What to Do If All Those Bullish Calls for '11 Are Right
CNBC.com Senior Writer
If all these forecasters are right about the big jump the stock market is supposed to take in 2011, then investors had better get busy.
A slew of forecast upgradespredict stock gains approaching 20 percent in the year ahead. Among the most popular groups are financials, cyclicals and strong dividend-payers.
But that's not all. Analysts at the biggest firms are predicting gains across an array of sectors, industries and asset classes, predicated on a rebound in the economyand the market's long history of doing well in the third year of the presidential cycle.
"The combination of sustained economic recovery and increasing policy stimulus sets up a constructive environment for stocks, at least in the near term," Barclays Capital said in its 2011 outlook. "The case is bolstered by high profit margins, strong corporate balance sheets and negligible financing costs."
Here's a look at some specific recommendations for investors to play the growth theme:
Barclays: The Reflation Trade
With the economic recovery still fragile, global central banks are unlikely to movefar from their easy-money policies, and the economic recovery will continue despite some obstacles, Barclays says.
"Economic data over the past few months clearly indicate that the global recovery is intact, and fears of a double-dip recession have abated," the firm wrote, but with a warning: "The favorable environment for stocks is unlikely to persist throughout 2011, and investors should position for continued volatility and the possibility of sharp reversals."
Barclays recommends pulling back from emerging markets and instead focusing on developed world economies with EM exposure. Specifically, it favors US industrials, technology and energy "which benefit from an improving domestic growth outlook."
Outside of stocks, Barclays suggests investors take long positions in copper, gold and corn.
Goldman: Cyclicals and Dividends
Perhaps no one is more bullish than Goldman now, even though the company's forecast for 2010 is likely to have been a tad optimistic. (The company has called for a 1,250 to 1,300 range on the Standard & Poor's 500).
While acknowledging danger ahead, the firm predicts 2011 to be "superb" for stocks, with the broad index closing out at 1,450, a 17.5 percent gain from Thursday's close.
"Risks clearly exist, most immediately from contagion of the European credit crisis, but also US fiscal and tax policy, and inflation," Goldman wrote in its forecast. "However, we anticipate a strong equity market in 2011 characterized by positive earnings growth. Investors can choose to accept or mitigate the known tail risks."
Goldman's strategy rests on five principles: Cyclical over defensive stocks; growth in return on equity; "dual beta," essentially meaning individual stocks sensitive to broader moves in the Standard & Poor's 500; dividend growth; and high "Sharpe ratio" stocks, or those with elevated risk-adjusted returns.
The firm said it also expects high returns from information technology and energy.
More Ways to Capitalize on Brighter Forecasts
KBW: In Financials, Go for the Brokers
While research firm Keefe, Bruyette & Woods sees gross domestic product increasing by less than 2 percent next year—placing it well in the bearish camp—the firm does see opportunities in financials, which were one of the worst-performing S&P 500 sectors this year.
Banks are likely to start spending all that money they've accumulated on their balance sheets since the financial crisis sent institutions scurrying for cover, KBW says.
"More than two years after the financial crisis, we believe the US financial services sector is poised to shift toward capital deployment from capital accumulation in 2011," the firm wrote. "In our view, capital redeployment will focus on increased dividends, share repurchases, and mergers and acquisitions."
While KBW still sees a fairly weak climate for lending due to continued low rates, it believes banks involved in capital markets, such as brokers, asset managers and alternative asset mangers, will do well. That means some of the industry's heavyweights are likely to move back to center stage for investors.
A list of banks the firm has "overweight" ratings on for 2011:
JPMorgan: Small Business, Sector Rotation
Though it's been a rough year for small business, JPMorgan sees Washington policy becoming more accommodative as the political winds shift. The firm also sees a pickup in hiring, with job growth to average 175,000 a month as the economy struggles to drive down a 9.8 percent unemployment rate.
The full-year S&P 500 forecast now stands at 1,425 and GDP to 3.5 percent, putting the firm also on the optimistic end of forecasters.
"We believe small and medium business confidence should improve in 2011, which should engender hiring," chief equity strategist Thomas J. Lee wrote in his full-year analysis. "[A]n improving outlook from Washington, particularly towards the center, should at least help sustain some of the improvements we are seeing in small and medium business conditions."
As far as industries go, Lee sees the best bets as asset managers (similar to KBW), insurance, construction materials, restaurants, retail, gaming, telecoms and utilities."
Here's a list of specific stocks recommendations from the firm: