Ten years ago, investors were debating between new economy and old economy stocks. Looking back, it is the old economy stocks that outperformed. Are there lessons learned over the past decade, that can help us determine some potential investments for the new decade?
When looking at the average total returns (includes reinvested dividends) of the stocks in the S&P 500 , energy stocks performed best from 1999 through 2009 followed by heath care, industrials and materials. See the chart below for average total returns by sector.
S&P 500 Stocks: Avg Total Return by Sector (12/99 - 12/09)
Now looking forward to the decade ahead of us, what lessons can we extract from the winners of the past? Certain themes should certainly continue to play out. First, the numbers above are based on total return - dividends matter and will in the future as well. Next, globalization, the rise of the BRIC countries, stimulus spending, and a recovering economy will sustain demand for energy, manufacturing and infrastructure spending. Finally, health care is a universal and growing need and is on the top of congress' and the Obama administration's agenda.
Based on these assumptions, I ran a screen for S&P stocks in these sectors that have outperformed their peers in the past two years, have above average dividend yields, and have double-digit EPS growth expectations for each of the next three forward fiscal years. Here are 5 stocks that met the screen criteria. Of these 5, CSX and EQT are up over 3% so far in the first week of trading of the new decade.