3 Best Stock Sectors to Buy in 2015  

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We’re coming to the end of another year in the market, and prognosticators like me are trying to pin down the stock sectors that will be the most successful in 2015.

best-stock-sectorsWhen you think about it, with the exception of sectors that have seasonality variables, there’s really no reason why a change of a calendar should affect investors or businesses. Nevertheless, there is a psychological component involved.

Investors and institutions alike look at which stock sectors were successful and what struck out during the previous calendar year. While ideally driven by fundamentals, everyone can’t help but think things like, “Well, those stock sectors were a disaster last year. It can’t happen two years in a row, so I’ll allocate funds into those stock sectors.”

Conversely, others look at the big winners among stock sectors and may decide to take profits off the table. That, in turn, may cause a net outflow from those stock sectors and cause underperformance. There’s just no telling.

Still, let’s take a look at three stock sectors that have a real chance of outperformance in 2015.

Stock Sectors to Buy — Consumer Discretionary

XLY consumer discretionary SPDRAs far as stock sectors go, I believe the consumer discretionary sector is going to perk up in 2015. I see two driving factors here: First, oil prices have crashed, taking energy costs along with them. That means that people who normally don’t have a lot of discretionary income will finally have some. They’ll likely use that money and buy products they’ve been putting off purchasing.

To capitalize on all that extra spending power, one place to look is at the Consumer Discretionary SPDR (ETF) (XLY).

I actually find this sector ETF to be somewhat misleading because its top holdings contain a lot of companies that I would consider more to be staples, like cable companies, entertainment, fast food, and shoes. And with a gross expense ratio of 0.16%, or $16 for every $10,000 invested, it’s not terribly expensive.

Another choice I like a bit better is the Rydex S&P Equal Weight Consumer Dis ETF (RCD). The top holdings here are truly more of the discretionary variety.  Plus, you get smoothed out volatility and less risk by having all the company equally weighted. The tradeoff is that RCD is a bit more expensive, costing investors 0.4%.

Stock Sectors to Buy — Transportation

isharesOn the subject of oil prices, which sector do you think is loving the crash? That’s right — transportation! Everything runs on oil, folks. That means everyone from FedEx Corporation (FDX) to the railroads to Southwest Airlines Co (LUV) will have lower expenses for at least the next year, and they’ll probably engage in hedges to lock in these lower prices.

You could certainly buy individual stocks in the sector and be holding world-class companies. Or, if you prefer, you can buy a basket of them with the iShares Dow Jones Transport. Ave. (ETF) (IYT). This truly holds a diverse set of transportation stocks across all modes of transport, giving you exposure to everything.

Don’t be fooled by the S&P Transportation SPDR (ETF) (XTN).  Eight of the top 10 holdings, accounting for 22.5% of assets, are airlines. It’s not diversified enough. Focus your attention on the IYT instead, which is easily one of the best basket of sector stocks. The expense ratio of 0.43% is neither particularly cheap nor particularly expensive, so if you’re looking for a transportation play, don’t settle for less than IYT.

Stock Sectors to Buy — Technology

Rydex_FundsAnother approach is to buy up technology. The thesis here is that most tech stocks are not paying dividends, so investors have rotated out of bonds and into dividend stocks for quite some time due to low interest rates. However, interest rates are expected to increase over the next year. Those who rotated out of bonds into stocks will reverse that trend.

Money will flow out of dividend stocks and back into bonds, possibly reducing buying demand for those blue-chip stocks. So you may want to avoid in those big blue-chip names. Instead, you should jump into technology, which may actually attract capital while the blue chips are selling off. Investors who want bonds but also some stock exposure may see declines in the dividend stocks and move their equity capital into tech.

You have lots of choices here, but I think I’d go with Rydex Equal Weight Technology (ETF) (RYT). RYT is a highly diversified tech ETF, but it has stocks you might not think of as being tech, giving you even more diversification. For example, the ETF has both Visa Inc (V) and Mastercard Inc (MA), among others. It’s equal weight strategy has actually outperformed most of the non-leveraged or hyper-focused ETFs.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.

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