InvestorPlace.com launched a feature in late December highlighting the 10 Best Stocks for 2012. The idea was to offer a list of buy-and-hold investments that, if held all year, would provide market-beating returns for individual investors.
It’s awfully early in our little contest, but so far the 10 Best Stocks list has simply blown away the broader market. Thus far, the Dow is up about 6% and the S&P is up about 8% year-to-date. Our 10 stocks average a stunning 17% gain!
What’s more, nine of the 10 stocks are in the green — and eight of 10 are up by double digits!
Obviously there’s a lot of time left in 2012, and a lot of things can happen. But it’s worth pointing out the big winners so far.
Here’s a recap of InvestorPlace.com’s 10 Best Stocks for 2012:
No. 10: Hershey
Current Return: -2%
Investor: Jon Markman
The lone decliner on the list of 10 Best stocks, don’t count Hershey (NYSE:HSY) out just yet. Jon Markman’s original recommendation of the confectioner pointed out a rather bearish outlook for the broader market in 2012, and strength in Hershey based on its low-risk potential.
“Hershey is a best-of-breed operator that deserves and gets a premium valuation. Even in a tough environment, it could appreciate by 10% or more,” Jon wrote.
The trouble is that after a 31% run in 2011, as investors took shelter in Hershey’s low-risk appeal and decent dividend, Wall Street now is looking for growth. Defensive plays like consumer staples and utilities stocks have lagged the market so far.
But if things get rocky, the low-risk appeal could cause this top stock to rise in a hurry.
No. 9: Arcos Dorados
Current Return: +6%
Investor: Josh Brown
Arcos Dorados (NYSE:ARCO) is Spanish for “Golden Arches” and operates one of the largest McDonald’s franchisees in the world — focused mainly on Latin America. As Josh Brown wrote in his original ARCO stock recommendation, Arcos Dorados is a play on four key themes:
- Expanding consumer spending in Latin America
- The ferocity of McDonald’s as a global brand
- Growth within a defensive sector
- The comeback potential for emerging-market equities in 2012
Arcos Dorados continues to hit all the right notes on those four original points. Unfortunately, ARCO is lagging some other emerging-market stocks — consider that the iShares MSCI Emerging Markets Index ETF (NYSE:EEM) is up 15% year-to-date gain — but still is riding the upward trend.
And as Josh wrote in a recent Arcos Dorados stock update, the company reports Q4 earnings on Feb. 22. That will be the real litmus test for how this company is growing after its 2011 IPO.
No. 8: Banco Santander
Current Return: +11%
Investor: Jim Jubak
Jim Jubak summed it up nicely in the headline of his initial recommendation, “A European Bank Is Your Best Buy for 2012 … Really!” That European bank was Banco Santander (NYSE:STD), a Spanish financial stock at the heart of the eurozone meltdown.
So far, though, Jim has been right on with his assessment that the worst is past and STD stock has strong upside. He wrote in his original recommendation, “I think Banco Santander’s price has been a victim to standard investor behavior: In a panic, the motto is ‘Sell everything and sort it out later.’”
Bargain hunters have been rewarded with a double-digit gainer so far in 2012. And if the eurozone nonsense continues to move toward some resolution of Greek debt, there could be bigger gains ahead.
Of course, if there’s a default, it could be trouble too. As Jim points out, the panic mentality isn’t rational. Every European stock, even STD, could suffer in the event of a Greek default.
No. 7: FedEx
Current Return: +14%
Investor: Paul R. La Monica
Paul R. La Monica, the brains behind CNNMoney’s daily “The Buzz” column and a prolific tweeter at @LaMonicaBuzz, is not one to let the market’s hourly antics pass him by. But for our InvestorPlace.com feature, the CNNMoney assistant managing editor made a pick with a much longer time frame behind it — and it has turned out nicely.
His reasons to select FedEx (NYSE:FDX) for our little contest: A low-risk investment with the ability to profit for organic growth if and when a recovery takes shape in 2012.
“Don’t get me wrong. I don’t think the economy is going to surge in 2012,” Paul wrote in his original FedEx post. But I don’t think it’s going to pull a Tom Petty and freefall out into nothing, either.”
So far, the bull market of the first several weeks this year have really lifted stocks — and FedEx has outperformed nicely thanks to investor optimism. The real question is whether FDX will continue to rev up in 2012 or if it will downshift if the economy hits a snag later this year.
No. 6: Turkcell
Current Return: +15%
Investor: Charles Sizemore
Charles Sizemore, editor of the Sizemore Investment Letter, is a firm believer in emerging markets as part of your portfolio. Last year, Charles picked the Best Stock for 2011 with his recommendation of Visa (NYSE:V) — based in large part on a thesis of strong emerging market growth for the payment processor. And this year, he once again looked to overseas opportunities with Turkcell (NYSE:TKC).
“The best-performing stocks on the (Best Stocks for 2012) list are some of the most cyclical, and I am quite happy to see that,” Charles said in a recent Turkcell update. “It means investor risk appetites are returning. Barring a major blowup coming out of Europe, I expect this to continue, and I recommend investors maintain overweighted positions in the beaten-down markets of Europe and emerging markets.”
In short, TKC was a bargain buy amid the panic and should continue to show strength as the eurozone moves towards some favorable conclusion to the debt crisis.
Of course, like Santander, we could see a backslide in Turkcell stock if things go south for Greece. However, it’s hard to argue with market-doubling returns year-to-date in TKC.
No. 5: Capital One
Current Return: +15%
Investor: Philip van Doorn
In his initial article, “Capital One: Top Bank Stock Pick for 2012,” TheStreet.com contributor Philip van Doorn makes the case that financials in general aren’t as bad as you think — and certain smaller banks like Capital One (NYSE:COF) are, in fact, ready to soar.
His reasons included “continued strength in earnings and a historically low valuation to forward earnings estimates and book value.” And those reasons continue to hold firm, delivering Philip’s pick impressive year-to-date returns of 17%.
It’s worth noting, too, that the broader financial sector has just been on a tear. Bank of America (NYSE:BAC) is up more than 43% so far in 2012, and Citigroup (NYSE:C) is up more than 25%.
There are real risks of financial stocks overheating, since earnings remain choppy amid persistent eurozone troubles and continued foreclosure problems. But the gains so far leave a very nice cushion in Capital One and other financial stocks.
No. 4: Alcoa
Current Return: +19%
Investor: Jeff Reeves
My personal pick for the Best Stocks for 2012 lineup is Alcoa (NYSE:AA). My thesis was a simple one — the valuation was great, the company already had flopped dramatically from pre-recession levels and streamlined its way back to profitability, and there really was nothing but upside considering that aluminum has a certain baseline demand built in. If Alcoa wasn’t at the bottom in December, I reasoned, it was pretty darn near the bottom.
That buy was very well timed, with Alcoa soaring 19% so far to start out 2012. Most recently, Alcoa earnings showed a quarterly loss (as expected) but offered encouraging revenue increases. What’s more, aluminum prices remain at rock bottom — and Alcoa has continued to adjust production to ensure supply is as thin as possible. That means there really is nowhere to go but up as demand increases and prices rise.
OK, that’s an oversimplification. A shock in Greece and continued weak demand from the housing and manufacturing sectors could cause aluminum demand to remain at ultra-low levels for years to come. But there are reasons to be cautiously optimistic about the recovery, and bullish on Alcoa after its previous troubles in 2011.
Disclosure: Jeff Reeves owns a personal position in Alcoa stock.
No. 3: Microsoft
Current Return: +21%
Investor: James Altucher
When making his call for InvestorPlace.com’s 10 Best Stocks for 2011 a year ago, James Altucher picked “A tiny company called Microsoft (NASDAQ:MSFT).” James went back to the well again in 2012 with the same call for this year’s feature.
James picked Microsoft because it has:
- A forward price-to-earnings ratio of less than 8 (less cash), signaling bargain valuation.
- A $40 billion stock buyback plan to boost shareholder value.
- More than $30 billion in cash in the bank at MSFT, and predictable revenue.
That provides great value in the tech stock. But there also was growth potential in the fact that Microsoft could change smartphones forever with Skype. Granted, that’s not something that’s going to happen tomorrow — but if investors get excited about the prospect, it could really prop up this mature technology play.
So far, the value proposition alone has paid off for Microsoft. The stock has rallied nicely with the rest of the tech sector.
No. 2: Caterpillar
Current Return: +26%
Investor: Dan Burrows
If you’re looking for a broad-based recovery play, it’s hard to get better than Caterpillar (NYSE:CAT). The world’s largest maker of construction and mining equipment has its fingers in a lot of pies, and will benefit nicely from any sustained economic growth.
Judging by recent earnings, Caterpillar looks to be on the way up. The company saw increased global demand that boosted profit 60% in the most recent quarter on record sales.
“The 2011 increase in sales and revenues was the largest percentage increase in any year since 1947, and much of it was driven by demand for Caterpillar products and services outside of the United States,” CEO Doug Oberhelman said in a statement. “As a result, 2011 was a record-breaking year for U.S. exports at nearly $20 billion.”
So have you missed your ride on the CAT? Maybe not. Dan recently wrote a Caterpillar stock update that notes, “the stock trades at very compelling valuations, even at current levels.”
In short, there might be continued growth ahead for Caterpillar in 2012 even after these market-beating gains.
No. 1: MAKO Surgical
Current Return: +46%
Investor: David Gardner
Interestingly enough, though many of the stocks on our Best Stocks for 2012 buy list include broad-based plays on an economic recovery, the top performer on the entire list is a very niche medical company that is seeing strength on a very narrow product line rather than any overall optimism.
MAKO Surgical (NASDAQ:MAKO) was pitched by Motley Fool co-founder David Gardner, and his original write-up had the headline, “This Innovative Joint Replacement Stock Will Thrive in 2012.” MAKO has a cutting-edge joint replacement technology that helps reduce the amount of recovery time and rehab for patients, and its surgery gear is in high demand.
This is a highly speculative play, of course, since it’s a small-cap medical device company. But based on recent stock performance and momentum behind the company, it appears that MAKO could have a blockbuster technology on its hands that is playing right into the demographic trends of aging baby boomers in need of a higher quality of life in retirement.
Is 46% in less than two months too much too soon? Maybe. But if not, David’s pick could easily prove a doubler in 2012.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.