‘TIS the season for investors to start planning for 2011 and beyond. While the local stock market, particularly the Jamaica Stock Exchange (JSE) Junior Market provides viable investment opportunities, investors should also consider including US equities in their portfolios (if they haven’t already done so).

Despite the fact that many investors remained cautious on the sidelines as they mulled a number of factors including further stimulus from the Federal Reserve, sovereign debt worries in the Euro Zone and the strength of the economic recovery; the market overall registered a respectable performance during the year. Notably, equity market yardsticks, the Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 Index (S&P 500) and the Nasdaq Composite Index have each gained in excess of 10 per cent since the start of the year.

What’s even more encouraging is that at close to 11,500 points, the blue chip DJIA is trading at a level last seen in September 2008. Likewise, the broader S&P 500 stands at a 29-month high of 1,244 points. Most impressive, however, has been the tech-heavy Nasdaq Composite Index, which has surged 16.5 per cent, putting it just shy of a three-year high.

Moreover, the consensus is that with healthier economic data, improved earnings, a better tone from Washington, and a stronger case for equities over bonds this performance will gain momentum in the coming year. 2011 has been deemed the year when the sustainable economic recovery will take place, as consumers and businesses alike loosen their purse strings and the jobs market begins to improve.

On that basis, many analysts see the S&P 500 scoring double-digit gains and finishing 2011 at 1400 or higher. Analysts are also forecasting that the DJIA will continue to rally though it is unlikely that the Index will reach a record next year. The DJIA has gained 76 per cent in the past 21 months, and would have to increase by 23 per cent from Friday’s close of 11,492 points in order to set a record.

As the year-end quickly approaches, there has been growing optimism about the economic recovery. On Friday, December 17, 2010, the market cheered as US President Obama signed into law a US$858b tax cut bill, effectively extending the Bush-era tax cuts for all Americans for two years. It also extends unemployment benefits for 13 months and includes a one-year Social Security tax cut, among other measures. The overall aim of the tax compromise bill is to increase hiring and lower the unemployment rate.

Indeed, the weak labour market has been a main concern of consumers and investors alike over the past year. The private sector has added more than 1.1m jobs in the past 11 months; however this has hardly been enough to replace the eight million-plus lost to the recession or curb the worrisome unemployment rate. However, going into 2011, as the economy is forecast to expand at a pace of 3.2 per cent, an uptick in hiring is expected with corporations expending their hoarded cash to ramp up production.

Looking at the demand side, the spending power of the average US consumer has begun to improve as evidenced by the slowdown of debt repayments. The household-debt burden as a percentage of disposable income has eased, from 19 per cent in 2007 to 17 per cent currently. In addition, the steady increase in savings has started to slow, as Americans become more confident in the outlook for the economy. Notably, in the third quarter, consumer spending grew 2.8 per cent, the best rate since 2006, boosting retail, restaurant and recreation stocks.

Given the positive outlook for the economy and the stock market, you may be wondering which stocks provide the greatest upside potential going into the New Year. Firstly, Stocks & Securities Ltd (SSL) continues to encourage investors to employ the value investing approach. That is, focusing on stocks with sound fundamentals, a history of solid financial performance, diversification and innovation and a sound management team.

Apple Inc (NASDAQ: AAPL) is one such company that fits the bill. AAPL has evolved into a technology juggernaut that transforms itself time and time again through its product innovation and upgrades. For those investors who took SSL’s advice last year this time, they would have seen a cumulative return of approximately 64 per cent as the stock is currently hovering at USD 320. Fortunately, for those who missed out on this opportunity, the expectation is that AAPL will continue to rally, hitting US$400 next year on continued robust revenue and earnings growth.

Caterpillar Inc (NYSE: CAT) is another stock which topped SSL’s recommended list this year. At US$93.21 (intraday price on December 20, 2010), CAT is trading close to its 52-week high, having steadily climbed over the past twelve months. CAT is a fundamentally sound Company which is poised for continued industry leadership and growth. The heavy equipment maker returned to profit growth in Q01 2010, topping analysts’ estimates. Rebounding construction and mining activity in China and other developing countries is boosting demand for CAT’s products and the stock is forecast to hit US$108 in the upcoming months.

Another stock which has returned to many analysts’ conviction buy lists, is Citigroup Inc (NYSE: C), which was on the brink of penny-stock-status some eighteen months ago. More recently the company has experienced a turnaround not only in its financial performance but also investor interest. Notably, the stock has been on upward trajectory, since the US Treasury Department sold its remaining stake in the lender forUS$10.5b, bringing its total profit to at least US$12b. Year-to-date (YTD), Citigroup has gained 43.05 per cent to US$4.73 and is forecast to trade between US$5.50 and US$6.00 next year.

As global retail sales are expected to continue to climb next year, retail stocks such as Wal-Mart Stores, Inc (NYSE: WMT) also provide an opportunity for investors. Having already dominated the US market, as the largest retailer in that segment, WMT has set its sights on other parts of the world, particularly emerging markets. WMT recently opened 44 units in Argentina, 436 in Brazil, 317 in Canada, 519 in Central America, 254 in Chile, 283 in China (through joint ventures), 371 in Japan, 1,472 in Mexico, and 371 in the UK. Though the stock has increased by less than one per cent this year, it is expected to trade above US$60 next year.

Certainly it is hoped that 2011 will bring growth and prosperity and SSL urges investors to take advantages of the opportunities that may present themselves as the global economy rebounds. There’s no time like the present as many stocks are still trading below their pre-recession levels and financial results are forecast to improve along with the overall economy.

Kimberly Thelwell is Manager, Research & Analyst, Corporate Finance and Advisory Services at Stocks & Securities Ltd. You can contact her at kthelwell@sslinvest.com.