12 Predictions For 2012 - Part 2

by: Brian Nichols

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During 2011 the markets have been as volatile as any period throughout history, and will be remembered as the year of Europe. Looking back on 2011 there have been several encouraging developments but there has also been just as many negative moments, which has kept the markets confused. Therefore with 2012 just around the corner the debate about future headlines has begun. And although we don't know for sure what will occur over the next year, it's still fun to predict. I have compiled a list, and this is the second part of a two part series, of 12 predictions for 2012 that I believe are likely to occur. Therefore let's get started, and look ahead to 2012 and all the little surprises that may be lurking around the corner.

It's Time To Buy Money Center Banks

I am predicting that 2012 will be the year of the large banks and that companies such as Bank of America (NYSE:BAC), Citigroup (NYSE:C), and JP Morgan Chase (NYSE:JPM) will play a large role in pushing the markets higher. The financial stocks have fallen in 2011 because we simply don't know how exposed these banks are to sovereign debt. And there is a high level of fear that one day we will wake up and one of the large banks will be declaring bankruptcy.However, if you look back to 2009 these companies are performing much better and, in case you forgot, these companies are "too big to fail." The financial picture in Europe appears to be cleaning up and since the industry is already undervalued I believe it's realistic to expect these stocks to post large gains. Below I have included a chart of the most undervalued within this industry by book value per share. I believe that each one of these stocks has the potential to reach its book value per share in 2012.

Company Ticker Book Value Dec. 8 Close
Bank of America (BAC) $20.80 $5.59
Citigroup (C) $60.56 $27.75
JPMorgan (JPM) $45.45 $32.22
Morgan Stanley (NYSE:MS) $31.29 $15.88
Click to enlarge

Facebook To Partner or Acquire Ebay.

Facebook to acquire Ebay (NASDAQ:EBAY) is a bold prediction and many will respond to this prediction by saying that Facebook doesn't have the cash to acquire a company the size of Ebay. I don't necessarily believe that Facebook will acquire the company for a premium on its current price but rather control a large stake in the company and incorporate Ebay with Facebook. Ever since Facebook created the like button it's been assumed that it was trying to learn more about consumer interest and what advertising techniques work best. As a result Facebook has the largest collection of data ever recorded on what the consumer likes. I believe that entering the retail space and being able to offer the Facebook user a one-stop-shop for social networking, gaming, personal interest, web search, and shopping is part of the Facebook plan. I believe this growth strategy is playing a large role in the reason that Facebook is becoming a public company. And I also believe that Facebook's CEO understands that the company must evolve in order to stay relevant in a market that has low barriers to entry.

Facebook To Acquire Netflix

I believe this acquisition could take place at the end of 2012 and only if Netflix's (NASDAQ:NFLX) valuation and market share continues to drop. Much like I believe that Facebook wants to enter the retail space I believe it wants to offer streaming services as well. This would help close the gap between Google (NASDAQ:GOOG) and Facebook since much of Google's web services include video. But unlike my belief that Facebook will partner with Ebay I believe it will acquire Netflix and that streaming services will be crucial to the future of Facebook.

Apple Finally Pays A Dividend

Investors have been waiting for Apple (NASDAQ:AAPL) to pay a dividend to its investors and it's yet to happen. The late Steve Jobs had a much different perspective than most CEOs of a public company. It was well known that Jobs didn't run a company with the company's stock in mind but rather made decisions for the long-term health of the company. But after his passing, and a new era at Apple, I believe the company will pay a dividend as a security to investors that management is confident in the future. This action could have a huge impact on the direction of the stock and with nearly $26 billion in cash I believe that Apple can afford to pay a dividend.

The Dollar Rally Continues

The Dollar Tree (NASDAQ:DLTR), Dollar General (NYSE:DG), and Family Dollar (NYSE:FDO) have each performed exceptionally well throughout 2011 as consumers seek value for the dollar. These three companies have posted better earnings and are expanding locations throughout the country at a rapid rate. I expect that each of these stocks will continue to trend higher, and will post larger gains in 2012 than in 2011, because of the expansion. As the consumer seeks value, companies such as these three that offer more bang for the buck will outperform the market and continue to grow.

IPO Trend Continues

During the last two weeks I've written a couple articles that identify a trend in IPOs that's occurred in 6/6 high profile internet IPOs as the only way to capitalize on gains from the stock. With that being said, I expect for internet companies that file for an IPO to continue trending lower in 2012. Companies such as Linkedin (NYSE:LNKD), Pandora (NYSE:P), Rennren (NYSE:RENN), and Zillow (NASDAQ:Z), which operate through social networking or through the web, have trended lower since its IPO because of skepticism regarding long-term potential. However, companies with physical locations that are established, such as GNC (NYSE:GNC), Dunkin' Brands (NASDAQ:DNKN), and Spirit Airlines (NASDAQ:SAVE), have performed well compared with companies in the internet space. I believe this trend will continue and that companies such as Yelp and Rovio will pop big the day of their IPOs and then trend lower. But that companies such as Toys R Us will perform much better because they are established. The only exception is Facebook, which will be one of the most anticipated IPOs ever and I believe it will trade much higher than earnings for a long time to come.

Disclosure: I am long BAC, GOOG, DLTR.