By John Wasik
CHICAGO, January 11 It takes a lot of gumption
to buy mongrel stocks at the beginning of the year.
Generally, if you're looking for stocks with upside
potential, picking a beaten-up sector is a good way to find
Last year's comeback kid was the housing industry, which has
been limping along since the 2008 meltdown. One of the biggest
winners was the PulteGroup, the homebuilder that posted
negative returns in four out of the past five years through
2011. The company has soared about 169 percent on the rebounding
housing market for the past 12 months through January 9 as the
market is continuing to favor the sector in 2013.
Also jumping on that bandwagon was another homebuilder,
Lennar Corp, and appliance maker Whirpool Corp,
which rose 102 percent and 113 percent, respectively, during the
The financial sector, still bruised after 2008 and on the
rocky road to recovery, delivered big returns, too. Bank of
America - a tough bet to make given the mammoth bank's
myriad problems - has almost doubled in value (up 83 percent).
Financial stocks as a group in the Standard & Poor's 500 index
have risen more than 26 percent - leading all sectors - but none
have cracked the top-10 list.
If you were to bet on the beaten-down sectors of 2012 that
may be due for a rebound in 2013, you'd probably choose energy
and utilities, two of the worst-performing groups last year.
Despite the often outsized rewards of the contrarian tactic,
few investors are able to make picks of down-on-their-luck
companies, so a more-palatable strategy is needed.
Sometimes, the most consistent leaders stay in the top-tier
of the S&P 500 for extended tenures. Last year, the familiar
names that influenced business news in recent years maintained
their leadership as the most popular stocks by market
capitalization in the S&P 500 - Apple Inc, ExxonMobil
, Microsoft Corp, General Electric and
International Business Machines Corp.
Even more interesting are the companies that stay on the
list from year to year. ExxonMobil has been in the top five for
14 years running and part of the leaders as either Exxon or
Mobil (prior to 1999) going back for decades. Microsoft has been
on the list for 18 straight years, owing to its near-monopoly
over personal computing operating systems. GE has been on the
list since 1980 - except for 2008 - having grown into a
conglomerate that provides everything from financial services to
What ties these companies together is the importance of
their products and services to the overall economy over time.
Here's a snapshot:
* The information technology age is held together by
computing power, so that's put big players like Apple, Microsoft
and IBM into leadership positions.
* Energy is a perennial need. At no point since 1980 has the
S&P leader list not included an energy company like ExxonMobil
or the other top petroleum producers.
* We will continue to spend money on drugs and consumer
staples. Less heralded are pharmaceutical giants like Johnson &
Johnson, Pfizer Inc and Procter & Gamble.
This group has traded places on the S&P leader board every year
but one (1999) since 1986.
Not all of these stocks are bullet-proof, however. A single
year like 1999 proves the folly of investing in last year's
beauty-contest winners due to market bubbles.
During the height of the tech mania in 1999, America Online,
Cisco Systems Inc, Intel Corp and Lucent
Technologies were among the most popular stocks. Those companies
have long fallen off the list, and only Intel and Cisco managed
a comeback, in 2000, but haven't been among the top five since
This begs the argument of which is the best way to invest in
the future. History gives you a clue - pick durable companies
with solid business models, and growing earnings and dividends.
But who knows which company will become the next ExxonMobil or
the next Lucent? And how do you avoid the mistake of conflating
popular companies by market valuation with those with more
Keep in mind that S&P leaders may not offer the
best-possible appreciation potential, but they are persistent
dividend producers over time.
The simplest approach is to hold the entire S&P 500 index
and then some. You can buy all 500 stocks through the Schwab S&P
500 Index fund, which is the cheapest way of owning
the entire basket at 0.06 percent annually for management
expenses. And even broader choice is the Vanguard Total World
Stock Index exchange-traded fund, which owns about 7,400
stocks from 47 countries. Both can be core portfolio holdings
that don't require you to be able to discern mutts from the
best-in-show over time.