What the Market Wants: Selecting Stocks from the Bottom of the Cliff

Well, we fell, tumbled, leaped, jumped, or merely stepped off the fiscal cliff, and it’s too early to judge the extent of our injuries, if any.  What is clear, though, is that Congress kicked a bunch of cans down the road which creates a continuing struggle for a rational budget, a rational debt ceiling, a rational tax policy, and a rational healthcare plan.

 Maybe Congress thrives on the theater of grandstanding, reciprocal accusations, and acting like a bunch of first-graders at a free-for-all, but the market doesn’t like it much and neither do I. It makes it more difficult to do my job, which is to try to predict the companies that should fare the best in 2013 and are priced fairly. Thankfully, as a quant firm, we can pretty much take our emotions out of the mix and let the number speak for themselves.

With that in mind, my staff and I have consulted our computers and have ferreted out a new Sabrient Baker’s Dozen for 2013—thirteen stocks that appear to hold the most promise and entail the least risk for a one-year hold.  Plucking a mere 13 potential  winners from more than 6,000 listed stocks is a daunting task every January, but the capricious actions (or lack of action) by Congress make it even more difficult this year.  Nevertheless, equities are the best place to be right now.  Bonds have an extremely high downside, as rates are beginning to move slightly higher and will undoubtedly go much higher over the next few years.  Real estate is coming out of its nosedive, but what and where to buy is still unclear.  But we can always find niche stocks that are undervalued, conservative in their accounting, and growing despite the economy—the very definition of our Baker’s Dozen.

So, believing in our process, we have gathered our courage and made a commitment to the Bakers Dozen 2013, just as we have done every year since 2009. Fortunately, our past portfolios have done very well.  Last year’s list was up nearly 45%, counting dividends, tripling the performance of the S&P 500 Index. 

The 13 selections for the Baker’s Dozen 2013 will be announced tomorrow, but I can tell you now that the stocks come from seven of the 10 U.S. sectors—Financials, Energy, Industrials, Technology, Healthcare, Basic Materials, and Non-Cyclical Consumer—and from 10 different industries—Insurance, Banking/Investment Services, Energy Fossil Fuels, Transportation, Technology Equipment, Industrial Goods, Chemicals, Software IT Services, Food Drug Retailing, and Pharmaceuticals Medical Research.

With any luck, our quantitative process and hard work will pay off again this year.

Wouldn’t it be nice if the men and women in Congress would gather their courage, put aside their partisanship, and make a commitment to solve the issues before them—taxes, healthcare, energy policy, the budget—so that our country will continue to rise out of the recession and return to its prosperity of past years.    

Happy New Year to all—even to Congress!