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Top Stock Picks for 2012

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Everyone wants to know the best stocks to invest in for 2012.

I know I do.

So what are the top stock picks for next year?

I am just a single person tooling away in the tundra of Western Canada, so who am I to choose.

Instead, I shall bring you the absolutely best 10 stocks for 2012 courtesy of the professionals who do this for a living. As such, these 10 must be the top performing picks over the next 12 months.

No thanks needed. I am just trying to help you succeed in wealth creation. 

Merrill Lynch Top 10 Stocks for 2012

Merrill Lynch, a long-standing high quality investment dealer. Part of the Bank of America world. You can take their top picks as the best of the best.

The top 10 stocks for 2012 are [4] (drum roll please): Xcel Energy, Lincoln National, Marathon Oil, CenturyLink, Apple, Air Products & Chemicals, CBS, Eli Lilly, Union Pacific, Altria.

Okay, let me pause in my writing to race out and purchase these gems.

Hey, what is this? I just noticed that Goldman Sachs has come out with its own top 10 stock picks for 2012. Perhaps the world’s number one investment banker. They must know what they are doing.

No concern though. As Goldman Sachs has access to the same information as Merrill Lynch, uses the same tools, has analysts with the same skills and experience, etc., the picks will be identical. They have to be, shouldn’t they?

Goldman Sachs Top 9 Stock Picks for 2012

Only 9 top picks from Goldman. Maybe it means 2012 is going to be a poor year for everyone else. Or perhaps Goldman is penalizing itself for foisting Jon Corzine [5] on the investment world.

According to Goldman, the best stocks for 2012 [6] will be: Aeroflex Holding, Apple, EMC, NCR, Oracle, Qualcomm, Synchronoss, Visa, VMWare.

See, what did I tell you, identical top stock lists between Goldman and Merrill.

What’s that? Not a chance. In fact only Apple made both lists. And that is probably a bereavement ritual for the late Steve Jobs. Kind of like a widow wearing black. After the death of a great entrepreneur you have to love his company for at least one year.

Okay, maybe those lists were anomalies. But perhaps I should look at a few more “best equities for 2012” lists before investing my capital.

CNNMoney and Fortune Magazine

With a magazine named Fortune, how can you go wrong?

Fortune’s top 10 stocks to invest in for 2012 [7] are: Apple, Caterpillar, Enbridge Energy, Goodyear, Halliburton, Intel, Johnson Controls, Lockheed Martin, Microsoft, Royal Bank of Canada.

Thank goodness for Steve Jobs or we would have yet another completely different list.

By now I am feeling a little seasick from all the differences.

How can three different companies choose 29 stocks as top picks and only agree on one?

Raymond James Best Picks for 2012

Raymond James, what do you have for us in 2012? Sanity and consistency perhaps?

According to Raymond James, the stocks to invest in over the next year [8] are: Nvidia, Superior Energy, Whiting Petroleum, BMC Software, Lincoln National, Stanley Black & Decker, TW Telecom, Verifone, BB&T, Nuance Communications, Chevron, Post Properties, Brinker International.

No love for Apple from Raymond James. But they do agree with Merrill on Lincoln National.

Barron’s Top Stocks for 2012

Finally, Barron’s favourite 10 stocks for 2012 [9] includes: Berkshire Hathaway, Met Life, Sanofi, Seagate, Vodafone, Royal Dutch, Freeport McMoRan, Comcast, Procter & Gamble, Daimler.

Some international stocks in this list, but no matches with any of the above listings.

Thanks everyone. By now I am totally confused and more than a little nauseous.

I think my first investment will be in a bottle of Pepto-Bismol.

What Did We Find?

Out of five different “top stocks to invest in for 2012” lists with 52 total recommendations, we had exactly two companies on more than one list.

Apple made three of the top lists, Lincoln National made two.

Not much consensus among the investment professionals on the best performing stocks for 2012.

Even within specific industries there was no consensus. For example, look at the energy related sectors. Merrill likes Marathon and Xcel. Fortune likes Enbridge and Halliburton. Raymond James likes Superior, Whiting, and Chevron. Barron’s likes Royal Dutch. Not even any agreement within a market subcategory.

There are other “best for 2012” lists out there. Lest you think I cherry-picked the above five because they did not agree, do some comparisons yourself. I think you will find a lot of disparity in any of the lists you come across.

Morals of the Story

Investment Professionals Differ More Than They Agree

Despite all investment professionals (with the same investment skills and experience) having access to the same data, and utilizing the same tools and techniques to analyze the companies, there is a huge variance in top stock picks for the coming year. And there will be huge differences in 2013, 2014, and on and on.

Everyone gets the same information. Everyone does not agree on the results.

Remember this when your broker calls with a hot stock tip or the talking head on television gives you the next great investment idea. It is not sacrosanct. If you flip the channel or wait a few days, a completely different (yet entirely plausible) investment tip will come your way.

If Professionals Cannot Determine the Best Stocks, Can You?

If the investment professionals cannot agree on the best investments, can you?

Are you someone that gets caught up in the flavor of the day and invests immediately after hearing something on the television? As we saw above what you hear from one person will not be the same as another. This leads to confusion, stress, and an investment portfolio that experiences a lot of turnover and costs. Things that lead to underperformance.

Or are you someone that likes to analyze investment opportunities for yourself? I have no problem with that. The issue I do have is if the professionals cannot agree on their analysis, will someone with less investment expertise and poorer access to information get it right? For most investors, I think not.

Passive Investing is Better Than Chasing Hot Tips

Stick with passive investing rather than stock picking and trying to beat the market.

The professionals cannot even agree on a few of the top future performers. Do not even try.

Instead, take a passive approach. One whose key goals are [10] to minimize portfolio costs, match the benchmark returns, and attain your personal investment objectives.

Empirical evidence indicates that active management does not outperform a passive approach [11] anyway. So do not be too concerned about the professionals finding diamonds in the rough that a passive approach misses.

Passive Investing May Still Include the Hot Stocks

As for missing out on 2012’s best stocks, consider this.

The Standard & Poor’s (S&P) 500 is the main equity index in the U.S. There are many mutual and exchange traded funds that track this index.

The top 20 current holdings in the S&P 500 index are: Exxon, Apple, IBM, Chevron, Microsoft, Procter & Gamble, General Electric, Johnson & Johnson, AT&T, Pfizer, Coca-Cola, Google, Wells Fargo, JP Morgan, Oracle, Berkshire Hathaway, Intel, Philip Morris, Verizon, Merck.

When we compared the 52 top picks from the five lists against each other we found two companies on more than one list. Apple with three matches, Lincoln National with two.

But when we compare the top 20 of the S&P 500 against the 52 recommendations, we find seven matches. Apple on three lists and Oracle, Intel, Microsoft, Chevron, Berkshire Hathaway, Procter & Gamble each on one list.

Better consensus between the index and the top picks than between the top picks themselves.

In buying the index, you get a nice sample of all the top picks. Plus it comes in one easy, low-cost investment.

Skip the hot list flavours of the day. What is thought hot today, may not hold true. Or may not be hot tomorrow. A short-term emphasis is not the way to build wealth over time.

Instead, focus on the long-term by building a well-diversified, low-cost portfolio under a passive approach.

No thanks needed. I am just trying to help you succeed in wealth creation.