Not the prettiest compromise I’ve ever seen, but we can live with it! Investors jumped for joy yesterday after Congress cleared a tax bill that eliminated the most dangerous features of the fiscal cliff. Stocks zoomed, with the S&P 500 closing only 3 points below a five-year high.
Bear in mind, though, that the New Year’s compromise only applies to the tax side of the equation. Congress has granted itself another two months to tackle the spending side. As those issues unfold, we can expect plenty of rancorous debate … perhaps even another threat of default on the government’s debt.
Rather than getting caught up in the rollercoaster ride of our headline-driven market, though, the smartest investment strategy is to concentrate on what you know. With that in mind, here are four small certainties you can count on in 2013:
- Dividends and interest will put money in your pocket, even if the stock market falters: I’m hoping the headline equity indices will deliver another solid gain in the next 12 months. Regardless, investors who insist on current cash yield will be amply rewarded. In a rising market, dividends and interest will add to your total return. In a falling market, you can reinvest your cash flow to buy more shares than you could at today’s prices.
- Bonds will cushion your portfolio from shocks on the equity side: Plenty has changed in the financial markets over the past decade, but it’s still true that bonds of all kinds (even “junk”) hold their value better than stocks in a severe equity market downturn. I’m not predicting such a decline, much less hoping for one, but I advise you to be prepared for any eventuality. Own a slug of bonds.
- Leaning against the crowd will help you buy lower and sell higher: Typically, the stock and bond markets give you a wide-open invitation to buy or sell at least once a year, and sometimes twice. The key is to watch for occasions when investor sentiment has gone to an unsustainable extreme, accompanied by weakness in various technical indicators. A reversal is then usually at hand.
- Global diversification will give you a growth tailwind: According to projections by the International Monetary Fund, the developing countries of the world will increase their real output of goods and services by 6% a year through 2017, versus only 3% for the United States. You don’t necessarily have to load up on emerging-market stocks to capture that growth. A sensible alternative is to buy multinational companies with powerful global brands.
In that vein, here’s a stock that will help you build some certainty in an iffy 2013:
A Perfect Pick for the Skeptical Investor
If you’re looking to play offense and defense simultaneously, you don’t want to miss Mondelez International (NASDAQ:MDLZ). It features a strong balance sheet and an entrenched global franchise. In addition, it pays respectable dividends, with room to boost them significantly in the new year.
Mondelez makes food, one of the safest investment categories there is. Created in October when Kraft Foods (NASDAQ:KRFT) spun off its North American grocery operations, MDLZ retains Kraft’s international brands (the faster-growing part of the business). Cadbury and Toblerone chocolates are a staple of the company’s lineup, along with Oreo and Ritz baked goods, as well as Trident and Dentyne chewing gum. All told, MDLZ boasts 11 brands with more than $500 million in annual sales.
At 16 times estimated 2013 earnings, MDLZ doesn’t appear, at first blush, to be steal-me cheap. What intrigues me, though, is the company’s long-term growth potential. Already, MDLZ derives 44% of its sales from emerging markets, a proportion similar to Coca-Cola (NYSE:KO) and higher than Nestle (PINK:NSRGY).
Mondelez also is paying out a fairly small 33% of projected 2013 profits as dividends. That means the company has leeway to raise its dividend sharply — a boon in the coming era of higher taxes. The current yield is 2%.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.