In a Slow Market, Wait for Compelling Values Says Johnson

Jeff Macke

The markets are higher in 2012, but it hasn't been easy.

After a torrid start to the year, stocks gave back nearly all of a double-digit gain in two months, bottoming in early June. History repeated almost immediately, with stocks pushing higher into October only to then slide more than 6%.

Despite the sizable up-and-down action, Hugh Johnson, the eponymous head of the advisory firm, remains positive -- with a qualifier. Describing his footing as "positive, but don't bet the ranch," Johnson thinks the rate cycle still favors equities. However, he worries that a fiscal cliff-driven recession would be an enormous headwind for stocks. The growth rate for the economy has slowed to the point of being barely discernible, and earnings are doing much the same thing. For 2013, it may well be a repeat performance.

"It's not going to be an exciting environment," Johnson says, perhaps unnecessarily, of a stock market with possible 5% returns. While those wouldn't be overwhelming gains, he believes that should beat alternative investments. In other words, stocks aren't anything to write home about, but "you can still make money if you're a good stock picker," he says.

How to play it? Add on during the dips, and keep a long time frame. Specific names that can work in the year ahead are health care stocks such as Merck (MRK) and Pfizer (PFE), along with financials like Travelers (TRV) and First Republic (FRC) -- and anything else that makes your eyes glaze over just a little bit.

The keys are patience and opportunity. If there's a takeaway from the first 11 months of 2012, it's that chasing stocks is about the worst available strategy. If you miss a price move, sit back and wait. Odds are good you'll have another chance to buy.

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