We may not have a crystal ball to peer into the future, but we do have proprietary statistical models using key financial metrics that can give us a good idea of what to expect over the next 12 months. And looking at these models, we have selected the following seven investments we expect to be among the best performers a year from now.
You'll notice that this isn't a list of just seven stocks or seven funds; for this list we combed every investment vehicle we analyze to give you the best edge on what we see happening in the year ahead. You won't be able to do that by just sticking with one type of vehicle. In 2007, you'll need every type of arrow for your quiver.
. We don't see any end in sight for increased defense spending, so we believe
PowerShares Aerospace & Defense Portfolio
is a strong play.
The A-rated exchange-traded fund returned 20% in 2006. It is 50% invested in aerospace/defense, 13% in media, 11% manufacturing, 8% electronics, 5% computers and 4% metal fabricate/hardware. The largest holdings are
These stocks are set to fly again this year.
Even if defense spending doesn't continue to grow, Boeing, for one, will continue to grow as Airbus continues to struggle with production and delivery problems.
. Calling on the telephone will never go out of style, at least not within the next 12 months. Because of this, we chose
Vanguard Telecommunications Services
This A-plus rated ETF returned 36.7% in 2006, with 100% invested in U.S. stocks. The holdings were divided by 97% telecommunications, 2% Internet and under a percent of software. Top holdings include
. Because communications growth has been much stronger outside the U.S. for the past several years, we're taking a close look at
GAMCO Global Telecom
This A-plus rated fund is well diversified globally: 38% U.S. holdings, 30.5% European, 6.5% Asian Pacific (excluding Japan), 8.6% Latin America, 12.1% Canadian and 4.2% Japanese. Telecom worldwide offers great growth opportunities, especially in wireless communications, where the fund has 25.3% of its holdings. The fund also has cable, satellite and entertainment stocks.
For those interested in picking their own stocks, check these out:
. Because locating people and objects via global positioning systems is becoming more popular, we selected A-rated
. The company is a GPS service provider, primarily to commercial and government customers. It is also a market leader in construction, surveying, agricultural guidance and asset and fleet management. To further expand its suite of services and capabilities, Trimble recently agreed to acquire
for $496 million, or $7.50 a share, in a cash and stock deal. The company expects the acquisition to add to its earnings by fiscal year 2008.
Three months ago, Trimble signed a deal to cross-license with
, adding GPS technology to mobile phones. We also like its strong worldwide presence -- nearly half of its revenue comes from outside North America -- and its strong revenue and operating income growth, which have been trending upward for years.
. To much fanfare, software giant
will be launching Vista, yet another operating system that will spur worldwide demand for related software. That's one of the reasons we chose
The company has a C rating, but this is attributed to a difficult integration of its Macromedia acquisition, which has affected the company's financial performance. However, we believe that earnings will improve this year and that the company will benefit from the Vista launch as well as the continued proliferation of mobile graphic applications.
Its popular Creative Suite application software, used by professionals for Web design and publishing, will release version 3 in the coming months. It's the first update to this major product in more than two years and the first time that Creative Suite will work seamlessly with Intel-based
This should also be a big year for software providers as businesses and consumers upgrade to Microsoft's Vista. As this operating-system-induced upgrade cycle rolls out, Adobe's customers will also upgrade other software, including the essential PDF file applications -- all of which should show up on the bottom line by year-end.
But forget looking at the short-term technical charts; this one is only suitable for longer-term investors.
. According to the Department of Health and Human Services, the number of Americans over 65 years old will more than double by 2030 from 2000. Because the U.S. population is aging and this is the first year for the expanded third-party insurance coverage on drugs and supplies, we like the B-minus-rated
Schwab Health Care Focus Fund
This open-end fund, like the entire tech sector of the market, has fallen behind the rest of the market in recent months. But it is one of the small handful to maintain a buy rating (B-minus or above), down from an A as recently as September 2006. It is 55.6% invested in pharmaceuticals and biotech and 42.6% in health care equipment. Exposure to biotech, pharmaceuticals and health care provides good diversification to the other 2007 selections.
For those intrepid active investors looking to add a pure drug distribution play, we suggest taking a look at health care distributors, one of the few stock sub-groups with strong buy recommendations. Stocks in this group include
PSS World Medical
Owens & Minor
And last but not least, a diversifying industrial idea:
total return investing is best done with quality dividend-paying stocks, we like the outlook for
, the world's largest manufacturer of construction and mining equipment. The stock is attractive at $60 per share, has an 11.5 PE ratio and an above average relative dividend yield ratio. This is a classic value play where one can earn interest while waiting for higher earnings to emerge from this company's mining, energy and infrastructure growth, primarily in non-U.S. markets.
This year Caterpillar is moving its Asia Pacific operations from Japan to faster-growing China, which represents the single-largest opportunity for future sales of Caterpillar products. Certainly a lower dollar exchange rate will also help fuel next year's activity. But the company's management is cautiously optimistic about growth for 2007 and seems to have scared the financial markets by lowering above-average growth estimates for 2007. Monthly dealer statistics confirm that U.S. retail sales are indeed down, but even a modest recovery in these numbers could force a stock revaluation upward.
For those not afraid of unpopular stories, this is the one to selectively add to your portfolio in 2007 with an eye toward 2008 and the Olympic (Beijing) prize.
Rudy Martin is the director of research for TheStreet.com Ratings. In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
While Martin cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.