Monday’s Large Cap Outperformers Could Indicate 2013’s Rally Stocks

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The market is notorious for following trends, as investors use recent history as an indication of how to play certain stocks, industries, and sectors. In 2012 we saw a sudden rise at the new year after a very crushing final six months of 2011. Nothing fundamental had changed in the market, but new years tend to create optimism, the chance to start over, and it’s possible that Monday gave us a glimpse into how investors and funds plan to play 2013.

It’s no secret that most funds rebalance at the start of a new year. They take a look at the market, perform due diligence, and then add individual stocks to the indexes that they track. This last year we saw the emergence of companies such as Bank of America, Sprint, The Home Depot, and the auto industry. And rest assured, funds will be looking for any sign of companies that might lead the market in performance during 2013.

So what might funds and investors be looking for in 2013? Which company might be the Bank of America in 2013? This is no doubt the million dollar question. This year, I am using a very simple formula for determining which stocks might be on the “buy” list of large funds. I am looking at stocks that outperformed the market during the last trading day of 2012, with little or no news. I think it could be an indication of funds buying early, or investors preparing themselves for a new year. With that being said, let’s take a look at a few of these stocks, and why each might rise.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>2012 Performance</p> </td> <td> <p>12/31/2012 Performance</p> </td> </tr> <tr> <td> <p><strong>Apple</strong></p> </td> <td> <p><span class="ticker" data-id="202686">(NASDAQ: <a href="">AAPL</a>)</span></p> </td> <td> <p>31.4%</p> </td> <td> <p>4.43%</p> </td> </tr> <tr> <td> <p><strong>Hewlett-Packard</strong></p> </td> <td> <p><span class="ticker" data-id="203900">(NYSE: <a href="">HPQ</a>)</span></p> </td> <td> <p>(44.68%)</p> </td> <td> <p>4.17%</p> </td> </tr> <tr> <td> <p><strong>Nokia</strong></p> </td> <td> <p><span class="ticker" data-id="204739">(NYSE: <a href="">NOK</a>)</span></p> </td> <td> <p>(18.05%)</p> </td> <td> <p>3.67%</p> </td> </tr> <tr> <td> <p><strong>Caterpillar</strong></p> </td> <td> <p><span class="ticker" data-id="203043">(NYSE: <a href="">CAT</a>)</span></p> </td> <td> <p>(1.09%)</p> </td> <td> <p>3.22%</p> </td> </tr> <tr> <td> <p><strong>Freeport-McMoRan</strong></p> </td> <td> <p><span class="ticker" data-id="203558">(NYSE: <a href="">FCX</a>)</span></p> </td> <td> <p>(7.04%)</p> </td> <td> <p>3.20%</p> </td> </tr> </tbody> </table>
  • I have said for the last month that in order for Apple to fall by $200 from its all-time high that institutions would have to be selling aggressively. Apple had been such a solid performer for so many years that it makes sense for institutions to sell when the stock pulled back. However, on Monday, I think its gains were a result of funds preparing for a Q1 rally, as funds rebalance and buy Apple cheap. With new product launches and an unparalleled ecosystem, Apple looks to have a great year.
  • As Hewlett-Packard has trickled lower in 2012 it’s now at the epicenter of takeover rumors. Now that the fiscal cliff has passed, and companies have a better idea of the economy, I think Cisco might finally make a push for the troubled tech giant. Either way, the stock is cheap and speculation might fuel gains.
  • In some ways it’s difficult for me to even mention Nokia as a top performer of 2013 because I do not believe in its re-emergence. However, it has rallied in the last few months, and still trades with a price/sales of just 0.34. Therefore, the stock could in fact trade higher in 2013 as some believe in the upside of the Windows phone and the Nokia Lumia brand.
  • Caterpillar’s fundamentals are expected to be near even for 2013, yet the stock is trading at a particularly undervalued price compared to its fundamentals. As of now, we are seeing some major improvements in China’s manufacturing data, and if this continues Caterpillar looks poised to have an incredible year. Therefore, watch for institutions and investors to rebalance CAT into their portfolio.
  • Freeport’s two major acquisitions were frowned upon by Wall Street, but regardless, it’s difficult to deny the high-margin business of oil. Furthermore, Freeport now has a great presence in the Gulf of Mexico and completed the financing to secure its latest acquisitions. With it trading at just 7.40 times next year’s earnings, watch for significant interest among large funds.

Compared to growth and fundamentals, each of these stocks underperformed in 2012. Apple is the only one that posted a gain, but considering the level at which it grew most would say that Apple is undervalued and underperformed. Therefore, each of these companies, in some ways mirror Bank of America back when 2012 began, and could trade higher in 2013.

Seeing as how the market follows trends and is always attempting to follow the patterns of the past, I do think there is some merit to the idea that Monday’s strong performers could rally in the new year. I do not know if these stocks can maintain gains throughout the year, but it is very likely that we see continued gains throughout the first month, or two, of 2013.  

BrianNichols owns shares of Apple. The Motley Fool owns shares of Apple and Freeport-McMoRan Copper & Gold. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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