It’s always a dicey proposition to try and peg what various stock sectors are going to do in any given calendar year. After all, turning the calendar from December to January shouldn’t make any difference in how sectors perform.
So let’s play the guessing game as to what stock sectors are going to stumble in 2015. A lot of what I’m going to suggest is driven by the oil price crash that has occurred. The other place I’m going to advise caution is related to a sector that has gotten a bit frothy.
As always, make certain to have a long-term diversified portfolio. That’s the best way to hedge risk and yet still profit from good investments. Here are three stock sectors to sell in 2015:
Stock Sectors to Sell: Precious Metals
I think the precious metals sector may be in for a rough ride, especially gold. The primary reason is that the dollar seems likely to improve going forward, and gold usually trades inversely to the dollar.
The dollar is at a four-year high against a basket of currencies, and as the economy improves — and I think it will — it will attract more money flow.
In addition, the yellow metal has been in a downtrend since late 2012, when it failed for a third time to breach $1,800. I generally only use technical analysis as a supplement to confirm or deny trends. Gold is at a triple bottom right now and it has repeatedly failed to break through the 20-day moving average.
So in the sector, I would sell gold and gold ETFs like SPDR Gold Trust (ETF) (GLD). I am considering moving to the short side via the Deutsche Bank AG DB Gold Short ETN (DGZ) should gold definitely breach lower at around $1,150.
Stock Sectors to Sell: Real Estate
Normally, if a sector is doing well, and the fundamentals look good, I’d stick with it. However, most REITs got a lot of traction because bonds had cratered. People were looking for yield, so they moved further out on the risk curve.
I suspect, if interest rates rise next year, that REITs may be the first of the stock sectors to suffer and money rotates out of that sector and into bonds. So in this case, I’m not saying to sell your real estate stocks just yet, but to wait and see if rates start creeping up.
Stock Sectors to Sell: Solar
We’ve heard all about the wonders of solar for countless years, and yet somehow the U.S. energy picture never seems to involve solar beyond about 1% of total energy production.
That’s because I don’t think the cost-efficiencies are really there for most people or businesses or municipalities. When a sector needs tax credits to survive, it means the business alone isn’t going to make enough of a profit.
Now, with oil prices having crashed, fossil fuels are going to see a lot more action. Solar isn’t going to be quite as popular. Those solar companies that haven’t soaked up capital through equity offerings and are struggling with free cash flow may finally be in real trouble.
Lawrence Meyers does not own shares of any of the aforementioned securities.