The 10 best stocks for 2009

By Jim Jubak

Stock picks for 2009? I'm joking, right?

Absolutely not. Economists may be writing off the economy, but investors shouldn't write off the stock market. Stocks start to recover a good six months before the economy does, and that means investors could see stocks start to move up as early as next fall.

My selection of the 10 best stocks for 2009 -- and my strategy for when to invest in them -- is designed to help you do three things:

• Make some money (although not a lot of money) in the first half of the year.

• Get you into position for a rally in the fall.

• Make sure your portfolio is ready for 2010, when the economy itself is likely to be in recovery mode and the major long-term trends driving the global economy will be your key to market-beating returns.

Always thinking ahead

Stock prices are built on anticipation. The market indexes had been falling for months before we got the initial gross-domestic-product numbers in October showing the economy had started to contract in the third quarter. And stocks have kept falling since then as investors have anticipated that the economy would contract even more -- maybe at an annual rate of 4% or 5% -- in the three months that end in December.

Anticipation of an end to the recession and an economic recovery will start stocks moving up again well before the recession is actually over. The historical record shows that stocks start to recover, on average, about two quarters (or six months) before an economic recession ends.

In other words, if the U.S. recession ends in the fourth quarter of 2009 or, more likely, in the first quarter of 2010, then we can expect stocks to rally starting in the summer or fall of 2009.

Timing is tricky

Timing the turn can't be exact. There's the risk of being early. The U.S. economy could struggle for longer than I now expect, and stocks could linger at low levels into 2010.

But there's also a risk of being late. If the bottom for the Chinese economy is in the second quarter of 2009, as Goldman Sachs now projects, then the global economy would start to pick up before the fourth quarter of 2009, and stocks would be likely to rally earlier than the fall of 2009.

So 2009 presents quite a strategic challenge.

In the first half -- or even three-quarters -- of 2009, you'll need to play defense. (But you don't want to be completely on the sidelines, just in case growth in China does bottom in the second quarter.) That means losing as little money as possible as stocks continue to founder while picking up a few percentage points of return here or there.

In the first part of 2009, I'd be very happy with anything like a 5% return from a stock portfolio. (Why not just stick it in supersafe Treasury bills or notes, you ask? Have you seen the yield on T-bills lately? It's as close to zero as you can get.)

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Then toward the end of the year, move more of your portfolio to offense, without taking on a huge risk in case your timing is off. We know from the end of other bear markets that the first months of a bull market can produce explosive returns. But bear markets are notorious for producing final rallies that pull investors in and then fail, sending the early birds reeling to yet more losses.

Building a core

So what kind of stock picks could possibly work in that kind of uncertain and labyrinthine market? I'd suggest these 10 culled from the 50 in my new book, "The Jubak Picks." (I'll post the full list of 50 when the book comes out Dec. 30. This long-term portfolio will replace my existing 50 Best Stocks in the World list. You'll be able to find a link to it near the top in the left margin of every column, just under my 12- to 18-month portfolio.)

Why did I pick these 10 from the 50 in my book to be my best picks for 2009?

Continued: Safety and exposure

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