Despite a bearish April and May, the market has performed pretty well so far in 2012, and many experts are expecting equities growth to be between 10 and 12 percent for the entire year. The S&P 500 is having a great June as the "sell in May and go away proverb" is beginning to be turned on its head. In the near future, I believe the European debt crisis will get worse before it gets better and I expect an overall flat summer. Keeping this in mind, I suggest the following 3 strategies for investors to beat the market over what is sure to be a very interesting 3 months.
1. Precious Metals
Early last year, we saw a spike in Silver which was followed by one of the strongest bull runs that Gold followers have ever seen. Since the spikes, prices have come back down to Earth. Gold is up about 5 percent in the last year, and Silver is down over 20 percent. If Greece's troubles come back into the picture or if Spain or France start making headlines, we can see investors running to precious metals again like we saw last year. My favorite metal right now is Silver. Silver and Gold normally perform similarly, and Silver's bad performance in relation to Gold over the past year should correct this summer. Since it's a relatively cheap metal, I strongly suggest investing in Silver through ETFs like iShares Silver Trust (SLV). I'm against leveraged ETFs like ProShares Ultra Silver (AGQ) because metals investing has been volatile enough and leveraged bets on commodities can go very bad very fast. In addition, I suggest limiting precious metals positions to under half of your overall portfolio because of the occasional unpredictability of commodities. There are of course other metals to invest in out there, like Palladium, but I believe Silver and Gold will be most positively affected by issues in Europe.
2. Low Beta Blue Chips
I'm expecting a highly volatile market this summer, and low beta blue chips are a great way to hedge the rest of your portfolio against large swings. In last year's volatile and flat market, many of these stocks strongly outperformed the market, including Kimberly-Clark (KMB), McDonald's (MCD), and Coca-Cola (KO). These companies have done well because of their reliable growth and profitability as well as their expanding international presence. Right now, my favorite low beta blue chip is McDonald's . Trading at $89.60 on the close of April 20th, the stock is pretty cheap. Its recent poor performance is from downgrades and missed expectations in Asia, but I do not believe this is going to be a long term issue.
3. American Automakers
Ford (F) and General Motors (GM) have been performing poorly as of late, but I believe this will turn around through the summer. Ford trades like a company on the verge of bankruptcy, but it should stay profitable for at least the next 3 years. GM has been getting bought up by Warren Buffett and there are no signs of him lowering his position in the near future. With both Democrats and Republicans taking credit for renewed profitability in the American Auto industry, it is in a lot of people's best interests for these two stocks to be performing well and both companies will have the earnings over the next two years to back slightly higher valuations than what they have now.
I believe that the three aforementioned strategies will all perform well in the near future. I strongly suggest using a combination of these ideas or adding them as a part of an overall portfolio as diversification is the best way for individual investors to avoid disaster.
I will be keeping a close look on the Tech Darlings and European Banks as well this summer. Although Facebook (FB) has been performing well over the past few days, I don't believe it or other companies like it have hit their bottoms yet. Right now, I believe they're all too unpredictable and unproven for a personal investor to get involved. European Banks are definitely trading cheap right now compared to American Banks, but I think a bad summer in Europe can make matters even worse. In addition, a sovereign debt default (which is likely) may take down one or two European Banks and I don't believe anyone has the foresight to guess which ones could go down.