T. Rowe Price: Volatility in 2011 Could Be Good for Your Portfolio

A volatile stock market could yield some big opportunities next year, say portfolio managers at T. Rowe Price.What will it take to make money from your investments in 2011? The portfolio managers at T. Rowe Price think they have at least one of the answers: Find ways to use the market's volatility to your advantage.

With so many unexpected events causing the market to move downward, such as the European debt crisis, inflation fears, rising commodity prices and the effects of government regulations, investors who can anticipate which sectors and companies will rebound the strongest could reap sizeble gains.

At a press briefing this week, Larry Puglia, portfolio manager of the T. Rowe Price Blue Chip Growth Fund (TRBCX), said some sectors and stocks were underperforming even though their margins have been improving rapidly -- and are likely to continue growing if the economy recovers. In fact, between the higher margins and the better-than-expected quarterly earnings so far, Puglia's general outlook for equities in 2011 is quite positive.

Where Meteoric Rises Are Possible

T. Rowe Price expects earnings to continue to beat expectations next year. In particular, the firm forecasts that discretionary durables, capital goods and technology companies stand to benefit most as the economy gains momentum. As a group, consumer discretionary companies, which sell nonessential products and services like high-end clothing and cars, performed the best on the S&P 500 during 2010.

Puglia notes that these sectors were hit hard as the market tanked from October 2008 to March 2009 but have recovered nicely since then and should continue climbing next year. Likewise, stocks in other sectors that have lost significant value over the last two years, but that have maintained consistent earnings growth, could also see meteoric rises.

"Individual stock volatility is certainly creating opportunities," Puglia says. "Amazon (AMZN) was less than $100 in July – it now trades at over $170. There are plenty of stocks where if you are opportunistic, [you'll find] their yearly trading range is incredibly wide."

Puglia also identified Starbucks (SBUX), Nike (NKE), Google (GOOG) and Express Scripts (ESRX) as examples of high-quality companies that have taken a hit in share price but have seen their earnings grow strongly and steadily. "Companies generating consistent earnings growth are reasonably valued and could become more valuable if the economic recovery is lackluster," he says.

Better Conditions in Emerging Markets

He also sees great opportunities in international equities. International stocks outperformed U.S. domestic stocks in 2010, and analysts project they will continue to do so in 2011.

Next year, the International Monetary Fund projects emerging market nations' GDP will grow at 6.4%, versus a projected 2.2% growth for developed countries. Those forecasts suggest that employment and jobs growth will be much higher in emerging markets, putting consumers in those markets in a better position to spend.

"The emerging-market consumer is a great 10-year investment plan," says Robert Smith, portfolio manager of the T. Rowe Price International Stock Fund (PRITX). Since October of last year, the gains from emerging-market economies have come primarily from consumer-driven companies, he notes, adding that he expects that trend to continue. There's certainly plenty of opportunity: The biggest market, China, has indicated that it will focus on consumers next year.

Of course, the same volatility that could create these new opportunities also poses plenty of risk. It's always possible that an ever-weakening dollar and dangerously low inflation in the U.S., as well as international government regulations, taxes and economic policies, could end up weakening the global economy instead of strengthening it.


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crimson00king

The time is now to contact your senators your congressmen and the White House and tell them NO MORE TAX BREAKS FOR THE RICH. E-mail or call it takes mins. It is shameful what the GOP is doing to get tax breaks for the rich. I might add there are a few Democrats that voted against the tax breaks for the middle class. America is watching and 2012 they will be sent a clear message. When the youth of America comes back out to the polls.

December 05 2010 at 10:30 PM Report abuse rate up rate down Reply
shidelera5

i got my guns and gold and living way out in the woods somewhere. da de da da dada!

December 05 2010 at 6:07 PM Report abuse +1 rate up rate down Reply
ronsjigslures123

I bought teck stocks some years ago like many other people did that were just hard working people wanting extra cash, and it paid off for a while untile the bubble broke, and paid all the fees connected to the stocks. Now all i buy is silver coins and bars, and hold them in the bank boxes, i bought 2000 ozs. at 11.00 bucks a oz. and even 2000 at 13.00 bucks a oz. and have been buying oz,s and troy pounds were ever the price is good. Spot silver hit just under 30 bucks a oz. yesterday, and silver egals hit 31 bucks a oz. and canada maple leafs hit around 31.00 bucks a oz. and will with out a dought hit 80 bucks a oz in 2011. EVEN if it stays around 31.00 to 40.00 bucks a oz. DO THE MATH on 5000 oz,s of silver at 11.00 to 13.00 bucks a oz. bought. NICE paycheck with out any fees taken out for brokers or stock brokers. If you can double your money in this short period of time thats good investing in my book.

December 05 2010 at 1:35 PM Report abuse +2 rate up rate down Reply
ronsjigslures123

The middle class is pretty much screwed on investing in any big stock market buys to make a lot of extra money. The big investors buy hundreads of thousands of stocks at a time , so when it goes up a little jump they make some money, and they get paid for the dividends also. 30 years ago many average people were in the stock market making extra bucks, not any more. The 401k,s were the working peoples stock market buys, and people that bought stocks in the companys they worked at, people are pretty much saving all they can these days, if you save it you know you will have it when the time comes and you need it, save is better than having all your cash tied up in paper work, and on paper.

December 05 2010 at 1:16 PM Report abuse -1 rate up rate down Reply
Iselin007

History repeats and your invited

December 05 2010 at 6:04 AM Report abuse rate up rate down Reply
1 reply to Iselin007's comment
Howdy, Susie

upi are omvoted = you're

December 05 2010 at 11:04 PM Report abuse rate up rate down Reply
Iselin007

After 30 odd years of this economic nightmare we want revenge!

December 05 2010 at 6:03 AM Report abuse +1 rate up rate down Reply
Iselin007

Take a look in the mirror your just who every down and out American might be looking for Mr Cracker

December 05 2010 at 6:01 AM Report abuse +1 rate up rate down Reply
Iselin007

Of course unemployment is good for stocks the stores will have to replace all that stuff taken in the riots and the builders will have to repair the stores! The brokers will get lots of medical visits for broken noses and other things.

December 05 2010 at 5:59 AM Report abuse rate up rate down Reply
borderlinedefect

The markets are controlled by the huge trading houses who trade millions of shares of stock in seconds. It is all done by computers that instantly buy or sell to take advantage of even the smallest of price fluctuations. When your buying or selling millions of shares, an eigth of a point can mean big savings or a decent profit. An individual investor stands a better chance at a video poker machine than trying to outwit the trading computers.

December 05 2010 at 2:01 AM Report abuse +1 rate up rate down Reply
crimson00king

I am also outraged by not only the GOP but also by the Democrats Jim Webb Ben Nelson Russ Feingold and Lieberman of course. They need to keep bringing it to a vote time after time and let America know who is selling out 98 percent of us. Contact your senators your congressmen and the White House and tell them to fight. NO MORE TAX BREAKS FOR THE RICH PERIOD.

December 04 2010 at 1:21 PM Report abuse +1 rate up rate down Reply