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The best share play for '10

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by Peter Switzer

A regular reader of our website cornered me at a recent Christmas party and asked, “But what are the best 10 stocks I should be in?”

Of course, the answer is impossible to throw out to anyone with a glass of champagne in his hand overlooking Sydney Harbour. And anyway, as a financial planner, it’s against the law for me to give advice on the run without knowing his exact circumstances and his goals.

So, what follows is nothing more than brilliant personal investment education. It’s not advice.

Follow Wall Street

I favour the ‘gradually getting better’ school of forecasting and think the latest run of US economic data augurs well for the first half of next year. I think we will see some surprise economic growth numbers, which will then flow into corporate earnings and this will boost share prices.

My positive point of view remains as the Dow closed last week at its second highest level in 2009. Remember, Wall Street is still strongly calling the tune for our market and that’s why my focus is in New York.

I saw a pretty conservative guy on CNBC recently, Nick Calamos, head of investments and chief investment officer of Calamos Investments, and he called next year this way:

“We’re growth investors and we see a lot of great opportunities out there, but the underlying fiscal and monetary policy and the direction we’re taking in the [US] is what makes us nervous, but the valuation levels are quite reasonable here.”

He saw the S&P 500 index heading to 1,250 by the end of next year. Given it’s now at 1,114, that’s a 12 per cent gain if this nervous guy is right.

Money on the sidelines

I also like the fact that there’s a lot of liquidity on the sidelines — investors in cash who want to see that the worst are in the past.

American experts on the subject estimate that there’s $3.3 trillion in money market assets sitting on the sidelines in cash, which will eventually find its way into the stock market. And I reckon some time in 2010, the green light will shine pretty bright.

Back in Australia

On the local front, the S&P/ASX 200 is at 4,654 and Macquarie has had forecasts for next year ranging from 5,200 to 5,500.

Let’s take 5,200 and that would mean an 11.7 per cent gain if you bought an ETF that tracks the index of our top 200 shares. By the way, that’s gain without throwing in dividends.

If we see the index hit 5,500, then it could be an 18 per cent gain, once again without adding in the dividend pay off!

Top eleven

For those who want to know my favourite top 10 stocks, these are ones that make up half of my portfolio. I like 20 stocks to give me only a five per cent exposure to any one company. These are boring dividend payers or no brainer mining stocks but they make a great base for my portfolio.

When I was asked in the media what were the safe buys before the market started rising in March this year, I always said the Big Four banks. They are a good start and pay good dividends. Telstra at these prices and with its dividend is a natural choice. The big miners BHP Billiton and Rio Tinto give you exposure to China. Westfield is the best property stock and you can toss up between Wesfarmers or Woolworths, but Woolworths has the best track record. Wesfarmers possibly has more upside potential, but is more risky in a relative sense.

I always like QBE because it has a great CEO in Frank O’Halloran and Coca-Cola Amatil because everyone drinks either Coke or water!

I know I have given you 11 stocks, but I love to over-deliver.

The next 10

Tomorrow, I will give you my next 10 that make up my top 20. These are the more risky shares that can give some grunt to your return but are still pretty safe.

Switzer is not a thrill seeker when it comes to building wealth — it’s great names, great businesses and with a preference for dividend payers.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, December 15, 2009