2010 Will Be a Stock Picking Market
Stock picking in 2009 was a year when even monkeys could have made a lot of money in the stock market.
Maybe you’ve heard the story from the 1980s, which was argued in a popular investing book, that a bunch of monkeys throwing darts at a list of stocks could make stock picking that would beat those of investment professionals.
Last year, as the vast stock rally lifted all boats, everyone from the professionals to those who didn’t have a clue (including monkeys) did quite well for themselves as long as they were invested in equities.
Stock picking in 2010 is shaping up to be quite a different stock picking market. It’s rare to see two consecutive years of huge gains, which means 2010 will likely see a modest, if any, return. 2010 is going to be a stock picker’s market. Those in certain sectors, and stocks, will perform better than others.
3 Ways for Stock Picking That Could See Upside in 2010
1) Look For Growth Overseas
Yes, international investing has been hot. In 2009, emerging market stocks soared on hopes of the recovery. However, there is always a concern that this trade is getting overplayed.
But stock picking has an advantage over those who simply buy an index or a basket of stocks from a particular country. They can choose companies that have a growth story and attractive valuations. There are plenty of Chinese companies that are not connected to the overheating real estate market and that are even considered value stocks, with low price-to-earnings ratios. For instance, China will soon surpass the United States as the largest car market. What Chinese companies are poised to benefit from automobile demand?
Investors can also play the international growth story by choosing American companies that have a large international presence. Many multinational companies with famous brand names do 50% or more of their business in international markets.
2) Commodities Have Made a Comeback
Commodities were the big story of 2008 as crude oil hit an all-time record. Commodities prices were crushed in the global recession. But in 2009, a slow comeback began that appears to be continuing into 2010.
As the recovery takes hold, commodities will be one of the first areas to show a turnaround as manufacturers ramp up production to meet growing demand.
Investors can invest in the area through any number of commodities and commodities-related stocks, including energy companies, oil services companies, miners and agriculture businesses.
3) Don’t Forget the Building Blocks
While the recovery appears to be taking hold, the companies that supply the building blocks are still in a good position to benefit from it, especially as government stimulus programs continue to wind their way through the global economy.
Look at machinery companies, construction firms, equipment manufacturers, and chemical companies. We’ve already seen earnings jump in the chemical sector, which is a reflection of growing demand.
Putting it All Together to Make an Exciting Stock Picking Portfolio for 2010
We used all 3 of these strategies at Zacks to formulate our Top 10 Stocks for 2010. We started with a large universe of stocks and used both Zacks Rank and Zacks Recommendations to narrow the list.
But then the arduous part began. We used our stock picking talents to put together 10 stocks that, for the first time, are heavily weighted towards international stocks and American companies that have substantial international business. We weren’t afraid of the emerging markets. We ended up stock picking several companies that we hope will continue to grow as the living standards rise in those countries.
Stock picking in 2010 will be an interesting year to be an investor. The rising tide has lifted all the boats. Hopefully, you can tap into those areas that are poised to benefit from the recovery and growth in the global economy.