Here’s a holdover from 2011 that will be very important to your investing success in the year ahead: Don’t buy financial stocks. Plain and simple.
In fact, I’m putting this on the record and saying I expect financials to be the worst sector in 2012. I’ve written about the plight of this beleaguered sector many times before. Even my InvestorPlace colleagues have suffered at the hands of this declining behemoth. So, please trust me when I say, as an investor, you should stay as far away from this sector as you can if you truly appreciate the shirt on your back.
Just to name a few, take a look at the various organizations that have lost well over 40% in 2011:
Bank of America (NYSE:BAC) -59%
Citigroup (NYSE:C) -44%
E*TRADE Financial (NASDAQ:ETFC) -50%
Goldman Sachs Group (NYSE:GS) -46%
Jefferies Group (NYSE:JEF) -48%
Och-Ziff Capital Management Group (NYSE:OZM) -46%
Yes, some time has passed since the Lehman Brothers bankruptcy, and some improvements have been made in certain areas. Even now, financials are expected to grow just 0.3% in 2012. However, the housing market is still far from being stable, and financial stocks in general need to show a lot more improvement before my negative opinion of the sector as a whole changes any time soon.
I am an ex-banking analyst, and I can tell you firsthand that too many unresolved issues and too much exposure to the housing crisis remain for any significant profits to be made. Just look at housing and you’ll begin to see what I see. Approximately 11% of the homes in the U.S. are unoccupied, and more foreclosures are still in the pipeline. This is going to continue to create bad press and financial strain for the U.S. banking industry.
I want you to think of financial stocks like a new item on the menu of your favorite restaurant. You see it and it looks tempting, but the head chef personally comes out and tells you not to order it. He’s been in the kitchen, he knows something you don’t, and you should heed the warning.
This is the same situation: I have been in the kitchen, and financials are one dish you want to avoid in the year ahead.
New Year’s Prediction #4: Retail, The Hottest Sector of 2012