10 pros' stock picks for 2010

By Michael Brush

While investing giants such as Warren Buffett and George Soros command the media spotlight, an elite squadron of stock jocks operating under the radar also merits your attention.

These unsung market heroes pen investing newsletters stuffed with recommendations that have produced 10% to 25% annual returns over the long haul -- no easy task.

So what's their take on 2010? Most of these authors see more upside for stocks despite the long rally we've already seen. But thankfully -- if you're bullish on stocks like me -- there's a mix of bullish and bearish views. This is reassuring because:

• The bulls confirm that, given the economic challenges we still face, you haven't lost your marbles if you still own stocks after this year's rally.
• The bears provide the proverbial "wall of worry" that market lore says stocks need to keep climbing. Perversely, it's when worries are resolved that stocks tend to pull back. (Of course, these bears don't see it this way. They believe they'll have the last laugh by the end of next year -- and they well might given their track records.)

Despite the newsletter editors' successes, only a few investors are privy to their advice, because these experts charge sizable subscription fees. So at the end of each year, I check in with them to give you their take on what's in store for the next year.

I first identify those with the best long-term records, as ranked by The Hulbert Financial Digest. Then I ask for a market outlook and two investment picks.

As you read through their 2010 projections, remember that not all of these experts believe it's possible to predict market moves a year in advance. The annual returns listed are the highest returns for each newsletter over five to 25 years, as calculated by the Hulbert digest.

1. Cabot China & Emerging Markets Report: 23% annual returns over five years.

Stock market outlook: Editor Paul Goodwin believes the stock market rally could continue in the near term, based on technical analysis. He doesn't make full-year forecasts.

Goodwin hunts for aggressive growth stocks that trade north of $10 a share because that means institutional money managers can buy them and drive them higher. He invests in emerging-market stocks through American depositary receipts, a type of U.S. market listing of a foreign company.

Two picks: Goodwin likes E-House China (EJ, news, msgs), a real-estate company that's a play on the growing Chinese middle class. The company acts as the sales arm for residential-real-estate developers in China. Goodwin also likes Gafisa (GFA, news, msgs), a developer and homebuilder that's a play on increasing homeownership in Brazil.

2. The Prudent Speculator: 15% annual returns over 25 years.

Stock market outlook: Prudent Speculator editor John Buckingham cites huge money flows to bonds from domestic stocks as evidence that the public remains negative on stocks. As a value investor, he is a natural contrarian, so this suggests stocks should post above-average returns. Improving profits on better sales and productivity will help push stocks higher.

Buckingham thinks the major indexes will finish with gains better than 11%, though a substantial correction is likely along the way because we haven't had one since the current rally began in March.

Two picks: Buckingham likes Palomar Medical Technologies (PMTI, news, msgs), a laser-based cosmetics treatment company, which was beaten down to $9 a share in 2009 after Johnson & Johnson (JNJ, news, msgs) canceled a marketing partnership. But Palomar has $6 a share in cash and no debt, so Buckingham believes it can go it alone. Next, he likes dry bulk shipper Navios Maritime (NM, news, msgs), which remains profitable and pays a 4% dividend yield despite having to navigate troubled waters along with the rest of the dry bulk shippers.

3. Outstanding Investments: 16.9% annual returns over five years.

Stock market outlook: Editor Byron King believes problems with commercial-real-estate loans and another big round of home mortgage defaults will kick in during the coming months. He thinks both will be bad for banks and the economy, with the Dow Jones Industrial Average ($INDU) falling back to the 7,000 range as a result.

Two picks: King likes Cameco (CCJ, news, msgs) as a play on worldwide uranium shortages as more nuclear power plants come online. He also believes huge spending in Washington, D.C., will spark more inflation fears and push gold prices higher. A favorite play on rising gold prices: Gammon Gold (GRS, news, msgs).

4. The Ruff Times: 15% annual returns over five years.

Stock market outlook: Howard Ruff expects a multiyear bear market for stocks because extremely excessive government spending will bring rampant inflation, which is bad for stocks.

"It is clear that (President Barack) Obama is an out-of-the-closet socialist, and socialism always leads to inflation," Ruff says. "They are creating money by the trillions. As long as they continue to do that, we are going to have inflation."

Ruff is telling readers to avoid government bonds and other fixed-income investments, which would be hurt by inflation.

Two picks: Ruff favors gold, and gold and uranium mining plays, which he believes will be pushed higher by inflation or fears of inflation. A favorite gold mining stock is Barrick Gold (ABX, news, msgs). He also likes Rydex Inverse S&P 500 Strategy Fund Investor Class (RYURX, news, msgs), a play on declining stocks because it goes up when the S&P 500 Index ($INX) sinks.

Continued: The Investment Reporter

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