Granted, it's been just a couple of days, but it looks like Wall Street is on its way to pretty good year in 2011 even though other aspects of the slowly recovering economy are still struggling.
The housing market continues to be weighed down by an increase in foreclosures and rising interest rates.
This is the time of year when the Street’s top stock pickers offer up their best recommendations for the year ahead. The obvious question you have to ask yourself is should I follow their advice?
After all, they’re getting paid a small fortune by these huge investment banks to know which way the market is likely to go, right?
You’d think so, but if history is any indicator, you would be just as successful if you picked your own stocks or even took the ones they said you shouldn’t. We’ll have more on that later.
First, let’s take a look at the stocks that Wall Street literary iconic weekly newspaper Barron’s has put together in what it says are the top ten stocks for the year presented by ten stock pickers.
It’s interesting to see that they seem to be following a common theme in that the biggest potential returns will be in tech and financial stocks.
- Bank of America. Read Reeve’s writing for InvestorPlace.com said he believes the worst is over for Bank of America and he expects less government meddling as financials stand on their own again.
- CNOOC Limited is a Chinese energy company. As a Chinese national, Asia expert Robert Hsu also writing for InvestorPlace.com says the prospect of booming energy demand in the region coupled with commodity inflation makes CNOOC the best stock to buy in 2011. Crude oil has already shown signs of a steady upward climb in recent weeks, up about 12 percent from its November lows.
- Cognizant Technology Solutions was selected by regular MarketWatch columnist and investment expert Jon Markman who is focusing on tech in 2011. According to Markman, as competitors in every sector set aggressive growth plans or cost cutting measures to keep an earnings edge, one resource all corporations will need is an efficient data and networking system. That’s Cognizant’s specialty.
- Evercore Partners. Hilary Kramer has dedicated an entire newsletter to what she calls “game changer” stocks, picks that redefine an industry or ride a fundamental shift in the economy to big profits. She says that’s Evercore in spades. According to Kramer, after a 2010 that saw cash-rich companies test the waters again in the M&A arena, this will be a big year of buyouts that reshape Wall Street — and subsequently, huge commissions for capital markets powerhouse and merger advisor Evercore.
- Microsoft. James Altucher, a renowned financial journalist and author of “Trade Like Warren Buffett,” is banking on this tech giant in 2011. He says Microsoft is flush with cash, buying back stock and has a P/E of about 8 when you back out the cash. To top it all off, Microsoft is seeing booming sales from the Kinect and has a lot of potential when it comes to Windows sales in emerging markets.
- Mindspeed Technologies. Bargain stock picker Nancy Zambell is another big believer in technology stocks which is why she’s picking this semiconductor stock. It profits from chips used in a variety of consumer and corporate electronics. According to Zambell, North American semiconductor sales were up 148 percent year-over-year in the third quarter of 2010.
- Otelco. This is a regional telecom that income investor Neil George likes. He says this quiet Alabama company has consistently growing revenue, fiscal discipline and a 9 percent dividend yield — focusing on getting the job done. Like most well-run local phone and internet providers, Otelco isn’t flashy — what sets it apart is the company’s high efficiency and profitability.
- Visa. Financial analyst Charles Sizemore is big on Visa. But unlike other financial-related picks on this list, the stock’s strength comes from its rather mundane business of data processing. You see, this Visa is an ATM and debit card behemoth — not a lender or credit card loan servicer. It gets paid for each swipe of a card bearing a Visa logo. As emerging markets continue to move away from hard currency and the U.S. and Europe go virtually cashless, there will be even more swipes (and profits) in 2011.
- Zalicus. Michael Murphy has made a career out of bold biotech picks that explode. At under $2 a share, Zalicus is at the top of Murphy’s list. He warns that you may have to wait for the second half of the year for most of the gains, but contends Zalicus is what some call an oxymoron: A low-risk development-stage biotech. At least, that’s what he’s hoping for. If the company’s flagship medication Exalgo never pans out, there could be some serious downside. On the other hand, if ZLCS performs as expected or sees a buyout, than this could be just the latest in Murphy’s long line of successful biotech picks.
- Zions Bancorp. If you believe the Buffett-ism about buying when everyone else is selling, you’ll find no better stock to test this theory than ZION. Anthony Mirhaydari, editor of The Edge investment newsletter, has his sights set on this regional financial that is at the epicenter of the housing collapse in Nevada, Arizona and California. Even a modest recovery on the foreclosure front could send this financial pick soaring.
Now let’s be clear here. This list is by no means a balanced portfolio. Nor is it necessarily where your money should be. But even if some of these stocks dive, the message is clear, at least according to these experts, biggest areas of opportunity in 2011 seem to be tech, finance, energy, and health.
On the other hand if you look at history and how past stock pickers have fared the way Brett Arends of the Wall Street Journal did, then you may want to look elsewhere for your investments.
Arends asked Thomson Reuters for the 10 stocks that analysts rated most highly a year ago and the names ranged from a chemical company, FMC, and printer R.R. Donnelley and Sons to tobacco company Lorillard. Now, how did they do you wonder?
Actually, not too bad. Together they had a 24 percent return. But then he asked Thomson Reuters to send him the names of the 10 stocks that Wall Street analysts liked the least a year ago. Guess what? They did even better, 32 percent.
On a roll now, Arends decided to go one better. He decided to look at the results for the previous year, 2009. Again, Thomson Reuters gave him the 10 stocks that analysts recommended most highly at the start of that year, and the 10 they rated the lowest.
If you'd bought the analysts' favorite stocks at the start of the year, you'd have made a 22 percent profit. But if you bought the ones they hated says Arends, you would have made an incredible 70 percent profit.
So when you talk to your financial advisor or online broker and he or she starts to give you their best picks for the year, you might also want to ask them what stocks they dislike the most as well.