With 2014 coming to a close, the S&P is currently up
about 11% this year, much better than most analysts expected. And with another
strong year in the books, it is time to look ahead to next year and where the
opportunities in the stock market are. I see next year acting very similar to
how this year went, with the S&P steadily rising, followed by a rapid 8-10%
pullback, only to end at all-time highs. There are still some uncertainties in
the market including rising interest rates, a slowing global economy, and a
strong US dollar. Baring an absolute economic collapse, the Fed will begin
raising interest rates in the summer, and a lot of people are concerned about
how the market will react. The stock market will spend the next 6 months
pricing in a .25% rise in interest rates, so when the Fed announces that exact
increase, I expect the reaction to be fairly muted. The only thing that will
cause a big swing up or down is if the Fed decides to hold off on raising rates
until the Fall or if the rate increase is more than .25%, neither of which I
see happening. Perhaps the most important headwind for 2015 is the struggling
economies of China and almost all of Europe. China is one of the biggest buyers
of just about every commodity, and if their economy continues to slow, that
could lead to deflation of commodities from oil to wheat to cotton. As long as
the Chinese economy stabilizes around 6.5%-7% GDP growth, I don’t see any
problems. As for Europe, many US companies rely on international growth, so if
Europe continues to contract, then you will see a lot of companies with
European exposure struggle. So the best thing to do is buy stocks that get a
majority of their profits from the US.
With that said, I see a lot of areas of opportunities to
outperform the market. It seems almost obvious, but cyber security will again
continue to be a hot topic and could be one of the best performing sectors in
2015. While Palo Alto Networks (PANW) is trading at a premium to it’s peers, I
still think it’s the best of the bunch and would be a buyer on any pullback. I
also continue to like FireEye (FEYE) and with just a $5B market cap, it could
be a takeout candidate. If you want to be in a name in this space but want a
stable dividend and low volatility, then you can buy Intel, who owns MacAfee.
I am also calling for a 2015 comeback in energy and energy
related stocks. This sector has been so beaten down as the price of oil
dropped, that a lot of these names have become extremely oversold and a great
long-term buying opportunity. The companies that you want to look at are the
large companies that have solid balance sheets, or pay a good dividend and are
not in danger of defaulting on their credit. I own ConocoPhillips, EOG
Resources and Kinder Morgan, and I plan to stick with all three. Other names in
the space that I like are Cheniere Energry (LNG), Chevron (CVX), Anadarko
Petroleum (APC), Tesoro (TSO) and Enterprise Products Partners (EPD). Out of
all of these names, I think Kinder Morgan and Enterprise Products Partners are
the least risky because they are pipeline companies who are not directly
affected by lower oil prices, and both pay more than a 4% dividend.
Although I see the energy stocks making a comeback in 2015,
I can’t say the same for energy prices. For oil prices to rise back to
$80/barrel, OPEC will have to cut production and the economies in China and
Europe will have to drastically improve, and while I see those economies
stabilizing, I don’t see much growth there. So with oil prices remaining low,
you can still own stocks that will benefit from lower oil prices. Airlines like
Southwest (LUV) and Delta (DAL) should continue to do well, along with food
services names like Darden (DRI) and Chipotle (CMG). Lower oil prices are also
beneficial for the auto industry, with names like Lear (LEA), Autozone (AZO),
General Motors (GM) and Ford (F) doing well. Retail stocks like Macy’s (M),
Costco(COST) and Target (TGT) can also be bought. Consumer Staples like Proctor
& Gamble (PG) and entertainment companies like Disney (DIS) and Time Warner
(TWX) are both buys.
Lastly, last week so a big sell off in biotech stocks, on
the back of a deal between Express Scripts and Abbvie, where Express Scripts
will ONLY cover hepatitis C pills made by Abbvie, shutting out Gilead Sciences,
sending that stock down about 14% for the week, along with big drops in
Celgene, Regeneron and Amgen. Many investors got spooked that there will be big
price wars in the future and that these company’s profits may be reduced in the
future. I think these moves were a major overreaction and biotech is alive and
well, and should continue to be so in 2015. While Gilead was the hardest hit, I
still like it the best because of their strong pipeline and continuous success
of their hep C drug, despite the Express Scripts announcement. If you are a
looking for the individual names, I recommend staying with the big 5 because
this is a very volatile sector, and while the smaller biotechs may have more
upside, they are far more risky. The names to consider are Gilead Sciences,
Celgene, Regeneron, Amgen and Biogen Idec. If you don’t want the stock specific
risk, look to buy IBB or BIB, both are biotech ETFs.
My current positions: Long Ford (F), Gilead
Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL), Facebook (FB),
Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC), General Motors
(GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto
Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin
(LMT), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The
Box (JACK), Under Armour (UA), Masco (MAS), long Solar City (SCTY) Jan calls,
and SHORT Feb Crude oil.
Jeff Lewison
