While it may seem crazy to be talking about the next raging bull market, some top analysts are not just talking about it, they are planning for it to happen as early as 2013. According to a recent article on CNBC, Citigroup's U.S. strategist, Tobias Levkovich, expects a raging bull market next year. For 2013, he has a year-end target on the S&P 500 of 1,615, and this would exceed the previous highs of 1,558, which was reached in 2007. His bullishness is based on a number of factors and the article says:
"To some degree people are realizing housing is turning, we continue
to see the expansion of technology through smart devices, we see growth in our energy boom and we're seeing manufacturing competitiveness return,"
The stock market has rallied in 2012, in spite of very negative headlines from Europe, and even signs of slowdown in China. However, the recent rally could just be the beginning as there has been some positive data that indicates a possible turnaround in the U.S. housing market. Central banks around the world have also pulled out more stimulus plans, which could benefit the global economy in the coming quarters. If the U.S. avoids the worst-case scenario of plunging off the fiscal cliff and if Europe's policymakers are able to cobble just in time solutions to avert a full-blown crisis, the markets could see a strong rally in 2013. With money market and savings accounts yielding next to nothing, stocks might be the only game in town for the foreseeable future. That is another big supporting factor for equities. Here are a few stocks that could be poised to benefit significantly from a strengthening U.S. economy and stock market bull market in 2013:
Caterpillar, Inc. (NYSE:CAT) shares have declined recently over earnings concerns, but the stock has stabilized and even started to rebound. That is a good sign the shares may have bottomed out. Just recently, Caterpillar said that previous expectations for earnings of about $15 to $20 in 2015, were too high and it reduced guidance to a range of $12 to $18 per share. With the stock trading at just over $85 per share, investors who buy and hold until 2015, could be owning this stock at a PE ratio of just 7, if earnings come in at $12, or even better, at about 4.7 times, if earnings come in at $18.
Caterpillar manufactures a wide range of heavy machinery, which is used in industries such as construction, farming, mining, heavy infrastructure and others. Those are all industries that are poised to prosper in an economic rebound. Recent housing data show that new home sales are coming in at higher than expected levels, and existing home sales also are showing signs of a bottom. If these trends continue and get even stronger, investor interest in economically sensitive stocks like Caterpillar could increase. Even at current earnings levels, Caterpillar shares are priced below the market at just around 9 times earnings versus an average of 14 for the S&P 500 Index.
More specifically, rising demand for new homes should boost sales for construction and earth moving equipment that Caterpillar makes. New home building and increased remodeling activity could also boost demand for timber and basic materials like copper. Both the timber and copper industry also rely on the type of heavy machinery that Caterpillar manufactures.
Here are some key points for CAT:
Current share price: $86.63
The 52-week range is $78.25 to $116.95
Earnings estimates for 2012: $9.42 per share
Earnings estimates for 2013: $10.01 per share
Annual dividend: $2.08 per share, which yields 2.5%
Tutor Perini Corporation (NYSE:TPC) shares have dipped in the past few days
and that is providing investors with a new buying opportunity. Another Seeking Alpha article recently made some good points about the upside that Tutor Perini offers. It stated that analysts expect this stock to reach $18 per share. However, I think the long-term potential is much bigger than that for a few reasons. One reason has to do with history, as this stock traded for over $60 per share in 2007, before the financial crisis. That shows the kind of upside this type of stock has when earnings growth meets with a solid economy and a bull market. Another reason this stock could go much higher is because it owns a number of subsidiaries that could be sold or spun-off. That could create shareholder value. Another consideration is that the currently low valuation of Tutor Perini could entice another company or private equity firm to buy all of it. At the end of the last quarter, Tutor Perini had a backlog of uncompleted construction work that was valued at $5.9 billion. That is huge when you consider that Tutor Perini has a current market capitalization of just about $512 million. It's also impressive when you consider that this company has annual revenue of about $4 billion. That means the $5.9 billion backlog is just about equivalent to the next year and a half of revenues.
An improving economy and a bull market are the types of catalysts that could push this stock much higher. In the past few weeks, a number of homebuilding stocks have doubled in value based on renewed investor interest in this sector and on improving new home sales data. Stronger results for homebuilders could be an early sign of things to come for Tutor Perini because an improving housing market is often the first step to renewed economic vigor. That could lead to more demand for the bigger projects that this company handles. That's why it makes sense to own some Tutor Perini shares before the next bull market. Another interesting fact is that a number of value-oriented funds own a substantial stake in this company. Both the Dreman Small
Cap Value Fund and the Fidelity Low-Priced Stock Fund each own over 3% of the company and some funds have even larger positions.
Here are some key points for TPC:
Current share price: $10.77
The 52-week range is $9.21 to $17.49
Earnings estimates for 2012: $1.47 per share
Earnings estimates for 2013: $2.20 per share
Annual Dividend: None
Chevron Corporation (NYSE:CVX) shares recently hit a new 52-week high, but have since pulled back. The price could continue to decline in the short-term due to an abundant supply of oil on the market, but a further drop might be a great long-term buying opportunity. This stock has a 200-day moving average of just over $106 per share, so that could be and ideal entry point especially since the stock would probably have strong support at those levels. Chevron is a stock that will probably do very well in an economic rebound and a bull market since oil prices would be likely to rise with increased global economic activity. Higher oil and natural gas prices would increase profit margins for major oil companies like Chevron.
Another reason why this stock makes sense to buy on dips is because of the dividend. Chevron has a strong record of paying dividends and increasing the payout. For example, in 2005, the quarterly dividend payment was 40 cents, and thanks to regular increases, it has more than doubled from that level to 90 cents per quarter today. The company is expected to earn nearly $13 per share and with the annual dividend at $3.60 per share, the payout ratio is just around 30%, which means the dividend could be poised for additional increases.
Here are some key points for CVX:
Current share price: $115.18
The 52-week range is $92.29 to $118.53
Earnings estimates for 2012: $12.87 per share
Earnings estimates for 2013: $12.52 per share
Annual dividend: $3.60 per share, which yields 3.2%
Ford Motor Company (NYSE:F) shares would also make sense in a bull market that is driven by an improving economy. As mentioned before, improved new home sales data and better existing home sales could lead to an improving economy, and more jobs. Those factors could lead to higher car sales to consumers, along with more truck and van sales to businesses. Ford shares are undervalued based on the PE ratio, which is right around 6 times 2013 earnings estimates. That is way too cheap when the average stock in this market currently trades for more than twice that level. Ford shares have been dragged down by concerns over weak sales in Europe, but policymakers have avoided a financial crisis so far and as time goes on, it seems less likely that a worst-case scenario is going to play out.
As European fears subside over time, investors should be increasingly focused on the positive developments at this company. Ford has a top management team, led by CEO, Alan Mulally. He has clearly created a great turnaround, as Ford has seen its balance sheet and credit ratings improve under his tenure. In another sign of improved financial health, Ford reinstated a dividend in 2012, at an annual rate of 20 cents per share. Ford has recently introduced a number of popular new models including the 2013 Ford Escape, which offers fuel efficiency. There is also a new concept for the 2015 Mustang, which looks very impressive. Low valuation, strong management, a solid dividend and a compelling line of future designs make this stock worth buying now and holding for the next bull market.
Here are some key points for F:
Current share price: $10.41
The 52-week range is $8.82 to $13.05
Earnings estimates for 2012: $1.26 per share
Earnings estimates for 2013: $1.47 per share
Annual dividend: 20 cents per share, which yields about 2%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I am long F, TPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.