RIDO INVESTMENT IDEAS TV LIVE SHOWS

Welcome to RIDO Investment Ideas TV, the new home for neophyte entrepreneurs and small business owners. We are a full time television network with programs featuring investment ideas, investment advice and entrepreneur success stories. RIDO Investment Ideas is dedicated to the success of entrepreneurs and small business, because that is who we are.

.

2010 investment ideas that hit -- and missed


How our money-making themes have fared so far this year

July 9, 2010, 7:50 p.m. EDT
By Jonathan Burton, MarketWatch

SAN FRANCISCO (MarketWatch) -- The old market adage to "sell in May and go away" sure has a nice ring to it nowadays, with U.S. stocks posting double-digit losses since their late April peak.

Six months ago it seemed that stock and bond markets would continue their powerful rally, and the 10 investment ideas for 2010 that MarketWatch highlighted in early January mostly reflected that outlook.

The optimism was true for stocks, for a while. But the European sovereign debt crisis sparked a worldwide flight to quality, with investors tossing most stocks overboard in the second quarter and rushing to embrace bonds, the U.S. dollar and gold.

U.S. stocks this week saw their biggest rally in a year, but most investors still aren't in a buying mood. See Market Snapshot.

Bullish stock sentiment fell to 21% in the latest American Association of Individual Investors sentiment survey. The proportion of individual investors who expect stocks to rise over the next six months is at its lowest point since March 5, 2009. The historical average is 39%.

Meanwhile, 57% of investors polled expect stock prices to slide over the next six months -- the survey's most bearish reading since March 2009.

"There's been a huge shift in sentiment," said Matthew Rubin, director of investment strategy at investment manager Neuberger Berman. "We've gotten into a market that is being driven more by macro concerns than company fundamentals. It has made it a very difficult market for many investors."

"Investors have to be selective and buy into the panic selling, because there's going to be a lot of volatility," added Alan Lancz, an investment adviser in Toledo, Ohio. "It's going to be that type of market possibly for several years."

You might read the market's dour mood as a contrarian indicator, or the bearish barometer could still rise. But with the year half over, it's time for a checkup on the 10 themes, and to see what changes, if any, investors should make. See the 10 investment ideas we thought would make you money this year.

1. Stocks with a global footprint

Shareholders of many U.S.-based multinationals got socked in the first half of 2010. The eurozone debt crisis and concerns about global economic growth derailed expectations even for companies with solid product lines and an understanding of how to sell worldwide.

For example, the benchmark Standard & Poor's 500-stock index /quotes/comstock/21z!i1:in\x (SPX 1,070, -13.89, -1.28%) , whose constituents derive almost half of their revenues from outside of the U.S., has lost about 12% since its April 23 peak, and is down about 4% so far in 2010. Meanwhile, Rydex Russell Top 50 /quotes/comstock/13*!xlg/quotes/nls/xlg (XLG 77.80, -1.01, -1.28%) , an exchange-traded fund covering the 50 largest U.S. stocks, is off almost 6% for the year.

What to do: Global growth and the integration of world economies is a long-term process. Companies with strong business and financial managers have seen less damage from the downturn and will be the first to emerge from it.

Moreover, profit margins on international operations are higher, said David Bianco, U.S. equities strategist at Bank of America Merrill Lynch. His generally upbeat outlook favors what he calls "BIG" companies -- as in "big-cap, international growth" -- namely among technology, consumer staples, industrials, media and apparel stocks.

Following that theme, Morris Mark, a New York-based investment manager, includes Coca-Cola Co. /quotes/comstock/13*!ko/quotes/nls/ko (KO 54.08, +0.84, +1.58%) and Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 482.00, +4.50, +0.94%) in his clients' portfolios. Some big-cap U.S. stock ETFs with a global slant include Vanguard Large Cap ETF /quotes/comstock/13*!vv/quotes/nls/vv (VV 48.75, -0.61, -1.24%) , PowerShares Active Mega Cap /quotes/comstock/13*!pma/quotes/nls/pma (PMA 21.35, -0.27, -1.25%) and iShares Russell Top 200 Index /quotes/comstock/13*!iwl/quotes/nls/iwl (IWL 25.07, +0.12, +0.48%)

2. Stock dividends as bond substitute

Corporations have several clear ways to spend their cash: invest in the business, make acquisitions, buy back shares or pay shareholders a dividend. Lately, with bond yields so low and market volatility high, dividend-paying companies are getting plenty of attention.

Dividend-centric portfolios have held their own as well. Equity-income mutual funds have a bias towards dividends; the category lost 2.3% on average for the year through July 8, about one percentage point better than S&P 500 index funds, according to fund-tracker Lipper Inc.

What to do: Dividend income can cushion market shocks, and many well-known stocks now offer payouts of more than 3% -- better than a 10-year Treasury. Your focus should be on companies with a lengthy history of increasing dividends, reflecting a sound business, rather than on stocks with the highest absolute yield, which could spell trouble.

"As we expect the stock market performance to continue to exhibit heightened volatility for the rest of 2010, we favor dividend growers and high dividend payers," Brian Belski, chief investment strategist at Oppenheimer Asset Management, wrote in a recent research report.

One attractive list of seven dividend growers comes from Gerald Appel, editor of the Systems & Forecasts newsletter. It includes Intel Corp. /quotes/comstock/15*!intc/quotes/nls/intc (INTC 21.26, -0.39, -1.80%) , Kraft Foods Inc. /quotes/comstock/13*!kft/quotes/nls/kft (KFT 28.84, -0.37, -1.27%) , McDonald's Corp. /quotes/comstock/13*!mcd/quotes/nls/mcd (MCD 70.11, -0.76, -1.07%) , Exxon Mobil Corp. /quotes/comstock/13*!xom/quotes/nls/xom (XOM 58.70, +0.53, +0.91%) , Procter & Gamble Co. /quotes/comstock/13*!pg/quotes/nls/pg (PG 61.11, -0.48, -0.78%) , Johnson & Johnson /quotes/comstock/13*!jnj/quotes/nls/jnj (JNJ 57.50, +0.38, +0.67%) and Coca-Cola.

Each of these stocks yields above 3% and Kraft offers 4%.

"If these companies continue to grow their dividends in the future at even half the rate they did from 2001 to 2010, holding this portfolio of stocks would provide a stream of income that would grow faster than the historical average inflation rate," Appel wrote.

For greater diversification, consider a mutual fund or ETF. Many fund companies offer dividend-focused products, while others, like the Jensen Portfolio /quotes/comstock/10r!jensx (JENSX 23.60, -0.29, -1.21%) , use dividends as a cornerstone of their investment strategy.

ETFs to consider include Vanguard Dividend Appreciation ETF /quotes/comstock/13*!vig/quotes/nls/vig (VIG 45.65, -0.51, -1.10%) , SPDR S&P Dividend /quotes/comstock/13*!sdy/quotes/nls/sdy (SDY 46.93, -0.47, -0.98%) , iShares Dow Jones Select Dividend Index /quotes/comstock/13*!dvy/quotes/nls/dvy (DVY 44.18, -0.43, -0.96%) , WisdomTree LargeCap Dividend /quotes/comstock/13*!dln/quotes/nls/dln (DLN 39.77, -0.38, -0.95%) and PowerShares International Dividend Achievers /quotes/comstock/13*!pid/quotes/nls/pid (PID 13.51, -0.15, -1.06%).

3. Larger-cap index funds

With large-cap stocks shouldering the brunt of the downturn, the sector didn't give investors much to stand on. Large-cap growth funds, for example, lost 5.2% on average for the year through July 8, while their large-cap value counterparts did better, in keeping with other value-oriented strategies, down 3.6%.

What to do: If you believe Standard & Poor's strategists, the S&P 500 will end the year at around 1,110, or just shy of 3% higher than its July 9 close of 1,078. While that doesn't seem so great, the forecast is based on expectations for at least a 20% decline from the benchmark's April 23 peak of 1,217 before the end of September, followed by a year-end rally.

Such a cautionary outlook should give investors pause about the timing of buying large-cap stocks, particularly if the U.S. economy, along with the rest of the world, weakens and shareholders unload the most liquid, visible securities.

4. Technology stocks

Technology stocks have short-circuited so far this year. The tech-heavy Nasdaq Composite Index /quotes/comstock/10y!i:comp (COMP 2,187, 0.00, 0.00%) is off about 13% since its April peak, and is down more than 3% in 2010. Technology funds, meanwhile, had lost about 4% on average through July 8, according to investment researcher Morningstar Inc.

What to do: Technology shares have lost investors money this year, after being the best performing U.S. market sector of 2009, but they haven't yet lost their magic.

"With strong balance sheets, cash levels that rank among the highest in the S&P 500, and generally higher-quality earnings power, tech companies offer superior fundamentals versus most of their cyclical peers," wrote RBC Capital markets analysts in a late June research report. The firm's top picks include EMC Corp. /quotes/comstock/13*!emc/quotes/nls/emc  (EMC  19.84, +0.36, +1.85%) , Intel, Cisco Systems Inc. /quotes/comstock/15*!csco/quotes/nls/csco  (CSCO  22.80, +0.24, +1.06%) , NetApp Inc. /quotes/comstock/15*!ntap/quotes/nls/ntap  (NTAP  39.83, -1.58, -3.82%)  and International Business Machines /quotes/comstock/13*!ibm/quotes/nls/ibm  (IBM  125.27, -1.28, -1.01%) .

"The secular drivers in technology are pretty overwhelming and the multiples are still fairly reasonable versus the growth rates," said Noah Blackstein, manager of Dynamic US Growth Fund /quotes/comstock/10r!dwugx (DWUGX 13.64, -0.22, -1.59%) , which has almost half of its portfolio invested in technology companies including Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 257.01, +2.77, +1.09%) , NetApp and VMware Inc. /quotes/comstock/13*!vmw/quotes/nls/vmw (VMW 73.16, +0.74, +1.02%)

5. Energy stocks

The energy sector has tanked this year. Concern about waning demand from China and other emerging-market engines threw the sector into reverse. The oil patch was hit especially hard, in no small part due to the implosion of BP PLC /quotes/comstock/13*!bp/quotes/nls/bp (BP 36.74, +0.61, +1.69%) .

An ETF proxy for the sector, Energy Select Sector SPDR /quotes/comstock/13*!xle/quotes/nls/xle (XLE 52.38, -0.87, -1.63%) , was down 7.4% in the year through July 8. The average energy-sector mutual fund, meanwhile, lost 10.2%

What to do: The poor sentiment surrounding the energy sector is drawing the interest of value-minded buyers.

"I love energy stocks," said Don Wordell, manager of RidgeWorth Mid-Cap Value Equity Fund /quotes/comstock/10r!samvx (SAMVX 10.17, -0.13, -1.26%) , which recently had about 15% of its portfolio in the sector.

"The marginal cost of oil is going to be higher in the future," he said. "I see decent production growth and strong demand globally for energy. We're dependent upon oil, and oil is expensive to find and produce."

Among his favorites are well-known companies in the exploration and production business, including Noble Energy Inc. /quotes/comstock/13*!nbl/quotes/nls/nbl (NBL 66.07, -1.49, -2.21%) , Chesapeake Energy Corp. /quotes/comstock/13*!chk/quotes/nls/chk (CHK 21.14, -0.37, -1.72%) and Talisman Energy Inc. /quotes/comstock/13*!tlm/quotes/nls/tlm (TLM 15.84, -0.24, -1.49%) .

Investors in large-cap funds and ETFs will likely get exposure to energy stocks through ExxonMobil, the biggest U.S. company by market value. One actively traded ETF focused on oil is SPDR S&P Oil & Gas Exploration & Production /quotes/comstock/13*!xop/quotes/nls/xop (XOP 39.80, -0.47, -1.17%) .

6. Industrials

The industrials sector has given investors a strong foundation so far this year. The group includes aerospace and defense firms, railroads, electrical equipment makers and construction and engineering firms.

The average industrials sector fund is flat on the year, with a benchmark ETF, Industrial Select Sector SPDR /quotes/comstock/13*!xli/quotes/nls/xli (XLI 28.60, -0.07, -0.24%) , gaining almost 3%, while Vanguard Industrials ETF /quotes/comstock/13*!vis/quotes/nls/vis (VIS 52.83, -0.20, -0.38%) is up 1.6%.

What to do: Ed Yardeni, chief investment strategist at Yardeni Research Inc., told clients recently that industrials companies should see improving profit margins as the year unfolds, yet the sector's valuation is attractive.

Ridgeworth's Wordell favors industrial companies that he said stand to benefit from a buildout of pipelines, refineries and other staples of the energy-sector infrastructure. His recommendations include Flowserve Corp. /quotes/comstock/13*!fls/quotes/nls/fls (FLS 91.50, -0.08, -0.09%) , ITT Corp. /quotes/comstock/13*!itt/quotes/nls/itt (ITT 46.77, -0.14, -0.30%) , Fluor Corp. /quotes/comstock/13*!flr/quotes/nls/flr (FLR 43.96, -0.42, -0.95%) , Ingersoll-Rand PLC /quotes/comstock/13*!ir/quotes/nls/ir (IR 36.06, +0.34, +0.95%) , Lennox International Inc. /quotes/comstock/13*!lii/quotes/nls/lii (LII 43.90, +0.35, +0.80%) and A.O. Smith Corp. /quotes/comstock/13*!aos/quotes/nls/aos (AOS 52.54, +1.06, +2.06%)

7. M&A trends

Global merger and acquisition activity rose almost 8% in the first half of 2010 versus the same period a year earlier, though the pace slowed in the second quarter, according to deal-tracker Mergermarket Group, with the most transactions above $500 million since 2007. The lone exception was the U.S., where year-over-year volume slumped 15.5% -- the quietest first half period since 2003.

What to do: Acquisitions will continue to be an ongoing global trend. Companies with cash are increasingly looking across the globe for opportunities. Cross-border M&A transactions recorded the busiest half-year since 2008, reflecting 26% of all M&A deal value, Mergermarket reported.

"M&A is going to be a theme over the next couple of years," Wordell said. His exposure comes from an investment in Lazard Ltd. /quotes/comstock/13*!laz/quotes/nls/laz (LAZ 28.50, +0.25, +0.88%) , the investment bank and asset manager. "It's ridiculously cheap, and without the regulatory and balance sheet risk of the other banks," the fund manager added.

8. U.S. dollar

The strong-dollar theme continues to play out, with the benchmark PowerShares DB US Dollar Index Bullish /quotes/comstock/13*!uup/quotes/nls/uup (UUP 24.23, +0.16, +0.66%) gaining almost 6% so far this year. The dollar benefited from the flight to quality that enveloped global markets in the second quarter.

What to do: As long as there is risk aversion among investors, "we'll continue to see the dollar strengthen," said Rubin, the Neuberger and Berman strategist.

"The dollar is the winner," added Scott Mather, head of global bonds at fund giant Pimco, whose bullishness on the greenback hinges on his view that global economic growth will be slower than expected.

"The dollar has advantages that European currencies don't," he said. "We have, relative to other developed-world countries, a much more dynamic economy. When a lot of change is called for in the global economy, the U.S. will come out on top because of its ability to change."

9. Avoid long-term government bonds

This was simply a bad call. Treasurys with 15-year or longer maturities have been the year's best performers so far, up about 13%. Long government bond funds have gained 14.2% on average.

What to do: "It's not too late to own Treasurys," said Rich Bernstein, an independent investment strategist. Treasurys have the benefit of being the only major asset class that offers true diversification from stocks, he said.

"With the growth and inflation outlook we have, we don't think they're in overvalued territory," added Pimco's Mather about long-term Treasurys. "In fact, it could be the cheapest thing out there."

10. Emerging markets consumers

Optimism about emerging markets is clearly more restrained than it was at the beginning of the year. Emerging markets funds, on average, have lost almost 3% through July 8.

"This is going to be a back-and-forth, dragged-out process," said Lancz, the Ohio investment adviser, about investing in emerging markets.

Consumer-services companies in emerging markets, in contrast, present a more compelling and relatively more predictable investment picture.

"The best place to invest is in those groups that are in the emerging middle class," said Mike Avery, chief investment officer at investment manager Waddell & Reed.

What to do: Avery favors Chinese providers of consumer services including China Life Insurance Company Ltd. /quotes/comstock/13*!lfc/quotes/nls/lfc (LFC 65.10, -0.41, -0.63%) , along with multinationals Taiwan Semiconductor Manufacturing /quotes/comstock/13*!tsm/quotes/nls/tsm (TSM 10.10, -0.20, -1.94%) , Nike Inc. /quotes/comstock/13*!nke/quotes/nls/nke (NKE 69.65, -0.19, -0.27%) and Mead Johnson Nutrition Company /quotes/comstock/13*!mjn/quotes/nls/mjn (MJN 53.20, -0.64, -1.19%) as ways to take advantage of rising incomes in China.

Consumer-staples companies are a major theme for Keith Walter, co-manager with Rudolph-Riad Younes of Artio Global Equity Fund /quotes/comstock/10r!jgeix (JGEIX 32.44, -0.26, -0.80%) . He's also focused on China and foreign companies selling into that market.

"China is slowing down but there's no doubt that the command economy is going to maintain an 8% or better growth rate, which is far better than what we see in the West," Walter said. "That growth differential is going to be enough to make it an attractive place to invest."

Jonathan Burton is MarketWatch's money and investing editor, based in San Francisco.


From MarketWatch published on July 9, 2010, 7:50 p.m. EDT