2011 Winners Struggle In 2012

By Matthew McCall | January 18, 2012 AAA

Through the first two weeks of 2012 the U.S. stock market has bested the last 12 months. The S&P 500 is up approximately 2.6% versus a near-flatline performance throughout 2011. There are plenty of stocks and ETFs keeping up with the market and a large amount are beating the 2.5% gain.
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As money flows into stocks in 2012, one phenomenon I have noticed is that a number of top performers in 2011 have struggled through the first two weeks of the New Year. In particular, there are two stocks and two ETFs that I continue to view as buy candidates that fall into this category.

The Stocks
Core Laboratories (NYSE:CLB) gained almost 28% in 2011 as the need for its reservoir services in the energy sector increased. The stock hit a record high of $120.33 in early December before pulling back about 10% in the last few weeks. The pullback has been on below average volume and the long-term uptrend has not been broken, signaling a buying opportunity based on the charts. The stock trades with a PEG ratio of around 1.50, about average in this market.

Enbridge (NYSE:ENB) gained just over 32% last year and hit a new record high the first trading day of 2012 before pulling back nearly 10% in the following two weeks. The stock is attempting to find support near the $35 area where the 50-day moving average is located. The stock is an oil and gas pipeline company with operations in the U.S. and Canada. A dividend of around 3.1% makes the stock even more attractive. The other fundamentals are not as appealing, with a PEG ratio of about 2.94 and a forward P/E ratio near 21.8. (To learn more, read Blending Technical And Fundamental Analysis.)

The ETFs
SPDR Utilities ETF (ARCA:XLU) gained almost 15% in 2011, besting the majority of its sector ETF peers. The ETF topped out during the first week of the New Year and has since pulled back 5% to its 50-day moving average at the $35 area. The utilities were viewed as a safe place to invest during volatile times, with a beta of 0.43 and a dividend yield of 3.8%. The combo of high yield, lower volatility and strong technicals make the ETF an attractive option for investors at current levels.

SPDR Consumer Staples ETF (ARCA:XLP) gained almost 11% last year and is now down around 2% from the recent all-time high. The pullback has kept the ETF above the 50-day moving average and the selling has been on light volume, suggesting that the technicals remain very strong. Fundamentally, the ETF is similar to XLU in that it has a 0.58 beta and a dividend yield of over 2.7%. As long as XLP can hold above $31, it looks poised to make new highs in the coming weeks. (For additional reading, see The 7 Pitfalls Of Moving Averages.)

The Bottom Line
The reason for money coming out of the stocks and ETFs that did well last year is that the risk-on trade has been back on. This means that investors are selling the stocks that are considered conservative and stable, and moving it into riskier sectors such as the SPDR Financials ETF (ARCA:XLF), which is up over 6% this year. The risk for the investments mentioned above is that the risk-on trade remains for the next few months. If that is the case, they will likely lag the overall market. That being said, the chance of any trend to last for months in this type of environment is small and therefore the risk is not too high. (For related reading, see Calculating Risk And Reward.)

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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