Looking For 2013 Hot Spots

12/17/2012


Investors targeting stocks would do well to heed the mantra of those who focus on real estate: Location, location, location.

It's easy to fall in love with a stock's story. And in a vacuum, there's nothing wrong with doing so. A fundamentally strong, attractively valued company with the capacity to outperform expectations will appeal to us, even if it comes from a sector with subpar potential.

But we stand a better chance of finding that appealing stock in some parts of the market than in others. We're always looking for an edge, and so should you. Our Quadrix system can provide that edge by identifying which areas of the market contain the hottest properties.

For instance, stocks in the consumer-discretionary, health-care, and industrials sectors of the S&P 1500 Index average the highest Quadrix Overall scores, while telecom and utility stocks tend to have less appeal. You'll find three consumer-discretionary stocks on our Focus List, along with three health-care names. But not one telecom or utility qualifies for any of our buy lists.

Quadrix can help parse the market into more than just sectors. At the moment, the largest stocks tend to earn the highest Overall scores. Not surprisingly, our buy lists are rich in megacap stocks.

Of our 36 recommended stocks, 56% have market capitalizations of at least $50 billion. Megacaps in the S&P 1500 average Overall scores of 66, while our recommended megacaps average 83.

As the table below illustrates, dividing the market into sections by sector or size yields groups with drastically different characteristics. Investors seeking operating momentum should pay extra attention to financial stocks, which have averaged double-digit profit growth over the last 12 months and average Quadrix Momentum scores of 62.

On the other hand, energy, industrial, and telecom stocks score high in Value, while health-care, industrial, and technology stocks average the largest discounts to their historical average price/earnings ratios.

For our money, megacaps and the consumer-discretionary and health-care sectors look attractive for the year ahead. With that in mind, here are top names in some of the market's hottest spots:

Stocks above $50 billion

Focus List Buys:

• American Express ($57; AXP)
• Apple ($541; AAPL)
• CVS Caremark ($48; CVS)
• Google ($697; GOOG)
• UnitedHealth ($55; UNH)
• Wells Fargo ($33; WFC)

Buys:

• Chevron ($108; CVX)
• Cisco Systems ($20; CSCO)
• EMC ($25; EMC)
• Exxon Mobil ($89; XOM)
• Qualcomm ($64; QCOM)
• U.S. Bancorp ($32; USB)
• Visa ($149; V)

High-scoring sectors

Consumer discretionary:

• Bed Bath & Beyond ($58; BBBY)
• Comcast ($37; CMCSA)
• DirecTV ($50; DTV)
• Foot Locker ($35; FL)
• Macy's ($39; M)

Health care:

• Aetna ($44; AET)
• Celgene ($82; CELG)
• Express Scripts ($55; ESRX)
• McKesson ($97; MCK)
• Mylan ($28; MYL)
• Thermo Fisher ($65; TMO)
• UnitedHealth ($55; UNH)

PARSING THE MARKET BY SECTOR AND SIZE
All of the data below are averages for S&P 1500 stocks in a certain sector or size grouping. The averages exclude growth rates and returns above 150% and P/E ratios below 0 or above 75.
--------------------- Growth ---------------------
----------- Value -----------
--------- Performance ---------
12-Month
--- Change ---
Est. EPS
---- Growth ----
Quadrix
Momen-
tum
Score
--- P/E Ratio ---
---- Total Return ----
Quadrix
Perfor-
mance
Score
Sector (No. Of Stocks)
Sales
(%)
Oper.
EPS
(%)
Next
12 Mos.
(%)
5 Yrs.
(Annual.)
(%)
Trailing
Trailing
Over 5-
Yr. Avg.
Quadrix
Value
Score
YTD
(%)
6
Mos.
(%)
3
Mos.
(%)
Quadrix
Overall
Score
Consumer
Discretionary (248)
7
7
17
15
57
19
0.99
55
17
11
0
54
62
Consumer
Staples (79)
7
6
7
10
57
18
1.06
46
13
11
5
56
57
Energy (90)
15
1
15
13
45
18
0.97
60
(3)
15
(3)
48
53
Financials (269)
7
10
10
9
62
21
0.96
53
20
12
1
56
56
Health Care (151)
11
1
11
14
52
18
0.95
51
18
13
1
54
60
Industrials (219)
7
10
9
13
51
17
0.96
59
17
15
5
62
61
Materials (98)
8
2
15
11
47
19
1.00
54
16
17
2
58
53
Technology (265)
5
(6)
9
15
42
19
0.86
52
8
7
(2)
44
53
Telecom (18)
7
(12)
7
2
45
22
1.00
63
3
13
(6)
46
47
Utilities (63)
(3)
4
6
5
45
17
1.11
52
5
3
(1)
41
44
All S&P 1500 Index
Stocks (1500)
7
4
11
12
52
19
0.96
54
14
12
1
53
57
Market Capitalization (No. Of Stocks)
$50 billion
or larger (58)
6
9
10
11
53
15
0.95
57
23
12
2
57
66
$20 billion
to $50 billion (96)
7
7
8
10
53
17
0.96
56
18
12
3
58
63
$10 billion
to $20 billion (148)
8
5
10
10
49
18
0.96
52
17
11
1
54
57
$3 billion
to $10 billion (367)
8
6
11
12
56
20
1.00
52
18
14
2
57
59
Below $3 billion (831)
7
2
12
13
50
19
0.95
55
10
11
0
50
54

 


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