"The World's Leading Energy Strategist" on What Could Go Wrong in 2013
As readers of Top 10 Stocks already know, Chief Strategist Paul Tracy recently handed over the reins to Elliott Gue, one of the most widely followed investing strategists in the United States.
Why the change? During the past three years, StreetAuthority's global readership has increased by several million people and the paid subscriber base has more than doubled. StreetAuthority and its sister sites, InvestingAnswers.com and ProfitableTrading.com, now reach more than 3 million investors each month.
It's not hard to see why Paul hand-picked Elliott to be his successor. Elliott has appeared on CNBC and Bloomberg TV, and has been quoted in a number of major publications, including Barron's, Forbes and The Washington Post.
Elliott's expertise and track record of success have also made him a sought-after speaker at investing conferences and events hosted by the American Association of Individual Investors and others. (In fact, when I caught up with Elliott this week for the interview that follows, he was between speaking engagements at The World Money Show in Orlando.)
As Elliott discusses below, he has spent much of his career analyzing the energy sector. He launched the highly-acclaimed Energy Strategist newsletter in March 2005. Three years later, the official program of the 2008 G-8 Summit in Tokyo referred to him as "the world's leading energy strategist."
Elliott is also an avid world traveler. He's spent the past decade doing "boots on the ground" research -- meeting with top company executives and industry experts throughout the world, from Houston to Tokyo, Amsterdam, Beirut and London.
For a look at what's in store for Top 10 Stocks as well as Elliott's outlook for 2013, read on...
Bob: Now, down to business. How will you put your stamp on Top 10 Stocks?
Elliott: The key features of Top 10 Stocks won't change. I will continue to deliver a single favorite stock or fund recommendation each month, either gleaned from the pages of StreetAuthority's other advisories or unique to the service. I have been an avid reader of all of StreetAuthority's editors for years and I look forward to scouring their portfolios to identify the best of the best picks for inclusion in the newsletter.
Paul Tracy and I see eye to eye on what constitutes a truly great investment, and I will continue to look for firms that create value for shareholders through dividends, stock repurchases and savvy investments. There will be a great deal of continuity on the strategy for Top 10 Stocks.
But I do have some unique perspectives and expertise that I will bring to the advisory. I've spent much of my career analyzing foreign markets and the energy sector. I attend numerous investment and industry conferences each year and I look forward to leveraging my knowledge of these sectors to uncover profitable and overlooked recommendations for readers.
Bob: What's your assessment of the market in the year ahead?
Elliott: The U.S. stock market has been performing well despite a number of significant headwinds, including slow economic growth and a messy political debate surrounding tax hikes and spending cuts.
I am worried the U.S. market could see a significant correction in the first half of the year. The compromise to avoid the "fiscal cliff" of tax hikes and spending cuts due to affect the economy this year averted some of the impact. However, taxes are still going up for 77% of U.S. households, and some spending cuts are likely in 2013. Debates surrounding planned short-term extensions of the U.S. debt ceiling could also involve some additional compromises and brinksmanship. I expect the U.S. economy to plod along at a less than 1.5% growth pace through the first half of the year.
But, the United States will likely avoid recession this year, so that will limit the long-term downside. Meanwhile, the picture outside the United States is actually getting brighter. China, India, Brazil and other key emerging markets appear to be re-accelerating. I am also looking for the European Union to exit recession in the first half, led by stronger nations such as Germany. This should be a big positive for global markets.
All told, 2013 should be a positive year for stocks, but I see the shaky economic picture for the United States bringing some significant bumps in the form of 5% to 10% broader market pullbacks in the first half of the year.
I also see dividends remaining a key theme this year. While the yield on the 10-Year Treasury bond has been on the rise lately, investors can't retire on a 2% annualized yield. The yields on savings accounts and corporate bonds continue to hover near multi-decade lows. Stocks that offer significant dividend yields will continue to outperform.
Bob: What could go wrong?
Elliott: The first estimates from the government for fourth quarter U.S. gross domestic product show the economy actually shrank 0.1%. At best, The U.S. economy will grow at about a 1% to 1.5% pace in the first half of the year. With growth this anemic, it doesn't take much of a shock to tip the economy into recession. If the United States, still the world's largest economy, were to falter that would short-circuit the nascent recovery in global growth now underway and would pressure stocks.
One potential risk in the first half is a spike in global energy prices. Brent crude oil prices currently trade more than $116 per barrel and U.S.-traded West Texas intermediate crude is approaching $100/bbl. There are many drivers of this rally including concerns that quantitative-easing measures and low interest rates in many developed countries will ultimately fuel a surge in inflation and push up commodity markets. Moreover, with the exception of North American, global oil production is stagnant.
Rising energy prices act as a tax on the global consumer and reduce disposable income and purchasing power.
At the time of the Libyan Civil War in early 2011, Brent crude prices spiked to more than $120/bbl. This hampered growth in the United States and Europe, and helped catalyze a nasty pullback in the S&P 500 during the summer months.
Bob: Getting back to Top 10 Stocks, can you give us a preview of your first issue?
Elliott: Kids with well-heeled parents have many advantages, including the ability to attend the best schools and an easy source of seed capital to start a business. It's rare, but there are a handful of companies around the globe that share a similar benefit -- a large, well-capitalized sponsor or parent company that's willing to invest to ensure growth regardless of economic and business conditions.
As I noted earlier, I see stocks that pay dividends outperforming again in 2013. And if there's anything I like more than a solid dividend yield, it's a stock that has the potential to grow its payout at a double-digit annualized pace.
In the next issue of Top 10 Stocks, I'll be taking a look at a company that offers a yield of around 4% and the potential to grow that income stream at a 15% to 20% annualized pace for at least the next five years. Even better, that growth is all but guaranteed as this firm has the financial and strategic support of a multi-billion dollar parent firm that's considered one of the best-managed energy stocks on the planet.
My next pick has been able to negotiate a series of sweetheart deals with its parent to buy some of the industry's most coveted assets at favorable prices. And the company's parent has even insulated this recommendation from the notorious volatility of commodity prices.
[Note: There's still time to get in on Elliott's debut issue of Top 10 Stocks, scheduled for publication next week. View this presentation for more information -- and for details on how you can crack the Dividend Vault. (Click here for a transcript.)]
StreetAuthority LLC does not hold positions in any securities mentioned in this article.