Best Stocks for 2014
Here are the 13 stocks, including Amex and J&J, most recommended by Mark Hulbert's "Honor Roll" of top advisors.
As I read the numerous stock-market forecasts that appear every year around this time, I am reminded of Warren's Buffett's classic line that one of the primary purposes of stock-market forecasters is to make fortune tellers look good.
I nevertheless am willing to at least partially suspend my skepticism when it comes to the forecasts of the advisors that rank highest on the Hulbert Financial Digest's Honor Roll of Advisors for 2014. Based on performance over the last 14 years — since the top of the market in early 2000, in fact, right before the Internet bubble burst — this Honor Roll rewards advisors less for overall returns than for performing well in both up and down markets.
So it behooves us to pay attention to what they are saying.
A dozen advisors made the grade, but only four of them offer any specific stock-market timing judgment. I list them here in alphabetical order, along with their latest stock-market forecasts:
Bob Brinker's Marketimer (Bob Brinker). Though Brinker believes that "the risk of a bear market in the near term" is not a "major concern," he does think there is the very real possibility of a short-term correction. Rather than fearing such a correction, however, he would consider it a good thing, restoring health to an otherwise overextended bull market. His stock-market timing model is calling for a 100% invested position, but he recommends that investors use a dollar-cost-averaging approach for investing new money in the stock market.
The Buyback Letter (David Fried). Fried's model portfolios on average are more than 95% invested in equities, though he is "advising subscribers to invest 75% of your normal contribution of new investable funds," keeping the remainder in cash.
Fidelity Investor (Jim Lowell). Lowell wrote in his most recent communication to clients that "against the backdrop of everything being reasonably OK, and a foreground that favors at least keeping things that way, the market can afford to act as if times are more laissez-faire than usual." He added in the most recent issue of his newsletter: "There is nothing in the numbers, data, or [investor] behavior to suggest that next year won't end on a higher note than this year." His model portfolios on average are 75% invested in equities.
InvesTech Research (Jim Stack). Stack in his most recent communication to subscribers wrote: "With the economy clearly in growth mode, we continue to give this bull market the benefit of the doubt and are maintaining our current 82% [invested] position in the Model Portfolio." He adds that, while he is concerned about high levels of bullish enthusiasm on Wall Street, "it would be a mistake to take a negative stance just to be contrarian."
The bottom line? An average of 88% of these advisors' model portfolios is allocated to equities.
To put this in context, consider that these four advisors' average equity-invested percentage one year ago was 86%. So, on balance, they today are just as bullish, if not slightly more so, than they were a year ago.
You could be concerned by the similarity of the year-ago consensus to what these advisors are saying today. Might it be that these advisors are always bullish?
No.
After all, these advisors were selected precisely because they produced above-average performance in both up and down markets. They wouldn't make the Honor Roll if they were merely bullish stopped clocks.
Would you have sidestepped the 2008-2009 bear market had you followed the Honor Roll advisors? Not completely, though they on balance were less bullish than they are today.
Consider first the advisors who made it onto the Honor Roll that I constructed in December 2007. (This isn't a hypothetical question, by the way: I have been constructing my Honor Roll every December for the last 15 years.) Of the three of these advisors who provided specific stock-market timing allocation advice, one was outright bearish, one was "cautiously optimistic," and the third was outright bullish.
With the benefit of hindsight, of course, we can see that these Honor Roll advisors should have been a lot more bearish at the end of 2007. Even so, however, notice that they on balance were less bullish than the advisors who today have made it onto my Honor Roll — none of whom is currently bearish. That should tell us something.
You may also be curious how the advisors on my current Honor Roll performed in 2008. (Note carefully that this is a different question, since the current group of Honor Roll advisors is different than in late 2007.) It turns out that one of the four current Honor Roll inductees was bearish that year. Once again, not a perfect score. But notice that they on balance were less optimistic than they are today.
Weren't there any advisors who turned bearish in advance of the 2008 bear market? Sadly, there were very, very few. And following their market timing advice is not the answer, since almost all of them were also bearish during the bull markets before and since. Sidestepping that bear market came at a very steep price: missing many opportunities.
That's why my Honor Roll includes only those advisors whose performances are above average in both up and down markets.
What stocks are being recommended by these advisors heading into 2014? The following is a list of all issues that are currently recommended by three or more of the advisors on my Honor Roll (including the eight who focus on stock or fund selection and don't offer a specific stock-market allocation). Since there are only 12 advisors total, it represents a fairly strong consensus that each of these stocks is recommended by at least three of them — or one out of every four, on average.
• Abbott Labs (ticker: ABT)
• American Express (AXP)
• Automatic Data Processing (ADP)
•Berkshire Hathaway ( BRKA / BRKB )
• Disney (DIS)
• GAP (GPS)
• Johnson & Johnson (JNJ)
• McKesson (MCK)
• Paychex (PAYX)
• PepsiCo (PEP)
• Pfizer (PFE)
• Philip Morris Int'l (PM)
• Union Pacific (UNP)