Absolutely not. Economists may be writing off the economy, but investors shouldn't write off the stock market. Stocks start to recover a good six months before the economy does, and that means investors could see stocks start to move up as early as next fall.
My selection of top 10 best stocks for 2010 -- and my strategy for when to invest in them -- is designed to help you do three things:
Make some money (although not a lot of money) in the first half of the year.
Get you into position for a rally in the fall.
Make sure your portfolio is ready for 2010, when the economy itself is likely to be in recovery mode and the major long-term trends driving the global economy will be your key to market-beating returns.
Always thinking ahead
Stock prices are built on anticipation. The market indexes had been falling for months before we got the initial gross-domestic-product numbers in October showing the economy had started to contract in the third quarter. And best stocks market have kept falling since then as investors have anticipated that the economy would contract even more -- maybe at an annual rate of 4% or 5% -- in the three months that end in December.
Anticipation of an end to the recession and an economic recovery will start best stocks market moving up again well before the recession is actually over. The historical record shows that best stocks market start to recover, on average, about two quarters (or six months) before an economic recession ends.
In other words, if the U.S. recession ends in the fourth quarter of 2009 or, more likely, in the first quarter of 2010, then we can expect stocks market to rally starting in the summer or fall of 2009.
Timing is tricky
Timing the turn can't be exact. There's the risk of being early. The U.S. economy could struggle for longer than I now expect, and stocks could linger at low levels into 2010.
But there's also a risk of being late. If the bottom for the Chinese economy is in the second quarter of 2009, as Goldman Sachs now projects, then the global economy would start to pick up before the fourth quarter of 2009, and best stocks market would be likely to rally earlier than the fall of 2009.
So 2009 presents quite a strategic challenge.
In the first half -- or even three-quarters -- of 2009, you'll need to play defense. (But you don't want to be completely on the sidelines, just in case growth in China does bottom in the second quarter.) That means losing as little money as possible as best stocks of 2010 continue to founder while picking up a few percentage points of return here or there.
In the first part of 2009, I'd be very happy with anything like a 5% return from a stock portfolio. (Why not just stick it in supersafe Treasury bills or notes, you ask? Have you seen the yield on T-bills lately? It's as close to zero as you can get.)
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Then toward the end of the year, move more of your portfolio to offense, without taking on a huge risk in case your timing is off. We know from the end of other bear markets that the first months of a bull market can produce explosive returns. But bear markets are notorious for producing final rallies that pull investors in and then fail, sending the early birds reeling to yet more losses.
What is the most important question for investors in 2009 and beyond? It's not about the end of the bear market or the amount of money you've lost. The key, Jim Jubak says, is what the landscape of the world markets will look like after the current mess clears.
Building a core
So what kind of stock picks for 2010 could possibly work in that kind of uncertain and labyrinthine market? I'd suggest these 10 culled from the 50 in my new book, "The Jubak Picks." (I'll post the full list of 50 when the book comes out Dec. 30. This long-term portfolio will replace my existing 50 Best Stocks of 2010 in the World list. You'll be able to find a link to it near the top in the left margin of every column, just under my 12- to 18-month portfolio.)
Why did I pick these 10 from the 50 in my book to be my best picks for 2009?
First, these best stocks of 2010 offer what I'd like to see now and for the next six to nine months: safety, a modest dividend return of at least 2% to 4% and some upside leverage if the global economy delivers a positive growth surprise. And second, they offer what I'd like to see for later: exposure to the most timely of the 10 long-term macro-investing trends that I describe in my book. (You can find a list of these 10 trends in my Oct. 21 column, "10 trends for long-term gains.") By buying these best stocks to buy in 2010, I start creating the core of a long-term portfolio for the five years or more after this bear market.
The following are my 10 best stocks for 2010. After the picks I'll have a few words about how much money -- and when -- you should put into these best stocks to buy in 2010. Please read that section before you invest.
The 5 best stocks to buy for the first half of 2010
Deere (DE, news, msgs), a farm machine producer that tracks the price of agricultural commodities. Yield: 3.1%. It was added to Jubak's Picks on Jan. 12, 2007.
Enbridge (ENB, news, msgs), a natural-gas and oil pipeline company that has a 3.8% yield. It was added to Jubak's Picks on Dec. 18, 2007.
ExxonMobil (XOM, news, msgs), the world's best integrated oil company for the current environment. With a yield of 2%, these shares just make my cut.
Flowserve (FLS, news, msgs). Can you say infrastructure? It makes pumps and valves for moving everything from water to oil and has a yield of 2%.
Rayonier (RYN, news, msgs), a producer of wood products and an owner of timberland. Yield: 7.2%. It was added to Jubak's Picks on Nov. 9, 2007.
The 5 best stocks to buy for the second half of 2010
Goldcorp (GG, news, msgs), the world's low-cost producer of gold. It was added to Jubak's Picks on May 30, 2006.
Google (GOOG, news, msgs), the dominant Internet search company just gets more dominant.
HSBC (HBC, news, msgs), the best banking franchise left standing in Asia.
Petrobras (PBR, news, msgs). The Brazilian national oil company has dozens of new fields under development. It was added to Jubak's Picks on Aug. 26, 2008.
Thompson Creek Metals (TC, news, msgs), the second-largest private producer of molybdenum in the world. It was added to Jubak's Picks on June 26, 2007.
Use some cash to ease your way into positions in the five best stocks to buy in my picks for the first half of 2009 on dips in the best stock market. Look for a stretch of days when the Standard & Poor's 500 Index ($INX) is sitting near 840, which looks like a bottom for this stage of the bear at least.
Or you can also start to dollar-cost average into these best stocks for 2010. That's an especially useful method if you are a beginning investor starting a portfolio.
If you're a beginning investor or have moved all your cash to the sidelines, I'd suggest buying at a pace that puts about 25% of the cash that you ultimately want to devote to best stocks for 2010 into the market by mid-2009.
How to rebalance
If you're already invested, as I am in Jubak's Picks, I suggest rebalancing your existing portfolio using these dividend-paying best stocks of 2010 to replace other stocks in the sector that don't pay you to wait. If the stock allocation of your portfolio is already 50% or more in the market, I wouldn't recommend increasing that commitment to best stocks of 2010 now.
I've got Jubak's Picks at almost 50% in cash as of Dec. 16. That means I've got just 50% of my stock portfolio actually in best stocks for 2010. (I run an all-stock portfolio on these pages. You, I assume, have some money in other instruments, such as bonds. I'm writing here only about the stock portion of your portfolio.) And I'm trying to keep my cash position at roughly that level even as I shift the portfolio to take advantage of the current opportunities in the market.
What is the most important question for investors in 2009 and beyond? It's not about the end of the bear market or the amount of money you've lost. The key, Jim Jubak says, is what the landscape of the world markets will look like after the current mess clears.
Think about gradually putting another 25% of your cash to work in the fall -- if it looks like the economic scenario that I outlined at the beginning of this column is working out as projected. Increase that buying if the recovery seems nearer than the end of 2009 -- or if we get a major "buy" signal from technical indicators. Hold off or slow down your buying if the economy sinks deeper and faster than economists currently project. Remember this second group of five best stocks for 2010 isn't designed to pay you to wait.
Don't try to hit a home run in 2009. You're likely to wind up whiffing. A solid single or two, maybe even a double, would be enough to turn 2009 into a better year for you than just about anybody expects right now.
Developments on a past column
"Global economy depends on China": It's way too early to say China's economy has turned a corner -- the consensus is that growth will bottom at 4.5% or so in the second quarter of 2009 -- but at least the data are pointing in the right direction.
Rates for dry-bulk ships, which had collapsed from a peak of $233,988 a day on June 5 to just $2,773 at the end of November as the volume of coal, iron and other bulk commodities being shipped around the world fell, have staged a significant if minor recovery to $8,261 a day. The increase, shipping brokers say, is largely due to a resumption of shipments of iron ore to China from Australia and Brazil.
Brazilian iron ore miner Vale (RIO, news, msgs) added another hopeful data point: According to the company, spot prices paid by Chinese customers for iron ore and steel have stopped falling. Commodity traders interpret the firming of spot prices as evidence that Chinese companies, which had halted imports and instead drawn down their stockpiles of iron ore, have returned to the market. I think it's way too early to conclude, as Vale did, according to the Brazilian news agency Estado, that firming prices are "a sign that the (Chinese economic) stimulus is working," but any evidence that the Chinese economy isn't going into free fall is quite welcome right now.
Meet Jim Jubak at The World Money Show
MSN Money's Jim Jubak will be among more than 100 investment and finance experts sharing their advice on what to buy and sell in 2009 at The World Money Show in Orlando, Fla., Feb. 4-7. Invest four days dedicated to planning and refining your portfolio by attending some of the event's more than 300 workshops and panel presentations.
Admission is free for MSN Money readers. To sign up, call 1-800-970-4355 and mention priority code No. 012659, or register online.
Editor's note: Jim Jubak, the Web's most-read investing writer, posts a new Jubak's Journal every Tuesday and Friday. For the duration of the financial crisis, he will publish a third column whenever he gets really, really angry. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions on helping navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks Market for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks to buy of 2010 in the World or Future Fantastic 50 Portfolio. E-mail Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares of the following companies mentioned in this column: Deere, Enbridge, Flowserve, Goldcorp, Petrobras, Rayonier and Thompson Creek Metals. He did not hold short positions in any company mentioned.
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