5 Stocks That Will Outperform In A "Post Cliff" World
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
January 1st has come and gone, and the world is still here - at least for now.
Both the U.S. Senate and House of Representatives approved a bipartisan deal to block most impending tax increases and postpone spending cuts. The news was celebrated by most investors who saw technology and small-capitalization stocks rise amid a broad equity rally.
According to the Wall Street Journal:
The Dow Jones Industrial Average shot up 308.41 points, or 2.35%, to 13,412.55 for its biggest one-day jump in over a year. Together with Monday's New Year's Eve rally of 166 points, or 1.3%, the blue-chip measure has notched up its biggest point gains ever for the last day and the first day of the year.
The Standard & Poor's 500-stock index climbed 36.06 points, or 2.53%, to 1462.25 while the Nasdaq Composite jumped 92.75 points, or 3.07% to 3,112.26.
It was apparent that at the heads of the class were telecom and technology stocks. A few others also lifted the Nasdaq benchmark. In this article, I will explain why Wal-Mart (NYSE: WMT), Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL) and Verizon (NYSE: VZ) are the best choices for a 'Post-Cliff' market. I chose these four stocks because I believe they present the best opportunity for investors in 2013 based on macro and microeconomic factors.
Companies that the typical American household has come to rely upon have become great because of a simple powerful strategy. Their business decisions are researched, planned, and intentional. They pick the battles they know they can win. Sometimes winning is the annihilation of an opponent - other times it's just a gradual chipping away at another's market share.
A perfect example of the stolid, household name is Wal-Mart. Wal-Mart is the go-to for all things consumer. In 2009 and 2010, hard economic times for many, Wal-Mart was generating numbers such as $405 billion in revenue. This revenue created over $13 billion in net income for the same period. Employing more than two million associates and 7,200 stores worldwide, Wal-Mart is one of the largest private employers in North America today.
Wal-Mart also stays competitive in its pricing and supplying the ever-evolving tastes of consumers. A good example of this is Wal-Mart's recent foray into the streaming game. Its deal with Vudu that allows customers to upload the DVDs they already own to a cloud-based platform for as little as $2 to $5 as well as virtually unlimited streaming shows its forward thinking. The current heavyweights in the movie streaming game such as Netflix (NFLX) and Amazon (AMZN) are undoubtedly feeling the fear of competing with such a force.
In short, when times get tough, people shop at Wal-Mart. During the coming economic uncertainty, I believe Wal-Mart will continue to be a strong performer. Its performance has been short of competitor Costco Wholesale, however, I see Wal-Mart staying more consistent as membership fees to many things (gyms and discount stores alike) are questionable.
Google is also a definite buy in the coming year.
It was interesting to see how the tech titan would deal with the Facebook (FB) challenge. I believe it played its cards right, sitting back and allowing a poorly led company demolish itself. But the quiet response was also ingenious. Over the past year, Google has slowly spread the use of its Google+ operation by integrating it with several other products, such as Gmail, YouTube, and even business listings.
Now, people using Google to search for reviews of a restaurant, for example, are steered to the restaurant's Google+ page. In recent months, Google has begun requiring people who want to post their reviews of restaurants or other businesses to use their Google+ profiles to do so. The same rule applies for reviews of physical goods or mobile apps obtained through Google. What is more, as part of a 'post-cliff' celebration, it has just announced a new music service accessible on Google Play Music. It has a new scan and match feature, which will no doubt push competitor Apple to answer in kind.
This new music service will force more people to rely on Google for more things: A recipe for steady growth if done without angering your customers.
There is no doubt after the iPad 3 launch, the most successful launch of any product, ever, that the company will succeed in beating back any competition. Apple has been the dominant provider of both smartphones and tablets and I believe will remain so in the coming year.
While it is true the company has seen decline from its peak in September, I believe this is due to investors with large gains taking their capital gains before 2013 when such capital gains rates will go up. Apple is too strong a company, and has too great a track record, not to be a big performer in 2013. It's visionary leadership and innovation has kept it at the top of technology industry.
This is not to downplay all that its competitor, Microsoft (MSFT) is doing to win back its spot at the top. The recent ads for the Windows phone and its leveraging partnerships with phone companies, chip makers, and distribution companies in growing economies (ie. Southeast Asia) are great moves. However, it is my opinion Apple will continue to remain on top.
My final pick for 'Post-Cliff' stocks is Verizon. Telecom stocks, high dividend payers that benefited from Congress' decision to limit any increase in dividend tax rates, were especially strong after Congress' deal was struck.
Continuing growth of wireless combined with dividend yield add up to a solid buy with minimal risk. According to some, dividend investors have been looking towards the telecom industry in search of companies with good growth prospects. Investors have been attracted by inelastic demand for wireless products, combined with dividend yields above 5%.
The mobile phone isn't going away, nor will it stagnate. The massive rise in smartphone purchases and data consumption needs from consumers is a bright green signal for the telecom giants like Verizon. With the advent of 4G the mobile browsing experience has never been better. It is estimated that mobile use and purchases generated economic activity of nearly $200 billion and spending on wireless and wired network infrastructure will grow to $296 billion by 2015.
Verizon is the largest telecom provider in the U.S., and has no plans for slowing down. It continues to be a powerhouse through its smart acquisition activity and increasing revenue. It also lures in investors by offering an inverse relationship dividend so investors reap the benefit of an increasing dividend if the stock price starts to fall.
I believe 2013 will be an exciting year filled with opportunities for the telecom industry. Verizon is a promising buy.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. 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!