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How 2012’s top money ideas have fared so far, and what’s next
Money » Advice to investors on what course corrections they should consider.


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Technology is different. Remarkably, technology stocks are priced lower than utilities. Technology also trades at a discount to the S&P 500 for the first time since 1996, according to Merrill Lynch. Tech stocks tend to have lots of cash, strong balance sheets and generally good growth prospects, especially among software and services businesses. One caveat is that tech’s exposure to Europe is the highest of any S&P 500 sector.

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Divine dividends • U.S. companies are in the money, and are sharing more of the wealth with stockholders by initiating or raising quarterly dividend payments.

Investors who took the advice at the start of the year to own companies with dividend yields above the 10-year Treasury have done well.

Shares of Walmart Stores Inc., with a yield of around 2.4 percent, are up more than 22 percent in 2012. Microsoft Corp., with a yield topping 3 percent, has gained 14 percent; Colgate-Palmolive Co., yielding 2.4 percent, is also up about 14 percent. Some losers in this higher-yield group are McDonald’s Corp. and Chevron Corp.

As for what to do next, dividend strategies have become enormously popular, and with that, more investors are concerned that the valuations of these stocks are getting stretched. Those worries may be premature, but it’s worth remembering former Wall Street analyst Bob Farrell’s second rule of market behavior: "Excesses in one direction will lead to an opposite excess in the other direction."

That said, dividend-hunters can take comfort owning shares of companies with a history of dividend growth and not just a current high yield. Companies with strong cash flow and a history of raising dividends year after year will likely continue to attract investment.

Small is sometimes better • U.S. small-caps didn’t fare so well in 2011, but performance has perked up so far this year, with the benchmark Russell 2000 Index gaining almost 8 percent.

As for what to do next, small-caps deserve respect but don’t always get it.


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Performance this year is close to the 11.5 percent return that Steven DeSanctis, Merrill Lynch small-cap strategist, has forecast for the group. And although these stocks are lagging most large-caps, they’re outpacing midcaps and trouncing Chinese stocks.

Investors considering small-caps should be mindful that a slow-growth U.S. economy will hurt many of these mostly domestic companies. So the general rule of owning high-quality, cash-rich companies applies here, as well.

European surprises • Investors in Europe have been trying to catch a falling knife. The absence of a solution to the euro-zone debt crisis leaves a continent-wide abscess that has yet to be addressed in firm, decisive ways.

As for what to do next, don’t give up on Europe, even though many strategists favor emerging markets in Asia over developing Latin America, Eastern Europe, the Middle East and Africa.

Within developed Europe, intrepid buyers could find that "attractive valuations and depressed prices could lead to short-term rallies in European equities," Merrill Lynch analysts noted, although they added that a sustainable rally is unlikely until Europe’s policymakers attack the continent’s banking crisis head-on.

For now, pay attention to what Merrill calls Europe’s "best of breed" companies. The firm’s recent European recommendations mostly focused on U.K.-based stocks, including AstraZeneca PLC, WPP PLC and Compass Group PLC, plus Germany’s Siemens AG.

Bullish on the buck • The U.S. dollar has gained at the expense of the euro, which was the forecast made in January.

The U.S. Dollar Index is up 4.3 percent so far this year, while the euro trades around $1.22 to the U.S. dollar, down from a 52-week high of about $1.45. An exchange-traded proxy for the dollar, PowerShares DB U.S. Dollar Index Bullish Fund, has gained about 2.5 percent in 2012.

As for what to do next, "Maintain a core position in the U.S. dollar," said Christopher Vecchio, a currency analyst at DailyFX. He suggested that investors stay bullish until the Fed moves to ease monetary policy, which would be perceived as devaluing the dollar and positive for commodities and the currencies of commodity-producing nations.

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