On Wednesday, February 22, 2012 at around 11:30 am, the Dow Jones Industrial Average (DJIA) momentarily surpassed the psychological 13,000-mark on news that European Finance Ministers had agreed to a US$171.5 billion rescue package for Greece. The last time this occurred was on May 20, 2008, four months before the collapse of Lehman Brothers Holdings Inc. Understandably so, many investors are sitting anxiously wondering what their next market play should be as the DJIA hovers around this historic number.

Due to its long standing history, the DJIA is regarded as the key benchmark Index as well as an economic indicator. However, as it consists of only 30 publicly traded companies, which are typically the leaders in their various industries, the performance of the Standard & Poor’s (S&P) 500 Index is also closely watched due to its larger and more far-reaching component base.

Similarly, the S&P 500 Index has been nearing pre-recession levels and closed at a four-year high of 1,367.59 on February 24, 2012. Having risen 6 per cent and nine per cent respectively since the start of the year, the robust performance of both Indices have not only confirmed the validity of the stock market’s bullish momentum but has also led to a stir of debates surrounding one main question – what does this mean for one’s portfolio? The answer, while not simple, is two-pronged: take profits and look for opportunities in a pull back.

The DJIA has provided an opportunity for both those that took positions before the financial collapse in September 2008 and those that purchased shares since then. While the DJIA is still approximately 1,000 points shy of its highest level of 14,093.08 (October 9, 2007), many stocks have reached record highs. For example, Apple Inc, arguably the top performing stock in tech history, has increased 30 per cent since the start of the year to US$525.76 after trading at an all time high of US$528.50 (February 27, 2012). Similarly, fast food giant McDonalds Corp reached a historic high of US$102.22 this year (January 20, 2012) and has risen 33 per cent in the past 52-weeks to US$100.36 (February 27, 2012).

While this has not been the case for all stocks – trading at historic highs – many have still performed impressively. For instance, retailer, Target Corp has risen 8% in just under eight weeks and is currently trading at US$55.22, just a few cents below its 52-week high of US$56.00. However, Target, like many other stocks, is still trading below its all time high of US$70.14 (July 13, 2007).

This highlights the fact that current market conditions have not only provided investors with an opportunity to realize their gains but in some cases to recoup capital. For instance, an investor who purchased Target prior to the recession when it neared its all time high may opt to book a lesser-than-expected loss and invest the proceeds in another stock deemed to be poised for greater capital appreciation in the short-run.

Furthermore, the recent surge also presents a potential buying opportunity for those looking to take new positions as market data indicates a pull-back may be on the horizon. While the stock market’s boost is in-line with strong earnings reports as well as positive economic data, such as US unemployment at a three year low of 8.3 per cent, the market is due for a correction.

For the 37 trading days so far in 2012, the DJIA has not incurred a daily trading loss of one hundred points or more, something that occurred over ten times in the last 41 trading days of 2011. This rapid upswing coupled with the volatility in the months prior indicates that the DJIA, while improving, is still liable to see some retracement before it continues its upward trend. Therefore as the DJIA lingers at such a key resistance level, investors should use the opportunity to prepare a list of stocks to purchase in the wake of a market dip.

Some options include auto maker, Ford Motor Co and telecommunications giant, Verizon Communications Inc. Ford is set to release a F-250 pickup truck in the second quarter that will run on natural gas as well as regular gas. This twist to a signature product is expected to increase its market share and translate to bottom line gains. Ford’s product plans and debt reduction strategies are anticipated to provide a further boost to earnings going forward. Notably, Ford reinstated its dividend last year, which currently yields 1.64 per cent. Ford is currently trading at US$12.30 (close on February 27, 2012) with a relatively low price-to-earnings of 2.45 times and well below its 52-week high of US$16.18.

Though trading closer to its 52-week high of US$40.48, at US$38.13 (close on February 27, 2012) Verizon also offers a good valuation for long term and dividend investors. The company which typically increases its dividend payments at an annual rate of between three per cent and six per cent currently has an attractive yield of 5.25 per cent. Verizon’s 4G LTE mobile network is the largest in the US and it plans introduce 6 more 4G LTE devices early this year. Another exciting opportunity for Verizon relates to the acquisition of AWS Spectrum licenses from cable operators it recently announced. As Verizon seeks to boost its competitive advantage, a pullback in the stock will provide an even more attractive dividend yield plus an opportunity for capital appreciation.

As the US economy signals improvement and European policymakers strive to avert financial instability, the market presents numerous opportunities. Investors therefore can realize gains, diversify their portfolios and reposition to stocks that are still undervalued and poised for greater growth, including those with high dividend yields.

Juvenne Yee is a Senior Equity Trader at Stocks and Securities Ltd. You may contact her at jyee@sslinvest.com.