2012 Outlook: Analysts See Volatility
The end of 2011 is near, and with it comes analyst expectations for the new year. But the perennial bullishness of analysts seems to be absent -- most analysts can only agree on volatility for 2012, with few asset classes offering an obvious safe haven.
This has to do with the large uncertainties facing financial markets at the moment. Among the uncertainties named by analysts at Reuters 2012 Investment Outlook Summit are the potential breakup of the eurozone, a "potentially divisive U.S. presidential election" that can put U.S. deficit reduction at risk, and China's handling of a cooling economy.
With regard to the euro crisis, Global Chief Investment Officer at Citi Private Bank Richard Cookson told Reuters, "It's not even as simple as avoiding everything European because you cannot be bullish about assets in the United States, particularly equities, while being that incredibly bearish about Europe."
According to Fran Kinniry, a principal in Vanguard's Investment Strategy Group, 2012's volatility will make diversification and long-term planning even more important. "[Investors] need to develop an asset allocation plan and really try not to get the short-term market to run their emotions."
So, which stocks are poised to endure this period of volatility?
For ideas, we ran a screen on the S&P 500 for stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We then ran DuPont analysis on these names to find those with the strongest sources of increasing return on equity (ROE) profitability year-over-year.
DuPont analysis breaks up a company's ROE into three components: net margin, asset turnover, and leverage. Companies with increasing net margin, increasing asset turnover, and decreasing leverage are viewed favorably.
Do you think these companies have strong enough profitability to withstand next year's expected volatility? (Click here to access free, interactive tools to analyze these ideas.)
1. Entergy (NYS: ETR) : Operates as an integrated energy company in the United States. Market cap of $12.75B. Dividend yield at 4.59%, payout ratio at 41.72%. MRQ Net Profit Margin increased to 18.64% from 14.94% year-over-year, Sales/Assets increased to 0.0867 from 0.0862, while Assets/Equity decreased to 4.22 from 4.28.
2. NYSE Euronext (NYS: NYX) : Operates securities exchanges. Market cap of $7.41B. Dividend yield at 4.24%, payout ratio at 48.77%. MRQ Net Profit Margin increased to 15.90% from 12.19% year-over-year, Sales/Assets increased to 0.10 from 0.08, while Assets/Equity decreased to 1.91 from 2.0.
3. General Electric (NYS: GE) : Operates as a technology, service, and finance company worldwide. Market cap of $172.40B. Dividend yield at 3.67%, payout ratio at 47.38%. MRQ Net Profit Margin increased to 9.12% from 5.81% year-over-year, Sales/Assets increased to 0.0479 from 0.0466, while Assets/Equity decreased to 5.93 from 6.57.
4. Wisconsin Energy (NYS: WEC) : Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.64B. Dividend yield at 3.63%, payout ratio at 43.57%. MRQ Net Profit Margin increased to 12.33% from 11.53% year-over-year, Sales/Assets increased to 0.0795 from 0.0765, while Assets/Equity decreased to 3.34 from 3.38.
5. The Dow Chemical (NYS: DOW) : Manufactures and supplies products used as raw materials in the production of customer products and services worldwide. Market cap of $33.08B. Dividend yield at 3.57%, payout ratio at 32.23%. MRQ Net Profit Margin increased to 5.96% from 4.64% year-over-year, Sales/Assets increased to 0.23 from 0.19, while Assets/Equity decreased to 2.77 from 3.01.
6. Northrop Grumman (NYS: NOC) : Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap of $15.0B. Dividend yield at 3.48%, payout ratio at 30.93%. MRQ Net Profit Margin increased to 7.86% from 7.03% year-over-year, Sales/Assets increased to 0.26 from 0.23, while Assets/Equity decreased to 2.10 from 2.29.
7. Chevron (NYS: CVX) : Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $204.76B. Dividend yield at 3.15%, payout ratio at 22.20%. MRQ Net Profit Margin increased to 12.15% from 7.58% year-over-year, Sales/Assets increased to 0.32 from 0.28, while Assets/Equity decreased to 1.69 from 1.73.
8. Eaton (NYS: ETN) : Operates as a power management company worldwide. Market cap of $15.38B. Dividend yield at 2.96%, payout ratio at 35.17%. MRQ Net Profit Margin increased to 8.85% from 7.50% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.28 from 2.36.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Accounting data sourced from Google Finance.
At the time this article was published The Motley Fool owns shares of Northrop Grumman. Motley Fool newsletter services have recommended buying shares of NYSE Euronext and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.