This week, I’m going to spotlight the year’s best-performing Top Picks.

Every year, we ask all of our Digest contributors to send us a recommendation of their single favorite stock to own in the coming year. Their submissions range from unknown small-caps to the past year’s winners, a broad range that reflects the wide variety of investing styles practiced by our contributors.

Once in July and again at the end of the year, we revisit the Top Picks to see what’s working.

As of this writing (just shy of the end of the year), the best-performing Top Pick, with a gain of 53%, is a small-cap technology company called Allot Communications (ALLT). Ian Wyatt, editor of Small Cap Investor PRO, recommended Allot, which made its gains in the first six months of 2011. So it was already a winner at mid-year, when Wyatt wrote in an update:

“I’m pleased with the continued growth of Allot Communications, which reported on Tuesday and beat earnings estimates by delivering EPS of $0.07. The company grew revenues by 38% over the comparable quarter of 2010, and by 6% sequentially. To bring more recent subscribers up to speed, Allot manages broadband networks to maximize their performance. Its customers are wireless cell phone operators around the world, and its competition includes companies like Blue Coat (BCSI) and Cisco Systems (CSCO). The company is growing because its solutions help service providers manage their networks more efficiently–its products solve the pains that come with an overloaded network. With massive growth in mobile technologies, I don’t see this trend ending anytime soon and believe Allot will continue to enjoy growing demand for its solutions. … There are now five analysts following Allot, and on average they believe the company will earn $0.26 in 2011 and $0.38 in 2012 on revenues of $71 million and $83 million, respectively. These projections would put revenue growth at 25% this year and 16% next. I think Allot will do better. I’ll bump up the price target on Allot to the consensus of $17.50–that’s around 15% higher than shares currently trade. Allot is a buy on weakness.”

Since then, Allot broke through the 17.50 level a few times, and even touched 19.15. Shares always meet resistance at those high levels though, and they are now back between 16 and 17. But as Wyatt wrote, this company is gaining admirers, and a strong move past 19 could signal the next phase of the upmove for ALLT. This is certainly one to keep an eye on.

The second-best performer to date is also a small-cap technology stock. This one doesn’t have any potential for new investors though: Global Defense Technology and Systems (GTEC) was acquired for $315 million in March 2011. The acquisition provided a quick 48% gain for subscribers who had bought the shares when Geoffrey Eiten, editor of OTC Growth Stock Watch, recommended them in our January Top Picks issue.

The third-best performing Top Pick is also a technology stock. But unlike ALLT and GTEC, IAC/Interactive Corp. (IACI) made fairly steady gains all year, even as the market thrashed up and down. Originally recommended in the Top Picks issue by David Fried, editor of The Buyback Letter, at 29.41, IACI is now trading in the low 40s. IAC/Interactive owns Ask.com and Match.com, in addition to other Internet properties. It’s hard to tell if the stock’s best days are behind or ahead of it–IACI’s momentum is choppy but upward, as evidenced by a pattern of higher highs and higher lows. Watch to see what IACI does when the market breaks out of its trading range in 2012 (hopefully to the upside).

The fourth-best performer overall was featured in Dividend Digest. Chunghwa Telecom Co. (CHT), recommended by Yiannis G. Mostrous in Global Investment Strategist, is up 35% year-to-date. Mostrous just updated his subscribers on Chunghwa Telecom last week, December 21, writing:

“Taiwan’s largest telecommunications provider Chunghwa Telecom in mid-December announced that its mobile communications division had crossed the 10-million subscriber mark. Chunghwa Telecom also announced that it would spend TWD6 billion (USD200 million) to boost its mobile network capacity–the first step on a path to cultivate a smartphone and ‘Internet of Things’ subscriber base of 10 million. Internet of Things refers to network-enabled objects, such as a refrigerator, and the web-based services that interact with these devices. In 2011, Chunghwa Telecom spent TWD4.8 billion (USD160 million) on expanding and improving its mobile network. The company also said it would contribute USD51 million to a consortium of Asian telecom companies to build high-speed submarine cables that will connect 11 areas in nine countries in the region. The Asia Pacific Gateway project will build an underwater fiber-optic network that will begin commercial service by 2014. The cables will stretch 100,000 kilometers and will link Taiwan, China, South Korea, Japan, Singapore, Malaysia, Thailand, Vietnam and Hong Kong. Chunghwa Telecom said that its November unconsolidated sales fell 1.34% year over year to TWD15.7 billion (USD519.9 million), without providing a reason for the decline. The company’s total revenue in the third quarter rose 9.5% year over year to USD1.9 billion, although net income declined 0.2% year over year to USD406.8 million. However, net income per American depositary receipt (ADR) rose 5% year over year to USD0.51, primarily due to a 20% reduction in outstanding shares. Chunghwa Telecom’s operating profit declined 3.9% year over year to USD473.3 million.

“The company’s mobile business accounted for USD810.2 million of total third-quarter revenue, an increase of 6.6% from the year-ago period. The company’s mobile subscriber base rose 4 percent year over year in the third quarter to 9.96 million, of which 5.83 million subscribers were third-generation (3G) technology users. These 3G users contributed to 40.5 percent yearly growth in mobile value-added services revenue, which came in at USD133.7 million in the quarter. The company expects its mobile Internet subscriber base to reach 1.47 million by the end of 2011 compared to 1.32 million at the end of the third quarter. The company’s Internet segment accounted for USD219.6 million in sales, up 0.6 percent year over year. The company is rapidly expanding its fiber network throughout Taiwan, with the aim of reaching 75% of the country’s population by the end of the year. The company’s broadband subscriber base was 4.48 million at the end of the third quarter. Of this total, 51.8% of broadband users had signed up for the company’s fiber network offerings. The company’s rapid expansion of fiber coverage allowed it to achieve 1 million movie-on-demand subscribers in November, one month earlier than predicted.

“Chunghwa Telecom controls 80% of Taiwan’s broadband market. The company is utterly dominant in the fixed-line market, holding a 96% share of the local fixed-line segment and 77% of the long-distance fixed-line market. The company’s domestic fixed-line segment grew revenue by 17.1% year over year to USD699.7 million in the third quarter, while the international fixed-line communications segment saw revenue decline by 6% to USD128.9 million. However, a recent government ruling has shifted the pricing right for landline-to-mobile phone calls in favor of fixed-line operators, which has boosted Chunghwa Telecom’s top line. Buy Chunghwa Telecom up to USD35.”

In addition to its appreciation potential, Chunghwa Telecom also offers large but intermittent dividends. Going forward, this company looks like a good pick for any investor.

Don’t writers know any other words?

More importantly, don’t you think that when there’s such unanimity of opinion about the market, it’s ripe for a change?

I think so, and I think the market’s next major move will be up.

My reasons are these:

One, the market’s been down a pretty long time, and the selling pressures, which peaked in August, have been easing.  Institutions are clearly using the big dips to accumulate shares at reasonable prices.  And the institutions love these dips.  They know value, so it’s to their benefit to extend the bottoming phase so they can continue to accumulate shares.

Two, individual investors feel terrible about investing here.

In fact, many tell me so, using words like these.

“I suspect that the market is going into a rat hole for a long time.”

“I fail to see the logic of buying … the European debt crisis … is years from solution!”

As a result, they’re inordinately focused on safety, which tells us that before long, the market will reward those brave souls who are courageous enough–and independent-thinking enough to take on risk.

Three, progress continues to be made in numerous industries, from energy to pharmaceutical to technology. And the best stocks in these industries offer brave investors a chance to make profits now!

One of the most interesting to me is a company named Health Management Systems (HMSY), a boring name but an accurate one, for a company that gets paid for (successfully) keeping health care costs under control.

Mike Cintolo, editor of Cabot Top Ten Trader, recently recommended the company. Here’s what he said.

“The issue of cost containment in the U.S. medical industry is a pressing one, and companies like HMS Holdings are on the front lines in the battle. The company specializes in cost containment, revenue recovery, reimbursements and benefits coordination, contracting with state and national government agencies and insurance companies to manage third-party liability claims, reconcile state regulations with national Medicare and Medicaid requirements and keep a watch on potential fraud or mismanagement.

“The company’s Q3 earnings report points toward a “national focus on improper payments” as a major source of future growth, and investors clearly agree. When HMS Holdings acquired Health Data Insights (HDI) in November, it strengthened the combined company’s position as a recovery audit contractor in the quest for the integrity of claims in both Medicare and Medicaid. Revenue growth has been steady, with 26% growth in 2008, 24% in 2009 and 32% in 2010. As the company’s Q3 earnings summary states, “Medicaid grows regardless of political environment,” and the more efforts are made to reform the system, the better HMS Holding will thrive.”

HMSY has been in a long-term uptrend for years, and in recent weeks, it’s been building a base between 30 and 31.  Mike suggested getting on board after any dip of one point, and that still seems like good advice to me.

But if you want the best advice, with regular follow-ups on this stock (and many more), I suggest you take a no-risk trial subscription to Cabot Top Ten Trader.

Disclosure: The author does not have a position in the stock.

My example is SinoHub (SIHI), a Chinese supply chain manager and order fulfillment service for cell-phone components that has suffered through a precipitous drop since it came public in August 2009.

The stock hit its all-time high above 5 a couple of months after its IPO. But 2010 and 2011 have not been kind to the stock, pulling it into penny stock territory in August 2011 and sinking even deeper from there.

The stock is thinly traded (average daily trading volume is just 53,000 shares), and its last two quarterly earnings reports have been profoundly disappointing, featuring earnings declines of 75% (Q2) and 62% (Q3).

The wild card here is that SIHI popped up 13% in intraday trading yesterday on the basis of a six-cent advance to 0.50.

To a prudent investor, one who will note that the stock has stuck like glue to its 50-cent price for two months, this isn’t of even passing interest. It’s just a blip on a dismal chart.

A classic Cabot growth stock must meet much more stringent requirements, including a double-digit price, better liquidity (at least 400,000 shares a day) and an uptrend that features both some persistence and rising volume support.

Obviously, SIHI doesn’t qualify on any reasonable basis. Even its one times price-to-earnings ratio is more of a raspberry to the stock than an indication of value.

I wish I had a great prospect for you rather than a great cautionary tale, but I hope the lesson will be of more value ultimately.

If it’s value you’re after, look at Baidu (BIDU), which is now trading below 120. After a calm quarter in which the company’s earnings were up “only” 87%, the stock’s 47 P/E ratio and projected 88% jump in earnings for 2011 look pretty darn good. That said, many former big winners are looking very tired, so we would guess that (again, if you fancy yourself a value player) BIDU will give you an opportunity to buy down toward 100 if the market remains grumpy.

If a 13% boink in SIHI tempts you, a warm bath and a relaxing beverage may be in order.

Editor’s Note: To learn more about high-potential stocks from Brazil, Russia, China and India (the BRIC countries), check out Cabot China & Emerging Markets Report. Hulbert Financial Digest has consistently ranked it as one of the top-performing newsletters for the last several years, quite a feat considering the market’s performance during that time.

In the eight months since these stocks were recommended, the Dow Jones Industrial Average has gained no value–as I write this it is down just over 1% since April 12.

These four dividend aristocrats, on the other hand, have not only gained value, they have also all made dividend payments since then.

The first, The McGraw Hill Companies (MHP), has paid three dividends of 25 cents each. If you’d bought at 39 on April 12, you’d have received 75 cents, for a yield of about 2% over the past eight months. Plus, the stock’s price has increased 10%, from 39 to 43.

Back in April, Patrick McKeough, editor of the Wall Street Stock Forecaster, recommended MHP. McKeough still rates the stock a buy.

McGraw-Hill is planning to break up into two companies next year: the company’s Standard & Poor’s division and other financial-information providers will become McGraw-Hill Markets, while the textbook-publishing side will become McGraw-Hill Education. McKeough sees the split in a positive light, writing in October: “Break-ups like this tend to work out well for investors, because the total value of the two new companies usually exceeds the value of the former parent over time.”

This year marked the 38th consecutive one in which MHP raised its quarterly dividend.

The second Dividend Aristocrat from April’s issue is The Chubb Corp. (CB), an insurer. The Chubb Corp. has paid two dividends of 39 cents since April, as well as gaining 10% in price. It is now trading at 68, above the target price of $65 that John Eade, an analyst for the Argus Weekly Staff Report, gave it back in February. In October, Eade raised his target to $75, and reiterated his BUY rating on The Chubb Corp.

The third outperformer since April is Abbott Laboratories (ABT), always a favorite among income investors. Since April 12, ABT has paid three dividends of 48 cents each and increased in price from 50 to 54, approximately 7%. Abbot was recommended by Ingrid Hendershot, editor of Hendershot Investments, as a Dividend Digest Top Pick for 2011, so we’ll have an update on the stock in our Top Picks for 2012 issue, coming out January 11. (If you’re not a Digest subscriber, but are thinking about becoming one, I encourage you to take action before January so you can receive this collection of the experts’ single best investment ideas for next year.)

Finally, the fourth April Dividend Aristocrat to beat the market is Johnson & Johnson (JNJ).  Mark Deschaine, editor of Deschaine & Company’s Viewpoint, who recommends dividend-paying blue chips for the long-term investor, recommended JNJ.

As he pointed out in his recommendation: “JNJ has been paying a dividend since 1944 and has increased it annually for over 47 years. … For every share you might have bought in 1979 at $0.85, you would now be receiving $2.16 in annual dividends, or more than 2.5 times your initial investment–each and every year–and growing to boot! Going forward, you can be sure we do not anticipate this kind of supercharged income growth. However, our analysis indicates that Johnson & Johnson should be able to continue to generate positive cash flow from its stable of products and continue to pay and increase its dividends for years to come. As long as that’s the case, and the price of the stock remains reasonable by our valuation measures; we’ll continue utilizing the dividend and dividend growth attributes of JNJ to provide growing income to our clients.”

That’s as true today as when he wrote it–that’s the beauty of owning dividend aristocrats. Since April, JNJ has gained approximately 7% in price, and paid out $1.71 in dividends, for an eight-month yield (based on April 12th’s closing price of 60) of about 3%.

There’s certainly something to be said for buying and holding this type of steady, dividend-paying stock. It certainly would have worked better than most strategies this year. If you think this approach might be for you, you might want to consider subscribing to the Dick Davis Dividend Digest, where all these stocks were recommended first. Click here to learn more!

And why is this worry a good thing?

Because, as all experienced investors know, bull markets climb a wall of worry!

And that’s what this bull market is doing now!

As a result, I’m more optimistic than at any time in the past few months, about both the short- and long-term prospects of the market.

And I’ve got a great stock to recommend to you!

It’s in the insurance business, which seems appropriate following the previous section on dogs.

Its name is Reinsurance Group of America (RGA).

And Roy Ward, the editor of Cabot Benjamin Graham Value Letter, recently recommended it. He wrote:

“Reinsurance Group of America (RGA) is the second largest provider of life reinsurance in the U.S. Reinsurance Group also offers annuity, critical care and group reinsurance. The company guarantees insurance contracts for insurance and other financial companies and sells its products in 25 countries around the world. The company also sells life and disability insurance to consumers in the U.S., Canada, and abroad. It has over $2.6 trillion of life reinsurance in force backed by a strong balance sheet with conservative bond investments.

“Reinsurance Group is in position to capitalize on the significant growth opportunities in the U.S., Canada, India and China. Revenues increased 1% and EPS rose 19% during the last 12-month period, spurred by improved market conditions and higher prices. We believe strong growth from its international operations as well as a boost from recent purchases will drive EPS higher by 6% during the next 12 months.

“RGA’s shares are clearly undervalued at 6.8 times current EPS with a 1.4% dividend yield. RGA shares sell at a huge 42% discount to current book value. The balance sheet is strong, enabling RGA to take advantage of additional opportunities in the reinsurance industry. Higher interest rates could add significant income from RGA’s conservatively invested bond holdings. We fully expect RGA’s stock price to increase to our Minimum Sell Price of 77.52 during the next one to two years. RGA is low risk.”

Sounds good to me. And I can add a few more details.

First, Roy has added the stock to his Classic Value Portfolio. This portfolio, composed of eight select holdings, has gained 28.2% in the past 24 months, compared to 16.8% for the Dow. Longer-term, the portfolio is up 173% since inception in November, 2002, compared to just 35.4% for the Dow.

Second, RGA had been trading as high as 64 back in July, so getting it at the current price is like getting a 22% discount.

And third, financial stocks were among the hardest-hit sectors this year, so stocks like RGA have a lot of upside potential.

For conservative, patient investors, I recommend it highly.

Even better, I recommend that you consider a no-risk trial subscription to Cabot Benjamin Graham Value Letter, so that you can get updates on RGA and other undervalued stocks every week!

For more details, click here.