Based on what we've seen so far this year, it appears that the world economy is slowly gaining momentum, with the U.S. looking especially robust. There is no reason to believe this won't continue into 2014.
So what does this mean in terms of your investment decisions for the year ahead? Assuming the recovery will continue, your emphasis should definitely be on the stock market.
That does not mean that you should avoid fixed income investments - they should always be a part of a portfolio because of the stability they provide. But returns are likely to continue to be very low for a while. The best course is to take defensive positions, such as short-term bond funds.
On the equities side, i would look first at New York, which offers much greater diversification than you'll find here in Canada. I have culled through our Recommended List for the stocks I think should do especially well in this climate and selected five from the U.S. for you to consider. Here are the details.
U.S. stocks
Boeing Co. (BA, Financial). This is the largest plane manufacturer in the U.S. with a market cap of $100 billion (all dollar figures in this segment are in U.S. currency). The stock was first recommended by contributing editor Glenn Rogers on Jan. 21 of this year at $88.89. It closed on Friday at $135.18, which means we already have a capital gain of 52%. The shares pay an annualized dividend of $1.94 to yield 1.4% at the current price.
At the current level, the stock is showing a trailing price/earnings (p/e) ratio of 24. However, the forward p/e, which is based on analysts' forecasts for the coming year, is a more reasonable 17.9.
I like the prospects for Boeing going forward. The kinks are being ironed out of revolutionary Dreamliner (although the process is taking longer than expected) and the new plane is already in high demand because of its cost efficiency. This is a company that has great growth prospects going forward.
Wells Fargo (WFC, Financial). Many Canadians don't realize just how big Wells Fargo has become. With a market cap of almost $230 billion, it is larger than JPMorgan Chase, Citigroup, or Bank of America and more than triple the size of Goldman Sachs. Not only is it big but it is one of the strongest American banks - it very reluctantly accepted government bail-out money at the time of the 2008 financial meltdown and repaid it as quickly as possible.
I recommended the stock last Jan. 28 at $35.14. We have seen a nice bump since with the shares closing on Friday at $44.11 for an advance of 25.5%. The company pays an annual dividend of $1.20 a share to yield 2.7%.
The valuations are quite attractive. WFC has a trailing p/e of 11.6, much lower than Bank of America (23.9) or Citigroup (12.1). The forward p/e is 10.7.
The U.S. banking sector has a whole made a strong comeback this year and Wells Fargo is one of the best of the bunch. It should be your first choice among American financial stocks.
Starbucks (SBUX, Financial). If you don't know about Starbucks you must be living under a rock. The ubiquitous coffee retailer seems to have an outlet on every second corner and they're always busy. The company has a market cap of $60 billion - by comparison, Tim Hortons is at $9 billion.
This is not a cheap stock. The 12-month trailing p/e is a high 35.4 while the forward p/e is 24.9. But the company has a strong history of growth.
Starbucks was originally recommended by Glenn Rogers in September 2011 at $39.20. Since then it has more than doubled, closing Friday at $79.94. The shares pay a dividend of $1.04 to yield 1.3%.
Beam Inc. (NYSE: BEAM). This big American beverage alcohol producer was first recommended by contributing editor Gavin Graham on Sept. 17, 2012 at $58.97. The shares closed on Friday at $66.71 so we have a gain to this point of 13.1%.
The company manufactures and distributes several well-known brands including Jim Beam bourbon, Canadian Club whiskey, Teacher's scotch, and Courvoisier cognac. Liquor companies seem to thrive no matter what economic conditions prevail and Beam should do even better in a recovering economy.
The company has a market cap of $10.7 billion. The trailing p/e ratio is on the high side at 26.9 while the forward p/e is 23.3. The shares pay an annual dividend of $0.90 to yield 1.3%.
Norfolk Southern (NSC, Financial). This U.S. railway operates on 20,000 miles of track located in the east, mid-west, and south. This is a recommendation from contributing editor Tom Slee who brought it to our attention in December 2009 when the stock was trading at $52.52. It closed Friday at $89.67 for a gain to date of 70.7%.
It has a market cap of $27 billion and is reasonably priced. The trailing p/e is 16.3 while the forward p/e is 13.8. The stock pays an annualized dividend of $2 a share to yield 2.2%.
We like the prospects for the railroads as a group and this is a very efficient company. It should continue to do well.
Note that none of these stocks has a high yield. I believe we are moving into a new market cycle that will put a premium on growth.
So what does this mean in terms of your investment decisions for the year ahead? Assuming the recovery will continue, your emphasis should definitely be on the stock market.
That does not mean that you should avoid fixed income investments - they should always be a part of a portfolio because of the stability they provide. But returns are likely to continue to be very low for a while. The best course is to take defensive positions, such as short-term bond funds.
On the equities side, i would look first at New York, which offers much greater diversification than you'll find here in Canada. I have culled through our Recommended List for the stocks I think should do especially well in this climate and selected five from the U.S. for you to consider. Here are the details.
U.S. stocks
Boeing Co. (BA, Financial). This is the largest plane manufacturer in the U.S. with a market cap of $100 billion (all dollar figures in this segment are in U.S. currency). The stock was first recommended by contributing editor Glenn Rogers on Jan. 21 of this year at $88.89. It closed on Friday at $135.18, which means we already have a capital gain of 52%. The shares pay an annualized dividend of $1.94 to yield 1.4% at the current price.
At the current level, the stock is showing a trailing price/earnings (p/e) ratio of 24. However, the forward p/e, which is based on analysts' forecasts for the coming year, is a more reasonable 17.9.
I like the prospects for Boeing going forward. The kinks are being ironed out of revolutionary Dreamliner (although the process is taking longer than expected) and the new plane is already in high demand because of its cost efficiency. This is a company that has great growth prospects going forward.
Wells Fargo (WFC, Financial). Many Canadians don't realize just how big Wells Fargo has become. With a market cap of almost $230 billion, it is larger than JPMorgan Chase, Citigroup, or Bank of America and more than triple the size of Goldman Sachs. Not only is it big but it is one of the strongest American banks - it very reluctantly accepted government bail-out money at the time of the 2008 financial meltdown and repaid it as quickly as possible.
I recommended the stock last Jan. 28 at $35.14. We have seen a nice bump since with the shares closing on Friday at $44.11 for an advance of 25.5%. The company pays an annual dividend of $1.20 a share to yield 2.7%.
The valuations are quite attractive. WFC has a trailing p/e of 11.6, much lower than Bank of America (23.9) or Citigroup (12.1). The forward p/e is 10.7.
The U.S. banking sector has a whole made a strong comeback this year and Wells Fargo is one of the best of the bunch. It should be your first choice among American financial stocks.
Starbucks (SBUX, Financial). If you don't know about Starbucks you must be living under a rock. The ubiquitous coffee retailer seems to have an outlet on every second corner and they're always busy. The company has a market cap of $60 billion - by comparison, Tim Hortons is at $9 billion.
This is not a cheap stock. The 12-month trailing p/e is a high 35.4 while the forward p/e is 24.9. But the company has a strong history of growth.
Starbucks was originally recommended by Glenn Rogers in September 2011 at $39.20. Since then it has more than doubled, closing Friday at $79.94. The shares pay a dividend of $1.04 to yield 1.3%.
Beam Inc. (NYSE: BEAM). This big American beverage alcohol producer was first recommended by contributing editor Gavin Graham on Sept. 17, 2012 at $58.97. The shares closed on Friday at $66.71 so we have a gain to this point of 13.1%.
The company manufactures and distributes several well-known brands including Jim Beam bourbon, Canadian Club whiskey, Teacher's scotch, and Courvoisier cognac. Liquor companies seem to thrive no matter what economic conditions prevail and Beam should do even better in a recovering economy.
The company has a market cap of $10.7 billion. The trailing p/e ratio is on the high side at 26.9 while the forward p/e is 23.3. The shares pay an annual dividend of $0.90 to yield 1.3%.
Norfolk Southern (NSC, Financial). This U.S. railway operates on 20,000 miles of track located in the east, mid-west, and south. This is a recommendation from contributing editor Tom Slee who brought it to our attention in December 2009 when the stock was trading at $52.52. It closed Friday at $89.67 for a gain to date of 70.7%.
It has a market cap of $27 billion and is reasonably priced. The trailing p/e is 16.3 while the forward p/e is 13.8. The stock pays an annualized dividend of $2 a share to yield 2.2%.
We like the prospects for the railroads as a group and this is a very efficient company. It should continue to do well.
Note that none of these stocks has a high yield. I believe we are moving into a new market cycle that will put a premium on growth.
