The stock market has been on a losing streak lately, but it’s undeniable that the longer-term trend is soundly higher.
After a 30% up year in 2013, stocks have added about 11% in 2014 … and could push even higher in the new year.
Sure, there are problems out there including the slowdown in China and fears of how the Federal Reserve will navigate its way to tighter monetary policy. I am aware of these threats, and recently highlighted some of these risks in my column, “7 Risks That Could Shock the Market in 2015.”
However,it’s important to remember that calling a top has been quite a dangerous game these past few years. Many folks thought the market was doomed in 2008 after the financial crisis, and again in 2011 after European debt problems threatened to upend the global markets.
If you’re looking for boogeymen, there are assuredly always places to find them. But here are a host of positive economic developments worth highlighting as we enter 2015, and a lot of related investment opportunities out there worth exploring.
Here are seven of the best investment opportunities for 2015.
#1 — Cheap Gas Fuels Spending
It’s undeniable that the biggest story of December has been the crash in crude oil prices.
But while energy stocks have taken a drubbing and volatility has increased, let’s not forget the serious tailwind this creates for consumer spending as gasoline prices continue to fall. Some regions are seeing their lowest prices since 2009!
It’s no wonder then that spending trends continue to perk up, including a Gallup Poll that showed another small rise in consumer spending in November, challenging levels not seen since 2008. Reinforcing this is a November report from the Commerce Department showing a 0.2% increase in consumption as gas prices continue to move lower.
Consumer spending is the engine of economic growth, and investors can’t overlook the power of this stimulus in 2015.
#2 — U.S. Stocks Are Fairly Valued, Not Overly Valued
Contrary to what some bears would have you believe, the stock market is not grossly overvalued.
According to the latest Earnings Insight report from data firm FactSet, the forward price-to-earnings ratio of the S&P 500 right now is 16.2 — on par with its 15-year average.
Furthermore, long-term valuations are only out of whack when you consider the extremely long term — for instance, from 1910 to about 1925 when P/E ratios rarely topped 15.
Are we really going to compare Apple Inc. (AAPL) to stocks more than a century old? Heck, can you even make a fair comparison using Ford Motor Co. (F) considering the Model T was in its infancy a century ago, and Ford didn’t go public until 1956?
Those who say that valuations are out of control need a history lesson, and need to do a little more research. Things may be slightly elevated if you cherry-pick data, such as taking the current P/E of 19.3 for the S&P 500 vs. a median of 14.6 since 1917.
But that’s hardly proof of a crash. Have confidence you aren’t overpaying for the S&P in 2015.
#3 — Earnings Are Growing in the U.S.
Besides, let’s remember that high price-to-earnings ratios can resolve themselves in two ways. The first is for the numerator (the price) to drop. But the second is for the denominator (earnings) to rise.
Note that earnings are steadily rising; FactSet reports that “analysts are still projecting record-level EPS for the S&P 500 for three of the next four quarters.” The fact that profits are marching higher even as stock prices go up is a good sign, and proof that the rally thus far is sustainable.
Consider that Goldman Sachs is expecting EPS growth of 5% in 2015, so even if the valuation ratio doesn’t change at all with investors refusing to pay a bigger premium for earnings, we can expect 5% gains for the market in 2015.
If you can find stocks like Under Armour (UA) that is growing sales and profits even faster? Well, all the better for your portfolio in the New Year.
#4 — Tech Proves Its Power
Speaking of strategic growth opportunities, Charlie Morris, head of absolute returns at HSBC Global Asset Management, recently told CNBC that he thinks the tech sector will go “nuts” in 2015 thanks to its growth outlook.
That prediction is actually a bit old, if you’ve been paying attention to tech stocks in the last 12 months; we’ve seen the growth story for the sector play out already via the outperformance of tech ETFs like the iShares Dow Jones U.S. Technology ETF (IYW), which has logged 19% gains in 2014 vs. about 11% gains for the broader stock market.
This trend will continue in earnest next year.
The biggest drivers will be enterprise tech demand as businesses spend again, as well as organic growth in both large innovators like Facebook Inc. (FB) and newly minted stocks like up-and-comer Zendesk Inc. (ZEN), which has more than doubled from its May IPO pricing.
Even if the energy sector struggles with low commodity pricing and consumer spending stalls, the continued march forward of business technology and disruptive new start-ups will unlock growth for investors in the tech sector.
#5 — Not All Emerging Markets Stink
Click to EnlargeWhile there are serious challenges in China right now, and I wouldn’t touch Russia with a 10-foot pole amid crashing commodity prices, there are serious bargain buys to be had elsewhere.
Consider India.
This mainstay of emerging-market portfolios had been a chronic underperformer since 2010 as high inflation and political struggles battered what should have been a fast-growing economy. However, inflation has fallen from a peak rate of more than 11% in January to about 4.4% right now, showing that this problem might be under wraps thanks to moves by the Reserve Bank of India across the last year.
Thanks to improvements, India’s growth rate should rise from a projected 5.6% this year to 6.4% in 2015 according to the IMF and World Bank — that would put India just below China, which continues to struggle with deceleration.
In fact, the steep drop in energy prices over the last few weeks has actually pushed the core inflation rate to about zero in India — an amazing feat considering the near double-digit levels a few years ago.
Tapping into this opportunity could be quite profitable, considering the lack of other global growth opportunities, and one way to play that would be via India-focused funds such as the WisdomTree India Earnings Fund (EPI) and the iShares MSCI India ETF (INDA). Both have outperformed handily in 2014 and should stay strong in the new year.
Broadly, the global picture may not be quite as bleak as some suspect — and that much negativity is already priced in. That’s why investment firm Goldman Sachs predicted above-average growth in 2015 as one of its top 10 trade ideas for the year.
India is just one example of an overlooked market with a bright future next year.
#6 — Make Green with the Greenback
Speaking of the global picture, it goes without saying that the obvious troubles elsewhere around the globe have led to a rise in the U.S. dollar vs. other currencies.
And when you couple this economic picture with the easy-money policies abroad and the prospect of tighter policy at home, it’s almost impossible to imagine a universe where the greenback loses significant ground in 2015.
If you’re in the habit of trading currencies, this is a bet worth considering — or if you just want to dabble, consider a fund that plays the rise in the dollar such as the PowerShares U.S. Dollar Index Bullish Fund (UUP) that has already tacked on a decent 10% in 2014.
Beyond that, it’s important to consider that a strong dollar makes American investments quite attractive. Not only is foreign capital piling in to U.S. government debt, but also U.S. real estate and U.S.-based corporations as a result.
That buying pressure is good for stock holders of domestic companies that are in demand around the world.
#7 — When All Else Fails, Trust Demographics
I hate to sound like a broken record, considering my “7 Sure Thing Stocks” recently that relied heavily on the upside potential of healthcare plays catering to older Americans.
But the bottom line is that if you want reliable growth, bank on the demographic shift in America caused by the aging baby boomer population.
Specifically, tap into the tailwind of senior housing growth via high-income REIT plays like HCP Inc. (HCP) or medical waste servicer Stericycle (SRCL).
Or if you have noticed the big-time growth in annuity sales as older Americans look for retirement strategies that will provide them reliable income, tap into insurance giants like Lincoln National Corp. (LNC) or American International Group (AIG).
There are many uncertainties out there right now, but this demographic shift and the specific needs of an aging baby boomer population can provide some big opportunities you can take to the bank in 2015 and beyond.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via@JeffReevesIP.
