Several categories of companies show promise for the second half of 2013. Among them are health care stocks, which offer investors a triple advantage. Many offer attractive yields; they're defensive holdings in an uncertain market; and the case for long-term growth is the best it has been in years. Drug companies have weathered a slew of patent expirations, and their pipelines are filling with potential blockbusters. Morningstar analyst Damien Conover recommends Sanofi (symbol SNY, $53), a Paris-based global giant that he says is well positioned in the diabetes market.
James Swanson, chief strategist at MFS Investment Management, thinks technology stocks are a bargain. At the peak of the tech bubble in 2000, the sector supplied 15 percent of the S&P 500's earnings but accounted for more than one-third of the index's value. Today, it supplies 19 percent of the earnings but accounts for less than one-fifth of the value. Another change: Tech stocks are less volatile than the market.
Cisco Systems (CSCO, $24) and Microsoft (MSFT, $35). Investors have been frustrated in recent years as stocks moved in lock step. Bad news from Europe, bickering lawmakers here or a disappointing economic indicator could pull the market down en masse. But that's changing. "You can do your homework and put together a portfolio of stocks that trade on their own fundamentals," says Saira Malik, head of global stock research at TIAA-CREF.
Malik looks for companies that are gaining market share, are able to raise prices or are creating efficiencies that will boost profit margins. Take Bayer AG (BAYRY, $110), the German pharmaceutical giant. Despite the challenges of the European economy, Bayer, which does business all over the globe, could enjoy double-digit earnings growth, Malik predicts. Plus, the company is returning cash to shareholders via dividends.
Malik also recommends Realogy (RLGY, $48), which owns Century 21, Coldwell Banker and other real estate firms. The company is a play on the U.S. housing recovery, but is also improving its finances by paying down high-cost debt. Lower interest expense could add $1 a share to earnings over the next 18 months, says Malik.
Signals are green for railroads. Housing-related cargo, at 6 percent of rail volume, is half the historical average and should grow with the housing recovery. Meanwhile, shipping prices should rise as railroads close the gap between what they charge and truckers' higher costs. Malik favors Union Pacific (UNP, $155). It should benefit from more crude-oil shipping.
(Anne Kates Smith is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit http://www.Kiplinger.com.)