You have to keep it simple

Author: Walt Sokira

Covestor model: Focused Stock Research

Disclosure: Long AAPL, CNK, PM

It is interesting how much harder investing has become over the past 20 years. Investing today seems overwhelming, complicated and downright scary. In 2011, investors witnessed so much economic turmoil: the Japanese earthquake and tsunami, the U.S. debt ceiling crisis, the ongoing European sovereign debt crisis as well as the aftermath and recovery from the subprime mortgage crisis.

Many investors have adopted a Karate Kid mentality attempting to "risk-on, risk-off" trades, with the hope to change exposure to markets and volatility. The "risk-on, risk-off" trade is now a common-term used by talking heads and market pundits on CNBC and other media outlets. While intellectually appealing, I predict the "risk-on, risk-off" trader will be as successful as the market forecasters of the past. The hero of one trade may be the goat of the next.

We see three great stocks for 2012 – Apple (AAPL), Philip Morris (PM) and Cinemark (CNK). Apple's  ecosystem connects the user to another user.  It also connects the users to successive purchases.  Apple's IOS operating system envelops the user in an ecosystem of applications and content that makes it inconvenient to switch to another vendor's device down the road.

With almost 16% of the non-U.S. market, Philip Morris (PM) is the world's second-largest cigarette manufacturer, behind only China National Tobacco. Despite having a presence in 160 countries, Philip Morris still believes that it can grow in markets such as India and Vietnam through population growth, and by taking share from smaller competitors.

The movie business has historically been somewhat resistant to economic downturns, and Cinemark (CNK) has racked up nearly three straight years of growing faster than the industry. Latin American business remains robust. Attendance is growing at nearly four times the U.S. industry rate, led by Brazil, but also strength in Argentina, Peru, Colombia and Chile.

We tried a few “risk-on”, “risk-off” trades in 2011 and realized we were playing the role of the intelligent fool.  Therefore, we are reverting back to what we do best; invest in financially powerful companies at attractive valuations, and when they are not, sell them. In 2012, we remain offensive in our posture and are recommending being fully invested in equities.

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