As 2012 Rally Cools, Move Into These 2 Stocks
NEW YORK (TheStreet) -- Stocks have rocketed out of the gate in 2012. We're just about to close the book on the first quarter and the S&P 500 is up about 12% -- which, in most cases, would be considered a successful year, much less a quarter.
And in fact, when I think about the rest of 2012, I don't foresee an outcome where the market will give up all its gains or end up 20% or more for the year. Rather, I think it's likely we'll enter a more choppy, sideways trading environment over the next couple of quarters, as stocks digest recent gains.
With that in mind, I believe the best strategy is to take some profits in the early winners of 2012 and rotate into some high-quality stocks in sectors that have lagged year-to-date.
Namely, this means buying the consumer staples and energy groups, while reducing exposure to consumer discretionary and technology stocks, which led the market higher in early 2012. Utilities have actually been the worst performers year-to-date (and the only sector that is down), but the prospect for continued lower natural gas prices would steer me away from this group.
As for energy sector, there's no denying that offshore drilling is one of the hottest areas right now. With customers lured by triple-digit oil prices, Transocean
That's why I'm currently focused on Schlumberger
Even so, the company posted solid fourth-quarter results back in January. Schlumberger earned $1.11 a share, which topped expectations. Revenue grew 21% from the previous year to $10.97 billion and also exceeded the consensus analyst estimate. In addition, management boosted the quarterly dividend 10% to $0.275 a share (1.5% yield).
Given the solid fundamental outlook, I believe that Schlumberger can outperform the broader market in the coming months and trade back up toward $80.
In the consumer staples area, Coca-Cola
But like Schlumberger, this is a stock that doesn't appear to be living up to the strength of its underlying fundamentals. Coca-Cola is firing on all cylinders, while its chief competitor, Pepsico
Management also boosted the quarterly dividend for the 50th consecutive year to $0.51 a share (2.8% yield). The company's payout is 1.5 times higher than the average yield of the S&P 500, and can be comfortably covered with earnings.
With that in mind, I believe that Coca-Cola can continue to set new highs and generate a double-digit total return by the end of the year.
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