With six weeks to go, my Top 10 list for 2012 is shaping up to be my most satisfying yet. It's not because of the performance, which probably won't come close to 2009's Top 10 return of 96.6%. It's because of the consistency: All 10 of 2012's picks are ahead of the market, and by a healthy margin (click here if you'd like to review the record).
In fact, I'm going to cull from last year's list to make my sixth pick for my Top 10 list for 2013: General Electric (NYSE:GE). Nearly one year ago, in my inaugural article for Seeking Alpha, I made GE my first pick for 2012's Top 10 list, and it wasn't exactly greeted with enthusiasm. As one commentor put it back then, "You'll have to do better than GE to impress us."
Fair enough. GE was not an exciting pick for 2012, and it's not my most exciting pick for 2013. But my objective, simply stated, is to assemble a team of 10 picks that can outperform the S&P 500 in 2013. And to that end, I expect GE will do it again in the coming year, as I explain below.
Why GE Is a Good Bet to Outperform in 2013
Unlike a couple of other Top 10 picks for 2013, such as Amazon (NASDAQ:AMZN) and (NYSE:NCR), I can't offer a unique angle on GE. The company is about as straightforward of a story as it gets: one of the best businesses in the world, and a leader in energy, healthcare, aviation, and, yes, finance. It wasn't my plan to offer it as a Top 10 pick this year, but the price is just too compelling at sub-$21 per share. It's a safe pick, in my view, to outpace the averages in 2013.
Not that you should believe me, necessarily. I was wrong last year in my prediction about GE stock: "By this time next year, I expect this $15 stock will trade close to its intrinsic value of $26-$27, or 70%-75% above today's quote. By next year the annual dividend will be $0.85, and for 2013, I'm estimating a $1 annual dividend."
While I'm comfortable with my assessment of intrinsic value, I was mistaken about the $26-$27 target price, and my optimism regarding dividends was a mistake as well. My guess is it'll take another year to get to that $0.85 annual dividend rate, with $1 or more being paid annually in 2014. That's still makes it a compelling investment at today's quote, especially for conservative or retired investors, as I think you're looking at a 5% payout on today's share price beginning in two years' time.
For 2013, a number of tailwinds should help propel GE to the mid- to high $20s, providing investors with an above-market return. Since GE is an industrial stock it is leveraged to economic growth, and I'm looking for a strengthening economy to emerge in 2013 led by a rebound in housing. Home affordability has reached a once-in-a-lifetime extreme, and recent data indicates that buyers have awoken to the realization. Sales of new homes are growing fast, and the supply of new homes is at multiyear lows. Fasten your seat belt, it could get exciting.
GE is also an outsized beneficiary of the strong growth trend in energy exploration and development. It's still difficult to get my brain wrapped around this eventuality and all of its ramifications: America is going to be energy independent in a few short years, a consequence of technological advances in extracting fossil fuels.
And, of course, there's the infrastructure theme that I made a cornerstone of my Top 10 list for 2012. The buildout of infrastructure in emerging economies promises to be a powerful investing theme for many years to come, and GE will benefit in a big way. On that basis, I'm comfortable recommending GE for the next several years as a way to play the secular infrastructure theme.
Look for My Next Top 10 Pick, Coming Soon
With the addition of GE, six of the 10 slots in my Top 10 list have been filled. The others, in order, are: Amazon, Hovnanian (NYSE:HOV), NCR (twice), and D.R. Horton (NYSE:DHI). I'm planning on releasing one pick per week over the next four weeks, but that may change (and based on recent price action, it probably will). So stayed tuned.