- “Mr. Berra, would you like your pizza cut into six slices or eight?” The answer? “Six. I could never eat eight.”
- “The future ain’t what it used to be.”
- “That place got so busy no one goes there anymore.”
- “It’s déjà vu all over again.”
- “When you come to a fork in the road, take it.”
This advice easily translates into what to do in 2013.
“Mr. Berra, would you like your pizza cut into six slices or eight?”
The answer? “Six. I could never eat eight.”
Slim down what you invest in next year – the events in DC and in European capitals are gong to create a great deal of business uncertainty, aggravating the recession in Europe and causing one in the U.S. I would slim down to these six sectors:
- U.S. agriculture
- Specialty food and retail
- U.S. energy
- Apple and its ecosystem
- Mortgage REITs
“The future ain’t what it used to be”
This is the heart of investing – going where others do not, seeing the future that others do not see. And the future the Street is beginning to see — but has yet to ruin — is fracking and American energy independence.
Oh yes, the U.S. is on the way. Fracking means energy independence within a decade – and while Wall Street thinks it understands what is going on, it is late and the focus too narrow. Fracked oil is dirty and needs specialty refining, and that means Calumet Specialty Products (CLMT, 8% or so yield.). Fracked gas is even messier and that needs processing and that means Martin Midstream Partners (MMLP, roughly 8% yield). And all fracking everywhere needs to move oil and gas through pipelines – pipeline construction is set to increase 82% in 2013. And that means US Steel (X).
“That place got so busy no one goes there anymore.”
The market is way too busy for investors – they are turning into traders or semi-traders or half –traders, for many a change that means far greater capital risk. Markets will be more volatile next year, thanks top politicians and pundits so ask yourself, can you really time the market.
So, don’t go there. Generate profits and cash and income by taking what the market gives you – own great long-term stocks and sell calls and, short term, sell puts. Do not buy them, sell them. Sell Transocean or Apple (AAPL) or Sandisk (SNDK) or General Motors (GM) puts every week or month and you can generate yield of 18% to 25%, depending on how nimble you are. And with some of your portfolio you should go long for the long term. Hang on to the great names through market downturns, sell calls, lower your cost basis and generate cash.
Another place that has become way too busy is the income sector of the market. Many believe high-yield bonds are in a bubble and high-yield stocks are not far behind. This, plus moves by the FED, hit mortgage REITs hard. The hit is overdone – and the Fed has little left to announce that can hurt these companies. Stick with the best of the best – Annaly Capital (NLY), 13% or more per year in dividends.
And the busiest trade of the year – and one that will be the busiest trade of next year – is Apple (AAPL). It’s the best company on the planet, the most undervalued stock on the planet, selling at a steep discount to the S&P 500 despite 20%-plus growth and $150 billion in cash. The trade is crowded, that means volatility will continue to prevail. If you own it, sell calls; if you don’t, pick a price and sell puts. Among other Apple winners are Sandisk (SNDK) and Corning (GLW).
“It’s déjà vu all over again.”
Europe is in a deep recession that is getting worse. I believe data will reveal the U.S. is in or on the verge of one. Due to business uncertainty surrounding the fiscal cliff, almost one-third of investment decisions are delayed due to Washington. The Great Recession pushed consumer spending into an era called The New Frugal – buy fewer things, buy better things – and the luxury good retailers and great product purveyors such as Apple did incredibly well.
The New Frugal is back with the tightening of belts in the U.S. Take a look at the big three in luxury retail – Coach (COH), Tiffany (TIF) and Ralph Lauren (RL). Also look at the high-end food outfit, Whole Foods (WFM). Its growth is more than triple the grocery sector; its margins more than triple the margins for the sector.
And when times get frugal around the world, people still want better food than they had last year. That means more pork and chicken and more U.S. corn and soybeans. Look at John Deere (DE), Terra Nitrogen (TNH), Mosaic (MOS) and Potash (POT).
“When you come to a fork in the road, take it.”
In 2013 chaos in Europe and indecision in Washington, D.C., will hit the markets. Do not let the pundits and the headlines and the uncertainty keep you out of the market. When you come to that fork in the road – to invest or not to invest – take it. Buy some stocks for the long haul and sell calls to generate income; buy income stocks with great futures, ignore the bounces and collect the dividends; pick prices for great stocks and sell puts, generating weekly or monthly cash and income. Do something when you come to that fork in the road.