Maybe It's Time to Look Abroad

 | Jan 03, 2013 | 11:30 AM EST
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In the midst of Wednesday's 300-point rally, it struck me: What if Jan. 2's performance represented the best rally we'd get in 2013, not just in point or percentage terms but in the indices themselves?

It's not an idle thought: We've had a terrific run in stocks since the bottom of the financial meltdown in early 2008, moving the S&P 500 from 670 to over 1450 on Wednesday. As we have come into the new year, I've been thinking about how to reorganize my portfolio, and the thought that I've made a ton of money being long U.S. stocks in the past four years has me, as the song goes, "looking for love in all the wrong places."

Don't get me wrong, I'm not about to sell all my U.S. equities, get into cash or get short. I'm just going to slowly try and find some better value selectively in other places. I've waited a long time to see some other markets turn a corner in their recovery, and Europe, for one, looks like it has done just that.

This works particularly if, as the numbers are beginning to show, bond funds are finally sloughing off investors. If the "regular" investor has finally convinced himself to move out of "safe" bonds and into the U.S. stock market, it's time for me to go elsewhere. The trader's rule is always to be the first out of the lifeboat, and when the public is finally convinced that we're headed higher, we're probably just about done.

European shares have so vastly underperformed U.S. equities that values abound. For a first shift, I'm going where I am most comfortable: mega-cap integrated energy. Royal Dutch Shell (RDS.B) has long been a favorite of mine. Have a look at this chart of Shell's B-shares against U.S. benchmark Exxon Mobil (XOM):

Yahoo! Finance

In the last year, energy has hardly been the place to be, and I do expect 2013 to be far better. But even in the case of a bad energy year like 2012, Shell underperformed Exxon by almost 10%. In 2013, I not only expect energy tied to crude oil to outperform the indices, I expect European energy to greatly outperform U.S. companies. Take that along with my favor of Shell and the company's aggressive growth of volume in Mozambique and the Arctic, its embrace of new liquefied natural gas opportunities and the value created by its Alaska rig running aground that has stalled shares under $71.

That's a place I want to be in 2013 -- a simple change I can do inside the U.S. equity markets and a way I'm going to start. More European ideas will be coming, and maybe even one or two ways to shift into another foreign index that looks to have bottomed well after the S&P here.

Yes, I'm talking about China.

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