10 Lucrative Themes for 2013 -- Part II

 | Jan 07, 2013 | 2:00 PM EST
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Note: This is a two-part piece. For Part I, please see here.

Without further ado, here are the final six themes out of 10 that should help you make money in 2013. (Here are the first four.)

5. The U.S. Energy Revolution

When you speak of big themes, you have to be focusing on the domestic revolution in energy, my fifth focus group. We in the U.S. have so much of it, and so much natural gas in particular, that this will be a multiyear game-changer. The principal winners are the companies that use natural-gas-related chemicals as a feedstock -- namely, Dow Chemical (DOW), Westlake (WLK), Eastman (EMN), PPG (PPG) and LyondellBasell (LYB) (even if the last company's headquarters are located overseas).

Right now, only Dow has really done much to capitalize off the cheap energy. It's almost as if the other companies don't really believe natural gas will stay down. But I believe that, in 2013, they will start building the plants needed to take advantage of the inexpensive food stock. For those who think this play is chimerical -- sorry, but the U.S. is burning off or flaring more natural gas than we use, and that's maybe all you need to know. The companies that build the most capacity here are the ones that will make the most money.

The refiners -- HollyFrontier (HFC), Valero (VLO) and Phillips 66 (PSX) -- are also huge beneficiaries of the new finds. Their costs are so low and their prices are still, outrageously, linked to the much-higher price coming from overseas. Good for them; bad for us.

Furthermore, it's an open secret that the U.S. has too much crude oil -- not just natural gas -- even as we continue, as a nation, to import it. Because of a weird mismatch between U.S. oil-refining capacity and the new kind of crude, light sweet from the Bakken and Eagleford, we will have to export crude starting next year. That's right. The U.S. will need to export natural gas because we'll have no place to put it -- that's what Cheniere Energy (LNG) will do -- and we'll need to export oil because we don't have the refining capacity to use it.

If we had an actual energy policy, we could straighten this out. We don't. So we will just have to make money off of it until we do.

On the production-and-drilling side, there are very few actual winners in the U.S. because of the twin gluts. The oil drillers are all very hard to own. That's with the exception of Ensco (ESV), which is purely offshore, where there's tremendous amount of activity because of the higher price of crude vs. nat gas. But the nat gas drilling market, itself, is in the doldrums because of the $3-per-MMBtu price tag for the fuel, and the surfeit of storage place, and the lack of surface vehicle or chemical use.

The only oil company with tremendous growth prospects is EOG (EOG), which has substantial positions in the two biggest shales, the Bakken and the Eagle Ford. It's the only one I would buy up here. The natural gas company I like is Southwestern (SWN). But I am early to like it, unless a takeover or the cessation in nat gas drilling gives you a marginally higher price for it.

6. China's Return

My sixth theme is the return of China. You saw this come up literally right at the end of 2012, when Cummins (CMI) began coming back and Caterpillar (CAT) put in a bottom and Emerson (EMR) started to rally. Joy Global (JOY) is the one to watch here, as electric use is accelerating in China -- which means more coal use, which means more coal mining, which means better orders for this very inexpensive stock. The best way to play China, alas, is China, with the iShares FTSE/Xinhua China 25 Index (FXI). The ETF comprises a very big position for my charitable trust at Action Alerts PLUS.

7. The Aerospace Recovery

The seventh theme has to be the amazing aerospace recovery. What I find incredible about this one is that the companies involved -- mainly Boeing (BA), Honeywell (HON) and United Technologies (UTX) --have big defense businesses, yet these stocks didn't even blink when defense cuts were standing right in front of them. These three, plus Precision Castparts (PCP), are the obvious plays. United Tech is perhaps the one with the most upside potential, now that it has bought Goodrich.

You have to own one of these. When the risk-off crowd swarms, and when the sell-everything-because-of-Washington group grabs the mike, think aerospace.

8. The 4G Build-Out

I wish I could be more bullish on tech, but way too much of it is still personal-computer-centric, and I don't think this will be the year of the PC. -- nor next year, for that matter.

However, it will be the year of the 4G build-out. Unfortunately, there are very few ways to play this beyond the continual theme of the towers -- American Tower (AMT), Crown Castle (CCI) and SBA Communications (SBAC). Still, lately we've seen some optical plays do well, and I am encouraged by the continued growth of video. Two I am watching and willing to pounce on are JDS Uniphase (JDSU) for fiber and fiber testing, and Akamai (AKAM) for video on demand. Lots of people want to play the component companies for cell phones. Too hard for me. Learned that lesson.

As for as the rest of tech? Sure, I suspect we will see money continue to come in to Facebook (FB) and Google (GOOG), but they are battlegrounds. Apple (AAPL) remains a hold, and so does Amazon (AMZN). I wish I could be more enthusiastic, but when you are, you get your head cut off for it.

What I like about my themes is that they can be bought on weakness. However, the weakness that could bring down a company like Google or Apple or Amazon or Facebook is a type of weakness that has to be studied and examined, and is distinctly company-specific, and that's what I am trying to avoid by focusing on themes and not individual stocks.

9. The Government Made Me Do It

My ninth theme? I'm calling it "the government made me do it." These are stocks that are related to the costs of the new healthcare system that kicks in next year, and the chits are already being played. The temporary-staffing companies, like Robert Half (RHI), Manpower (MAN) and Insperity (NSP) were red-hot coming into the year, and I think they will stay that way. That's because temporary staffing is a way to beat the new taxes businesses might have to pay because of the government mandates.

The hospitals also work -- notably Tenet Healthcare (THC) but also Community Health Systems (CYH) -- because they're doing much better under the Affordable Care Act. Those are winners and will remain winners, because the law pretty much mandates that they have to be.

10. Don't Just Stand There. Do Something.

Final theme? I am calling it the "Don't just stand there, do something" theme. I am seeing the companies that buy other companies, and the companies that split themselves up into separately traded parts, really bring out a lot of value. When PVH (PVH) bought Warnaco to create a Calvin Klein house of brands, shares vaulted much higher and never came back. After Hormel's (HRL) deal to pick up Skippy, the stock immediately gained altitude and didn't surrender it. ConAgra's (CAG) deal to buy Ralcorp (RAH), and Eaton's (ETN) purchase of Cooper? These were all tremendous moves. As were the break-ups of MeadWestvaco (MWV), Abbott (ABT), Marathon Oil (MRO), ConocoPhillips (COP) and Kraft (KFT).

All of these deals brought instant valuation hikes. They are a reminder that when companies sit there and wait for things to get better, they miss the best opportunities. I believe we are at the infancy of a new merger wave because of all of the cash on the balance sheets -- as well as a new break-up wave, because so much value has been created from those that have already done so.

This is a market desperate for conviction -- desperate to find stocks that can be bought on weakness without worry about Washington. But when that weakness comes, more people leave stocks than return to them. I hope this list helps to remind you what worked in 2012 under those circumstances, and which I believe could work again in 2013.

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