Readers will note that during the selloff in January and early February, we were pretty upbeat and suggested a number of times to buy into the weakness. In hindsight, as quickly and unexpectedly as the issues with the emerging markets appeared, they seemed to settle down and move to the back burner. As that happened, the market rallied back and recovered from its losses.
We expect that pattern to repeat a number of times throughout the year. Overall, we are upbeat about the year for stocks, and we look for stocks to have high-single-digit to low-double-digit gains. Along the way, however, we expect a trading range with more volatility than we saw last year, and we wouldn't be surprised to see a number of 5% to 10% corrections.
We believe the following rules will help you to profitably navigate 2014.
First, we believe that setting an asset allocation and game plan, and sticking with it through the ups and downs, will serve investors well.
Within the framework of that asset allocation, we would be buyers into bouts of weakness, even though there might be worrisome headlines that are driving the selloffs. We would be buyers into any pullback of 4% or more. As any pullback became deeper (say, each 4% move), we would buy more aggressively.
Since we believe that the overall economy is sound, companies are doing well and valuations are reasonable, we don't expect a major pullback or a new bear market. So from where we are today, we are comfortable buying the dips.
The flip side to this is that we should not get bullish and chase the rallies. As we don't look for major upside, we would not get more bullish and chase a 5% or 10% up move.
While 2013 provided a lot of immediate gratification as stocks made sharp up moves in a matter of weeks and months, we expect that investors will need a lot more patience. We believe that a lot of stocks that we like will muddle along without great gains over short periods but will ultimately be higher by year-end. The same things apply to our current sector favorites.
Financials, energy, industrials and consumer staples have all started the year slowly. We expect good things from each of these sectors. So if you own them, stay with them. And we are very comfortable adding to each of these sectors into their current weakness.
For individual stocks, make sure you like the companies' 2014 prospects and stay with them during periods of little action.
Below is a list of stocks that we believe have good 2014 upside, are making good business progress and will meet or beat expectations for the balance of the year but have been treading water of late.
We are very comfortable buying all of these at current prices: