On the whole, 2012 has been relatively positive for stocks. The Dow Jones Industrial Average has risen roughly 8% since the beginning of the year, but we’ve seen some wild swings along the way.

Some of the strongest volatility has come in the wake of the November presidential election as investors have tightened their focus on the fiscal cliff—an array of harsh spending cuts and massive tax hikes that could kick in January 1 unless Congress and the president can come to an agreement. 

With all that in mind, and with the new year upon us, it couldn’t be a better time to round up some of our Investing Daily editors—investment pros who spend every day poring over the numbers and uncovering winning stocks for their readers—to get a sense of what they see ahead. They’ve also supplied some of their favorite stocks for 2013. Read on for their latest thoughts.

John Persinos, Managing Director, Investing Daily and Personal Finance

The Good:

Persinos sees significant underlying strength in the economy that he feels is being overlooked by investors.

“I think the economy could have a good year after a long period of uncertainty,” he said. “We’ve got hard data that points to a housing rebound. Plus we’ve now got this natural gas boom due to the increase in production from shale rock. Corporate profits are hitting records, credit is looser, and there is a lot of pent-up demand waiting to be shaken loose that could trigger growth.”

The Bad:

Uncertainty surrounding the fiscal cliff risks undermining growth, says Persinos, but investors are putting too much emphasis on the hype surrounding the negotiations.

“Washington has to avoid messing things up,” he says. “However, I’m one of the few that feels that the disaster forecasts related to the fiscal cliff are overwrought. If we go over the cliff, it could shave 1 or 2 points off of GDP next year, but there is always a chance they will arrive at a deal that’s worse. And even if we go off the cliff or experience another crash, the situation will be different than 2008. Unlike then, companies are sitting on huge hoards of cash that they can use as a cushion.”

Sectors He’s Watching:

One sector Persinos sees as well-positioned for gains next year is aviation, especially in emerging markets, where spreading wealth is giving consumers a taste for the good life—and that means hopping on a plane.

He also points out that China is building its own aircraft manufacturing industry instead of relying on outside manufacturers. That favors companies that make airplane parts, like General Electric (NYSE: GE). As well, Persinos likes defense stocks, something that may seem surprising given all the talk about cuts to military spending.

“I’ve worked in politics, and I can tell you that in the end, the Pentagon always gets its way,” he says. “And there’s no reason to believe it won’t do so again. Plus, many defense stocks are trading at attractive valuations right now due to investor pessimism about the sector.”

Technology is another standout for Persinos, particularly on the mobile side. As well, he feels the long-suffering car business could see strong growth. “The average age of the American car is now around 11 years,” he says. “So there is going to be a lot of pent-up demand for new vehicles.”

Stocks He Likes:

• General Electric (NYSE: GE)

• The Boeing Company (NYSE: BA)

• Apple Inc. (NasdaqGS: AAPL)

• Intel Corp. (NasdaqGS: INTC)

Roger Conrad, Editor, Utility Forecaster

The Good:

Like Persinos, Roger Conrad feels the dangers surrounding the fiscal cliff are somewhat exaggerated. He sees an agreement and a return to growth ahead, but the path from here to there is far from even.

“It looks like we’re going to see some sort of a deal on the fiscal cliff and avoid the full shock,” he says. “The resulting certainty will spur more investment. And as things start to firm up, we should start to see more spending. Also, there is good news out of Asia, with China in particular starting to pick up, and that’s offsetting some of what’s been happening in the U.S.”

The Bad:

“We are going to see some austerity,” he says. “Taxes on investments are going to go up. Europe continues to be a headwind. However, this does mean less upward pressure on inflation and commodity prices. But businesses that are more leveraged to growth are in for some tough sledding. I think we’re likely to see some dividend cuts and disappointing earnings in the first few months of the year.”

Sectors He’s Watching:

Conrad is a leading expert on utility stocks and income investing, and he continues to see a number of strong investments in that area.

“I think utilities, pipelines and master limited partnerships will do well in this environment,” he says. “Plus, a lot of investors have taken profits, so valuations have come down.”

“Companies that are leaders in their niches will have strong prospects,” he adds. “It’s also important to look at firms that have taken care of their balance sheets and have reliable revenue. One reason I like pipelines is that their revenues are fee-based and not linked to volatile resource prices.”

Stocks He Likes:

• Pipeline operator Enterprise Products Partners LP (NYSE: EPD);
  
  
• Dominion Resources (NYSE: D), which operates pipelines, shipping terminals and natural gas storage and processing facilities;

• Consolidated Communications Holdings (NasdagGS: CNSL), a telecom firm that provides broadband access in rural areas.

Jim Fink, Senior Editor of Investing Daily and Chief Investment Strategist for Jim Fink’s Options for Income

“The U.S. economy has shown signs of improvement, but I remain cautious because the well-respected Economic Cycle Research Institute has declared that the economy entered a new recession this past July,” says Fink. “Although politicians will likely reach agreement on the fiscal cliff, the fact remains that any deal will include tax increases and budget cuts, which will be a drag on growth in 2013.”

“The Federal Reserve’s December 12 decision to expand quantitative easing yet again—supplementing its September decision to purchase on a monthly basis $40 billion in mortgage-backed securities with an additional $45 billion in long-term U.S. Treasuries—is an acknowledgement that the recovery is in trouble. It also could be an attempt to stoke inflation and ease the government debt burden through monetization.”

“As well, the first year of a U.S. presidential term is historically weak, presumably because politicians are safe in their jobs for at least two years and can implement unpopular policies without fear of voter retribution.”

Sectors He’s Watching

“If I’m right that the U.S. economy stays weak but inflation picks up, all fixed income should perform very poorly, with junk bonds being the one exception. Small cap stocks with unique niches outperform during periods of inflation, as do companies linked to the production of real assets, like gold miners, fertilizer producers, home builders and energy producers/servicers. The one energy exception might be thermal coal, which is in President Obama’s environmental crosshairs as well as being boxed in by low natural gas prices.”

“Distinguishing between sectors may not be the real story of 2013, however. With central banks in the U.S. and Europe printing money with abandon, the risk of a financial crisis appears to be over, but painful deleveraging of debt loads remains. The big winners may be emerging market stocks, paralyzed in 2012 by financial crisis concerns but now ready to outperform because of their much less indebted government balance sheets. I see 2013 as the year of the BRICs (Brazil, Russia, India and China).” 

Stocks He Likes:

• Fertilizer producer Mosaic Co. (NYSE: MOS);
• Brazilian energy giant Petrobras (NYSE: PBR);
• Obamacare cost-containment specialist HMS Holdings (NasdaqGS: HMSY).

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