STOCKS

MoneyShow's Jim Jubak is on vacation this week, so we decided to take a second look at some of his biggest stories of 2012. And we'll start with the very first: his Christmastime look at the year ahead.

Picking a best-stocks list is particularly challenging for 2012. It’s almost like 2012 will be two separate years.

The first half of the year, as I wrote December 13 in "How to Save Your Portfolio from 2012," will look a lot like the last half of 2011—head-spinning volatility and a full calendar of negative news will overwhelm any good news from individual companies. Even good stocks will go down on the negative big-picture news in the first half of 2012, much as they did in the second half of 2011.

The second half of the year will be much different. The global economy may not be racing along like the Empire Builder, gaining speed east down the Continental Divide out of Essex Junction, Montana, but the big uncertainties for the year will be behind us.

We’ll know how fast China and Brazil are growing, how deep the Eurozone recession will be, and how well US economic growth is holding up. I think growth and modest risk will be back in favor, and you’ll want to be in the shares of individual companies—and in individual stock markets—with more growth in their fortunes. (For more on the road ahead, read also "The 3 Big Crises of 2012.")

So if the two halves of 2012 are going to be so different, why not focus on two best stocks for 2012? One for each half of the year, and each attuned to the very different requirements for the two halves of the year.

First Half: Playing it Safe
The goal in the first half of the year is to preserve your portfolio—so you have plenty of cash to deploy in the second half of the year.

The risk-free way to do that would be to stuff cash under your mattress (though inflation would erode it by 1% or so in six months). Or buy short-term Treasuries and hold them to maturity (but given the extremely low yield, that doesn’t seem worth the transaction costs, in time if nothing else).

The challenge is finding a little bit of extra yield—or maybe a bit of yield with some appreciation potential from a "special situation"—without taking on much risk during a period when risk isn’t likely to be rewarded.

Be careful when you think about snapping up such traditional havens as Kraft Foods (KFT) or McDonald’s (MCD). Many consumer companies have a big exposure to Europe, and could be looking at an earnings disappointment as European economies slow.

Some of my Dividend Income portfolio picks fit the bill—although some have more risk than I’d suggest for the first half of 2012. So I’ll start there—and build on that.

1. Abbott Laboratories (ABT)
Abbott is splitting into two companies to "unlock value for shareholders" in January 2013. That probably caps appreciation in the stock. But it also should put a floor under the shares, since existing shareholders will be inclined to hold until then.

Add that a big hunk of Abbott’s revenues come from its faster-growing nutritional business, making this one of the most balanced of the big drug companies, and I think this is a low-risk way to collect a 3.4% yield. (Abbott is a member of my Dividend Income portfolio.)

2. ONEOK Partners (OKS)
Nothing like being in the right place with the right pipeline capacity.

ONEOK’s system is a good match with the increasing volumes of natural-gas liquids (as opposed to natural-gas gases) being produced in the shale boom in the US. Into 2013, there will be a shortage of natural-gas liquid pipeline capacity in the region that guarantees that ONEOK’s system will be filled at solid prices.

The company recently raised its estimate of distributable cash flow for 2011 to $850 million to $880 million from an earlier projection of $735 million to $760 million. That the kind of growth in payout that an investor in a master limited partnership wants.

ONEOK units—in the MLP world, units are similar to shares of a publicly traded company—pay a dividend of 4.1%, and with the increase in distributions either the unit price or the yield is headed up. (This is another member of my Dividend portfolio.)

3. Western Gas Partners (WES)
This an MLP formed in 2008 with assets spun off by Anadarko Petroleum (APC), which remains a major investor.

Beginning with six gathering systems and a transmission line in Texas, the Rockies, and the Mid-Continent when it went public, the partnership has added assets such as a gathering system in the Powder River Basin that have increased the system’s natural-gas liquids exposure.

Almost all of Western Gas Partners’ revenue comes from long-term, fee-based and fixed-price contracts, so cash flow is extremely stable. The unit’s current yield is about 4.1%. (The partnership is a member of my Jubak’s Picks 12- to 18-month portfolio.)

Continued…

Tickers Mentioned: KFT, MCD, ABT, OKS, USB