Gurus dust off crystal balls for their customary cogiations

Gurus dust off crystal balls for their customary cogitations
 
 
By Gary Lamphier, edmontonjournal.com December 18, 2010 7:05 AM Be the first to post a comment
 
 

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Traders on the floor of the Toronto Stock Exchange. Vincent Delisle, Scotia Capital's equity strategist, sees the Toronto Stock Exchange's lead index reaching 14,000 and the S&P 500 Index at 1,325 in 2011. That implies potentially modest upside from current levels of about six per cent for the TSX and 6.5 per cent for the S&P as gun-shy investors ease back into stocks

Photograph by: Shannon Stapleton/Reuters, Financial Post

It's a time-honoured annual ritual, a traditional hallmark of the season.

No, I'm not talking about the rites of Christmas, whether paganistic or religious. I'm referring to the flurry of forecasts trotted out each December by economists, stock pickers, trend watchers and futurists.

With 2011 only two weeks off, the crystal-ball-gazing blitz is well underway. Here's a quick look at what the gurus see ahead:

Vincent Delisle, Scotia Capital's equity strategist, sees the Toronto Stock Exchange's lead index reaching 14,000 and the S&P 500 Index at 1,325 in 2011.

That implies potentially modest upside from current levels of about six per cent for the TSX and 6.5 per cent for the S&P as gun-shy investors ease back into stocks.

In terms of country exposure, Delisle prefers Canada, the U.S. and Latin America to China, Japan and Europe, with dividend stocks likely to play a leading role.

Canaccord Genuity just issued its 2011 outlook for oilfield-services stocks, and with drilling ramping up the firm's analysts are decidedly bullish.

Their top U.S. picks include Halliburton (12-month target: $50 US) and National Oilwell Varco (target: $80). Phoenix Technology Income Fund (target: $16 Cdn) is the top Canadian pick.

Meanwhile, Raymond James released its list of favourite stock picks for 2011 last week.

The lineup includes Bankers Petroleum, Petroamerica Oil and Paladin Energy as well as Edmonton-based McCoy Corp. and North American Energy Partners. The latter moved its head office from Spruce Grove to Calgary in 2009.

For most analysts, oil-weighted producers will continue to offer far more upside than natural gas plays for the foreseeable future.

FirstEnergy Capital just hiked its projected average oil price for next year to $89.75 US a barrel. That's up $4.50 from its last forecast and more than $10 above the average for 2010.

Looking further out, FirstEnergy sees oil prices reaching an average of $95 a barrel by 2012 and $120 by 2014, which explains the renewed investment push in the oilsands and the buzz around the Cardium and Alberta Bakken plays.

On the natural gas side, it's a much different story. U.S. shale gas supplies have swamped the market, pushing prices down. Result: FirstEnergy just slashed its average gas price forecast for 2011 by 20 per cent to $3.90 per MMBtu (million British thermal units), down from $4.38 this year.

The picture isn't much brighter for 2012, with the average price expected to stay below $5.

South of the border, although the U.S. economy remains deeply troubled and the jobless rate is nearly 10 per cent, corporate profits are humming along nicely, thanks partly to growth abroad.

As a result, the S&P 500 is up a surprising 13.5 per cent so far this year, and the Dow Jones Industrial Average has gained 11.5 per cent, thumping such markets as Hong Kong (up 6.4 per cent), Brazil (up 0.4 per cent), and Japan (up 1.4 per cent).

Some analysts say the profit party in the U.S. will entice nervous investors -- who were badly burned during the 2008-09 bear market, and fled equity funds again in 2010 -- back into stocks next year. At least, that's the theory.

Whether stocks are cheap or not today depends on your perspective. Based on a recent Bloomberg survey of analyst profit forecasts for 2011, the S&P 500 trades at just 13.5 times next year's earnings, versus a median of 16.4 times since 1956. That makes stock look cheap. But if one uses longer-term trailing averages, stocks look pricey.

In any case, Bloomberg's poll of equity strategists on Wall Street shows their consensus forecast calls for a further 11 per cent gain in the S&P 500 Index in 2011. That would push the return since 2008 to 53 per cent, the biggest three-year gain since the booming late 1990s. Time will tell if they're right.

As for which sectors or which particular stocks will outperform next year, there's no shortage of advice. U.S. business publications like Forbes, Barron's, Fortune, Smart Money and TheStreet.comare full of stock-buying tips, and I don't have nearly enough room to explore them all here. But here's a brief sampling:

At TheStreet.com,the top-rated Dow

dividend stocks for 2011 include such stalwarts as IBM, Wal-Mart, Kraft Foods, Hewlett-Packard, Merck, United Technologies, Microsoft, Chevron, JPMorgan and Coca-Cola.

At Smart Money, the top-rated stocks for 2011 include Lowe's, TJX Companies, Yum Brands, Comcast, Republic Services, Pepsico, Cisco, Google, Oracle, United Technologies, 3M Corp., and United Parcel Service.

Crossing Wall Street, an online investment blog edited by Eddy Elfenbein, has outperformed the S&P 500 Index for the past four years. It recently issued its top 20 picks for 2011; the list includes Abbott Laboratories, Ford Motor, Deluxe Corp., Oracle, JPMorgan Chase and Johnson & Johnson.

glamphier@edmontonjournal.com

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