There still are a few stock bargains to be had, but after the stock market’s brisk Q4 rally (which began to stall Tuesday), they’re getting harder to find.
Caution: When a lot of the stocks and mutual funds I recommend move up and out of my buy ranges, it usually means the market is approaching a significant top. Readers who have been with me a while will recall that I frequently lamented the paucity of bargains in the weeks running up to the April 2010 and April 2011 tops. We’re not at quite the same pass yet, but we’re getting closer.
Just take a peek at Tuesday’s roster of NYSE stocks touching new 52-week highs. It’s studded with names I’ve recommended in my stock newsletter, Profitable Investing: Abbott Laboratories (NYSE:ABT), ConAgra (NYSE:CAG), Duke Energy (NYSE:DUK), Genuine Parts (NYSE:GPC), GlaxoSmithKline (NYSE:GSK), Kimberly-Clark (NYSE:KMB), Kinder Morgan (NYSE:KMP), Magellan Midstream Partners (NYSE:MMP), Marsh & McLennan (NYSE:MMC), McDonald’s (NYSE:MCD), NextEra Energy (NYSE:NEE), Pfizer (NYSE:PFE), Piedmont Natural Gas (NYSE:PNY), Pinnacle West (NYSE:PNW), Plains All American Pipeline (NYSE:PAA), Progress Energy (NYSE:PGN), Questar (NYSE:STR), Verizon (NYSE:VZ), W.P. Carey (NYSE:WPC) and Xcel Energy (NYSE:XEL).
Obviously, I’m delighted to be wrapping up the year with so many strong performers. However, I’m wary of the heights that some stocks have achieved — utilities in particular.
Starved by the Federal Reserve’s artificially low interest rates, conservative investors have stampeded into utilities and other “defensive” stocks, driving yields down. This is a dangerous state of affairs. Don’t chase any stock that made the new-highs list yesterday. In fact, if you don’t currently need the dividend income, you might consider taking profits on a few of these names with a view to buying back your position sometime during the first quarter of 2012.
But as I said earlier, there still are a few bargains worth buying on Wall Street. In the health care space, I continue to like Baxter International (NYSE:BAX).
The golds look interesting, too. Speculative sentiment toward the Midas metal has cooled noticeably during the past four months — a welcome development from a contrarian standpoint. If Europe’s sovereign debt troubles erupt again in the New Year, as I expect they will, bullion easily could climb to $2,000 an ounce (or even higher).
Buy Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM). Both stocks, in my judgment, should be able to roll up a total return — dividends plus capital appreciation — of 25% to 30% in the coming year. Favor NEM if you want a slightly higher dividend yield (2.3% currently, versus 1.3% for ABX).