Income Security Recommendations

BondsOnline Advisor – January 2013

By Stephen Taub

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For all of 2012, investors worried about the possible collapse of the Greek and Italian economies, and whether they would then bring down the Euro. They also worried about the slow recovery of the U.S, economy, the November presidential elections and the looming fiscal cliff. All along there were potential geo-political threats hanging overhead stemming from the Arab Spring and the possible build-up of nuclear weapons in Iran.

As a result, many investors took in risk for much of the year, and when volatility spiked at different junctions, they took risk off. Yet, most of the global markets racked up double-digit gains, including the S&P 500, which posted a 16 percent return in 2012, including dividends reinvested. The moral of the year for investors as they begin the new year was that those who did the least worrying about these extraneous events fared the best.

Now that Congress completed the tax legislation, Deutsche Bank raised its 12-month S&P target to 1575 from 1500, in part because the legislation kept the top dividend and capital gains tax rates relatively low.

Citi kept its year-end 2013 S&P 500 target at 1615 and the Dow Jones target at 15,300.

Goldman Sachs is looking for the S&P 500 to rise slightly, by 2%, over the next three months and by 5%, to 1500 within six months. Its 12-month target is 1575, which implies a 10% gain for the widely followed benchmark.

Goldman identified companies with dividend yields that surpass their 5-year senior bond by at least 200 basis points, ranking seven stocks a Buy.

After the strong rally in 2012, Bank of America Merrill Lynch technical strategist Mary Ann Bartels recommends investors be selective in 2013. Even so, the firm believes that stocks will offer the strongest asset class returns over the next 12 months, reaching a1600 S&P 500 target for year-end 2013.

UBS is looking for lackluster earnings, forecasting mid-single digit earnings growth. This will result in disappointing equity returns. “We believe that multiples will be unable to break out of their recent range,” UBS tells clients in the report. As a result, it is sticking with its S&P 500 year-end price target of 1425, which is based upon a forward P/E of 12.5 times applied to its 2014 operating EPS estimate of $114.

Wells Fargo Advisors is looking for the S&P 500 to range between 1525 and 1575 at the end of this year.

Barclays initiated its S&P 500 year-end 2013 price target of 1525 in early December. It cited the potential for earnings growth momentum building through 2013.

MLPs: Deutsche Bank is looking for 7% distribution growth on top of the current 6.7% yield for master limited partnerships (MLPs) in 2013, and features six as buys this month. Barclays features two with target price appreciation of 16% - 19%.

REITs: We feature five this month.

And finally, some additions to the UBS Attractive List for preferred stocks.

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