve Bank could cut interest rates by 1% this year but I reckon it will be closer to 0.5%;
- The bond yields in Europe reflect less uncertainty and fear in the EU;
- The ASEAN countries are expected to go back to pre-GFC economic growth rates this year; and
- Energy costs are being contained by LNG developments, especially in the USA.
Look to history
Sure there are worries in the Middle East and we will have to cope with the nutcases in both European parliaments and the US Congress. And then there is the ongoing debt problem that will have to be addressed one day but for the moment, the goal is to get the world economy growing strongly again, and that’s when it is easier to repay debts.
I am expecting a nice rise of 10% plus for stocks but I will cop a 20% or 40% if it happens along. Remember, we are around 4,723 now but before the GFC hit we were at 6,828.7 and there is a bit of history, which says another crash does not come until you pass the old high on the index.
Of course, history can let you down – but it’s worth remembering if you are too nervous.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Margaret Lomas: Investing in mining town properties risky business
- Paul Rickard: Our higher income stock portfolio for 2013
- Tony Negline: Case study: retires? Sign a declaration