Scott: Many stocks have been enjoying a very nice run since the November 16 lows, so some digestion/corrective activity makes sense. There is still no deal on the fiscal cliff and many traders have already started to pack up shop as 2012 is coming to a close. But as with any market, there is always an opportunity for stock picking and some nice setups. The key to navigating this type of market is to recognize that entries and exits do matter in order to stay in some type of "portfolio approach" and manage multiple positions.
Capex Exposure and Spend Cycle For 2012:
Two areas we are looking at are the Industrials and Megacap Tech which are high levered to capex spend. Net investment spend is still below pre-recession levels, commodity prices remain resilient, we still expect many more years of strong investment in US energy and November-April is a seasonally favorable time. Tech is one of our favorite areas, with names such as IBM (IBM), Oracle (ORCL) and CA Technologies (CA)...anything skewed to analytics and services. The reason we are looking at the ETFs and not individual Industrial and Tech names is to get more well-rounded exposure as a lot of these stocks are levered to the Chinese and emerging markets which brings us to another big theme for 2013:
Shift to Europe and Emerging Markets:
The Action Alerts Plus portfolio (run by Jim Cramer and Stephanie Link) has been all over the China story for months and recently initiated a new position in Vanguard MSCI Europe ETF (VGK) trying to capture more of that: We recognize that the economy in Europe remains depressed but have been encouraged by several recent economic data points that point to stabilization (Eurozone composite PMI manufacturing, PMI non-manufacturing, GDP, retail sales, auto sales) and along with the aggressive monetary policy changes, as well as last week's announcement of a European central banking authority, we see 2013/2014 as recovery years off of a very low base and low expectations. Also the fact that China continues to show signs of recovery as well is a positive for European equities as it is its second largest trading partner (the US is the first). We also believe Brazil and the rest of Latin America will be a key driver for 2013 as it also has significant raw material exposure to China.
Sector and Stock Specific:
We also think the online brokers could get very interesting in 2013. Scott and I first introduced our bullish-biased trade in November on TD Ameritrade (AMTD). Relative to peer, it is the cheapest in the group, sports the strongest profit and operating margins and pays a healthy dividend (and also declared a special dividend on December 10!). More importantly, we expect Average Daily Volume monthly numbers to improve in 2013 as the retail investor comes back to the market. While ADV was down for 2012, account assets have increased, and there is a lot of cash to put to work. AMTD's CEO mentioned at a Goldman Sachs conference on December 4 that he expects ADVs to improve month-over-month in 2013. The stock reacted favorably and the momentum has continued, confirming our thesis. Charles Schwab also (SCHW) just announced similar guidance on December 18. Pay attention to this group. William Blair, a sell-side research shop is catching on, having just initiated AMTD with a Buy on December 19.
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