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.)



4. US Bancorp (USB)
What is a bank—and a US bank at that—doing on this list?

Take a look at the stock’s recent performance. While the most financials have staggered, shares of US Bancorp have recently put in a bullish cross pattern with the 50-day moving average moving above the 200-day moving average.

Last quarter, the bank was the biggest US bank to show loan growth, and the fact that it isn’t a big New York bank means the company has escaped the worst effects of the downturn in investment-banking revenue. Management has said that the bank now meets new capital ratio requirements and won’t need to raise capital.

 I expect that US Bancorp will petition regulators to raise its dividend from the current 50 cents a share (1.9% yield) to something more like its old payout ratio of 67% from the current level near 22%. A bump up to a 50% payout ratio would raise the stock’s dividend to $1.14 a share, for a current yield of 4.4%.

I think the anticipation of that increase in payout is one thing that has been driving the stock recently—and that will put a floor under the shares in the first half of 2012. (US Bancorp is a member of my Jubak’s Picks portfolio.)

5. Canmarc Real Estate Investment Trust (CANNF or Toronto: CMQ)
Let me end with an example of the kind of special situation that I’m looking to add to my capital preservation portfolio in the first half of the year.

Canmarc owns a portfolio of 84 commercial and retail properties in Canada. Office vacancies in Canada are running at about half the rate in the United States.

So it’s not surprising that Canmarc has attracted a takeover bid from Cominar Real Estate Investment Trust (CANNF or Toronto: CMQ). Canmarc’s management has rejected the bid, and the market certainly thinks that

  • Canmarc is now in play
  • it will attract a bid above the C$15.30 that Cominar has offered

Canmarc units climbed to C$16.26 at the close on December 16. Analysts think Canmarc could attract a bid as high as C$17.50.

I wouldn’t chase this one too rabidly—remember you’re looking to collect a premium on the current price in any bidding war. But in the meantime, the units pay a yield of 5.8%.

Second Half: Let’s Make Some Money
List No. 2 is for the second half of 2012, when our goal will be to gain capital appreciation from the decline in macroeconomic uncertainty.

I think this is one is simple—if the world goes the way I now think it will. The emerging markets of China and Brazil have been in deep bear markets, and should lead the turnaround. They will take other emerging markets up with them—Chile, Colombia, Mexico, Indonesia and Turkey, for instance—as well as stocks in developed markets that are linked to the fortunes of these emerging markets.

I hope you noticed the big "if" in that paragraph. I think investors will see a big decrease in uncertainty and worry that will flip the switch to "risk on" in a much more lasting way in the second half of the year. I think we’ll see an actual interest-rate cut from the People’s Bank of China and a bottoming of the economic growth rate in both China and Brazil.

But it doesn’t have to work that way. The Euro debt crisis is by no means resolved, and I’m worried about the possibility of crises in India and Russia.

I’d play the second-half turn by ear, waiting to see the interest-rate cut from the People’s Bank of China and good news on second-quarter growth in the gross domestic product from Brazil and China before moving whole hog from the kind of stocks in my first list to stocks like those in this second list. (Do I make myself clear? Don’t buy these picks now. Wait.)

But if the year breaks like I think it will, you will want to make the transition from thinking about safety to thinking about profit around the middle of the year.



6. Freeport McMoRan Copper & Gold (FCX)
Copper is my favorite commodity for a second-half turnaround, and Freeport is my favorite copper miner.

Not only is copper demand extremely sensitive to upticks in construction in particular and industrial production in general, but attempts to expand copper supply keep running into the constraints of diminishing ore grades and political uncertainty in the countries that hold the most promise for expanding supply.

Freeport McMoRan is coming off a strike at its Grasberg, Indonesia mine that cut production in 2011 by about 20%, so 2012 has some pretty easy comparisons to beat.

In addition, Freeport is best placed among global copper miners to expand production with relatively lower capital costs because Freeport can expand production at existing mines rather than having to develop greenfield mines. (Freeport McMoRan Copper & Gold is a member of my Jubak’s Picks portfolio.)

7. Joy Global (JOY)
Sales and orders at this global producer of mining equipment haven’t yet fallen significantly—bookings in the fourth quarter of fiscal 2011 were up 33%, and sales, minus the effect of acquisitions, climbed 18%—but the market clearly fears they might.

The company issued guidance that talked of a leveling of growth due to sluggish market conditions in the first half of the year and then a return to strong growth in the second half. That has led to a 16% drop in the shares from December 9 through December 16.

The downward trend in the share price sure looks like it will set up the second half of the year very nicely. (Joy Global is a member of my long-term Jubak Picks 50 portfolio).

8. National Oilwell Varco (NOV)
National Oilwell is in an analogous position to that of Joy Global. Everyone believes the long-term trend for oil drilling rig equipment is up, way up. But in the near term, everyone is worried that uncertainty about growth in the global economy will lead oil companies to cut capital budgets and orders.

Look at the potential at National Oilwell once that uncertainty fades. This company is the dominant rig-equipment supplier. It controls 40% of the global market for drilling pipe, for example.

The average age of the world’s offshore drilling fleet is 20 years, which means lots of equipment needs to be upgraded or replaced. Petrobras (PBR) alone says it intends to order 60 deepwater rigs in the next decade to develop its offshore oil discoveries. That’s $12 billion to $18 billion in orders, Morningstar estimates.

Add in an additional $10 billion to $12 billion in that period, Morningstar calculates, for rig upgrades, spare parts, maintenance, and drilling consumables. (Drilling consumables were about 33% of revenue in 2010.) That’s a big market for National Oilwell to shoot at.

Time will also take another uncertainty out of the stock: National oil companies like Petrobras are under severe pressure to award contracts for rigs to national suppliers. It’s doubtful that these companies will be able to deliver this complex equipment on time.

If, during the next six months, the current trend (which has seen some of this work go to National Oilwell despite political pressure) continues, that will be one less piece of company-specific uncertainty for the second half of 2012.

9. Home Inns and Hotels Management (HMIN)
The latest five-year plan from the Chinese government backed up talk about the need to shift more of China’s economy from exports to domestic consumption with some real money—annual 15% increases in the minimum wage, for instance.

But China’s economy is slowing, and that is raising fears that consumer spending on such things as travel will turn downward, too. Home Inns and Hotels Management fed into those fears by cutting revenue guidance for the fourth quarter to between $156 million and $159 million, when the Wall Street consensus was $176 million.

But the third quarter shows you what this budget hotel chain is capable of producing. Revenue came in 9% above analyst expectations. The company has just opened its 1,000th hotel, and now does business in 174 Chinese cities.

In the second half of 2012, investors will again focus on the growth of the consumer economy in China and the growth of such middle-class pursuits as travel. Home Inns and Hotels is one of the best ways to play those trends.

10. Banco Santander (STD)
I’ve reserved my last slot for a pick sure to be controversial. After all, aren’t all European banks headed for the trash bin?

Exactly why I’m picking this Spanish bank. I think that what everyone knows is wrong, and that the second half of 2012 will prove it.

Banco Santander has been slapped with the biggest amount of new capital to raise—$20 billion—of any European bank by the European Banking Authority. But the bank should be able to meet that total without cutting its dividend.

In the third quarter, for instance, Banco Santander sold off a piece of its Latin American insurance business and part of its US consumer loan business for a combined $3.5 billion. So far in the fourth quarter, it has sold off pieces of its Chilean subsidiary and all of its Colombian unit for an additional $2.75 billion.

The bank has until June 30, 2012, to meet that $20 billion total, and when you add in retained earnings and the capital from turning a convertible bond offering into equity, I think Banco Santander will make the number without much strain. That leaves this stock as pretty much a pure option on Spain.

Banco Santander now holds $4.4 billion less of Spanish government debt than it held in July, but it still holds almost $50 billion. If Spain goes the way of Greece, Santander is looking at huge write-downs.

But I don’t think Spain is Greece. The Spanish economy is globally competitive even though the country buried itself under a pile of bad loans in its own real-estate bubble. Those bad loans will almost certainly take down other Spanish banks—leaving the survivors to pick up market share in Spain.

I think Banco Santander will be one of those survivors. (Banco Santander is a member of my Dividend Income portfolio.)

During the next weeks, I’ll be working to orient my Jubak’s Picks portfolio along these lines as I get ready for an initially tough 2012.

And then, of course, in 2012 the market will pass its usual judgment on these picks.

Before then, though, I wish you and yours the best of the holiday season.

Full disclosure: I don’t own or control shares of any company mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. The fund did own shares of Abbott Laboratories, Banco Santander, Freeport McMoRan Copper & Gold, Home Inns and Hotels Management, Joy Global, and US Bancorp stock as of the end of September. Find a full list of the stocks in the fund as of the end of September here..