The “Super Bowl” stock market predictor forecasts a higher year for stocks if the NFC team or one of the original NFL teams beats the AFC team. This bit of witchcraft has been correct 82% of the time, far better than most professional stock managers. I believe the probabilities are high that 2011 will see a third straight up year in stocks. I am thus standing this indicator on its head and predict that my forecast of double-digit returns for stocks in 2011 means that an NFC or original NFL team will win the Super Bowl. Three of the four teams now remaining qualify, one doesn’t. Sorry, New York Jets, the fates are against you.
In tuning the portfolios that I manage, several factors indicate another rise in stock prices this year. For one thing, the S&P 500 Index shows them already up 3% since the opening kickoff on January 1. For another, the trend is continuing to favor the continuing rebound from the oversold markets that followed the financial crisis. The S&P was up 23% in 2009 and 13% in 2010. The pace may be slowing but momentum still favors further gains.
The coming year is the third in the presidential election cycle. Over the last century, this year preceding the national elections has shown a remarkably strong pattern of greater gains than the other three years. This might well be due to pre-election influence by successive occupants of the White House to boost the economy.
The current Administration and the Federal Reserve are openly committed to pull out all stops to promote recovery. Despite lagging job recovery and a dismal housing market, these efforts are working. Earnings reports coming in for the final quarter of 2010 show surging corporate earnings, the essential bulwark for any sustained stock market advance.
Earnings have recovered even more strongly than stock prices since the crisis, resulting in a reasonable overall level of valuation for stocks. They are no longer trading in the bargain basement and I am continuing to reduce or eliminate positions in stocks that appear to have gotten ahead of themselves while seeking out those with emerging potential.
After two years of broad advances, selectivity among stocks will become increasingly necessary. I sold our Intel positions as I expect its profit margins to be squeezed as it expands into newer chip sectors. The technological group is strong; Apple (AAPL-$342), Google (GOOG-$632) and IBM (IBM-$155) remain among my largest ten positions.
Energy, particularly from cleaner natural gas, will benefit from the recovering economy and from the eventual return of inflation. Apache (APA-$125) is my newest buy in this sector. The company has over $11 billion sales increasing at 10%, moderate debt, a reasonable valuation and a modest dividend.
A growing economy will build support for cleaner fuels and I sold our coal hauling Norfolk Southern. There is often an emotional component to selling stock and my grandfather was a locomotive engineer for the predecessor Norfolk & Western. That was in the days of steam and successful investing demands looking to the future.
Staying in the South, I repeat my buy recommendation of Atlanta-based RPC (RES-$17), which provides services and equipment to independent energy companies operating in the U.S. Sales are approaching $1 billion and earnings are accelerating rapidly.
Much of the growth before the crisis hit came from the overextended financial sector. Bank stocks lag now, perhaps another reason why my reversed indicator does not favor the New York Jets. Manufacturing in the Midwest is surging, good news for Pittsburgh, Chicago and Green Bay. With a bullish outlook, I can hardly pick a team nicknamed the Bears, so I favor the Steelers to beat the Packers. Stocks are a safer bet.
More from this contributor:
Profiting From the Anxiety Index in Stocks
Dividend Stocks Are Screaming Bargains
The Rewards of Finding Mispriced Stocks