12 Predictions For 2012 - Part 1

by: Brian Nichols

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 has been several encouraging developments but there's also been just as many negative moments which has kept the markets confused. Therefore with 2012 just around the corner the debate of future headlines have 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, 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.

Dow Jones Gains 9%

I am predicting that the Dow Jones will reach a high of 13,625 points in 2012. This valuation would be a 9% gain from 12,500, which is the level that I believe the Dow will finish the year in 2011. Honestly, I believe the markets deserve higher gains but much like 2011 I expect fundamental progress to be overshadowed by fear and turmoil in Europe. Hopefully, a resolution will come soon, yet I'm not sold on investor's reaction or confidence in any resolution that Europe can provide. My belief that the Dow will reach 13,625 is based on the fundamental progress of 2011 that's yet to be reflected within the market because of strong selling and fear. Nearly all of the market's largest companies have announced 2nd and 3rd quarter earnings during the sell-off within the market, over the last four months, and failed to trend higher despite strong earnings. I believe there are many companies showing strong fundamental progress yet are trading lower that will post large gains in 2012, with fundamental progress that's too strong to ignore. And these gains and future progress from the market's largest companies will drive the market higher in 2012.

Auto industry will outperform the market

I am predicting that the auto market will be among the strongest industries in 2012, and more specifically Ford (NYSE:F) and General Motors (NYSE:GM). Much like several industries within the market, both Ford and GM have shown remarkable progress over the last year but have traded lower. Both companies have reported strong monthly sales; both have new deal with the UAW; and both predict future success because of a new found emphasis on fuel efficiency. I believe that both of these stocks have fallen so abruptly because of the connection between the recession in 2009 and the auto industry. In 2009 the auto industry was one of the hardest hit and now with fresh concerns of another recession I believe this has caused pessimism among investors. However, there are no similarities between 2009 and now -- both companies have increased sales and have strong guidance -- but in 2009 sales were diminishing with the consumer not buying new cars. I see no reason why sales for both companies won't continue to rise. Both Ford and General Motors have created products that save the consumer money and have reported strong fundamental gains throughout 2011. However, neither of the companies' progress is reflected through stock performance and much like the Dow Jones I believe that fundamentals can only be irrelevant for so long, and eventually a company's progress and strong sales will reflect through stock price. I believe that both Ford and General Motors will post large gains during 2012, and more specifically I believe both will increase by 100% with large fundamental improvements. To read more regarding my beliefs that F and GM will double click here.

The Momentum Stock To Fall

Every year there is one, sometimes two, momentum stocks to reach its max and come crashing down. In 2011 it was Green Mountain Coffee Roasters (NASDAQ:GMCR) and Netflix (NASDAQ:NFLX) but in 2012 I predict that Amazon will be the stock to come crashing down to earth. Amazon has already lost over 20% of its value since mid October and still trades over 100x earnings. Yet because of the growth of e-commerce and its revenue growth I wouldn't be making this prediction if the company were posting higher earnings. This pick may not be the most popular but then again neither was Netflix at the end of 2010, and one could argue that Netflix has much stronger fundamentals than Amazon. In fact, Amazon only reported $500,000 more in earnings than Netflix during its most recent quarter yet AMZN is valued at nearly $90 billion while NFLX is valued at $3.7 billion. And although there are many differences between the two companies and Amazon has better long-term potential I believe its valuation is simply too high for this market.

Amazon Enters The Mobile Space

Regardless of what changes Amazon implements I still believe that it will fall in 2012. However, towards the end of the year, I predict that the company will release or announce a mobile phone device with the Android Operating system. The company's already released several e-readers and a new Kindle Fire, therefore I believe the technology is present. This could increase the company's margins and result in higher profits and ultimately result in a higher stock price. I don't see any reason why Amazon won't attempt to enter the mobile space because the technology is present and there are simply too many benefits.

Dish Will Acquire Sprint Nextel

A couple weeks ago I wrote an article in which I highlighted companies that I believe could acquire the undervalued Sprint Nextel (NYSE:S). And of the companies I believe that Dish (NASDAQ:DISH), which has already shown interest, presents the most likely possibility to purchase the communications company. To me this makes sense, Dish has wanted to enter the communication space and purchasing Sprint would create a network that its competitors couldn't compete with. Also, I don't think regulators would object to this acquisition since it would be a new segment for the company. Dish has made several changes over the last year and is focusing on growing and expanding its network. And since Sprint is trading below book value and now has the most popular device along with strengthening its network I believe this acquisition is likely and makes sense for Dish Networks.

Google Will Surpass $800

I predict that Google (NASDAQ:GOOG) will create all-time highs in 2012 and that its two year range between $460 and $620 will soon come to an end. Google has been one of the fastest growing companies within the technology sector yet it continues to trade in the same range. I believe that investors are more optimistic of Google's future than ever before, and I believe that Google is better positioned for the future than ever before. The company has many segments of revenue and is placing an emphasis in competing with Facebook by acquiring Zagat which will add reviews to its various segments of social networking. Also, the patent protection that Google acquired when it bought Motorola Mobility (NYSE:MMI) will help secure its future in the fast growing communications industry and I do expect that it will develop handset phones with Motorola at a faster rate. But the main reason I believe it will cross $800 is because of its fundamental progress over the last year. The company continues to grow and expand and is expected to continue growing in the future. Therefore I believe that at some point its growth will reflect in stock price, and with it being in a two year range, I believe that its largest gains will come in 2012.

The predictions in this article are speculative yet I believe present a strong likelihood of occurring. During part 2 I will make predictions on commodities, banks, Apple, IPO's, and Facebook. So stay tuned and please leave your comments with predictions of your own and say what you expect from the markets in 2012.

>>Go to Part 2

Disclosure: I am long GOOG, DISH, S, GM.