If you work up a list of stocks to consider in 2016, make sure you look at all three parts: The company, the stock, and the option chain (as if you were selling options, not buying them).
First: the company. Many readers follow headlines like “Top Stocks of the Year,” “The Best Stocks Ever,” and so on, but what about the companies? Please don’t forget that companies matter.
Second: the stock. This one’s a no-brainer. It’s what everyone’s interested in, yet many are leaving out something very important…
Third: collecting cash is a good thing.
You can collect cash before buying shares if you sell a put, and you can collect cash every week by selling calls.
If you don’t, you’re not just leaving money on the table, you’re really hurting the overall potential returns on your portfolio.
That said, here are the best companies that investors (and traders; you want to be both) want for 2016…
One of the big four, American Airlines (AAL) reduced overhead costs from the US Airways merger and reduced operating costs due to oil prices.
The travel market is booming. There’s wonderful volatility here.
You could chase the stock selling puts, doing more than 25% a year.
Apple (AAPL) is the strongest brand and most powerful and profitable tech company on the planet.
This one is grossly undervalued.
Buy the shares and sell calls every week and you’ll get a return of at least 20%, even if the stock never moves.
Blackstone (BX) is the best private equity firm in the world, with an $85 billion war chest for new asset acquisition, not to mention a dividend north of 6%.
Buy the shares, carefully sell calls, and triple your dividend—at least.
A growth story in health care and retail, CVS Health (CVS) gained gobs of new customers due to the Affordable Care Act.
They’re arguably the best managed drug outfit and PBM (Pharmacy Benefit Manager) in the country.
EOG Resources (EOG) is the world’s best fracker.
EOG’s production costs are probably near $35 or less.
Even Wall Street loves the stock!
This is a long-term position, if you can stomach the rough ride you may get due to oil prices.
Travel is something Wall Street is missing; it’s where more and more consumer dollars end up.
Forget trying to pick a winner, pick the winner: Expedia (EXPE), the biggest online travel agency using its balance sheet and expertise to absorb more and more sites and grow revenues.
This is the best company and stock in the S&P 500, and that’s not just my opinion.
Gilead (GILD) sells at a multiple of less than half the S&P.
Wall Street hates the stock right now due to a belief that they’ll run out of patients for their Hepatitis C drugs (funny, considering there’s 125 million of them in the world—and rising—according to the World Health Organization), or the government will put a lid on drug prices (not as long as the Republicans can mount a filibuster).
Bottom line: This is the best stock on the board right now.
Oil may continue to fall in price; that means the oil companies will focus on existing fields and getting more out of known geology—and that’s Halliburton (HAL).
Assume you cannot time it. Own it, grin and bear it, and sell calls along the way.
Surprise, millennials and boomers have something in common: they like to travel… especially fixed cost and celebratory travel (read: cruising).
Royal Caribbean (RCL) is undervalued based on my estimates for next year.
There’s great capacity for new revenues in the coming quarters.
Best independent refiner, best refiner, and best-performing refining stock over the last 5+ years.
Tesoro (TSO) uses more and more fracked oil with prices below world prices, expanding their profit margins.
Recently in one of my services, I sold a put that expired the next day and did roughly 1.4%.
Do that 52 times a year—and on a stock that is seriously undervalued. You do the math.
How sure am I about this list?
I own them all.
And excluding one additional stock, Tesoro Logistics (TLLP) (mostly owned by Tesoro), this is all I own right now.
I made mention of selling options. I love the companies, but I also love the stocks because I can sell options against them—a put to get in at a lower price; a call to generate even more cash—in a year with a flat market.
We could see this again in 2016. It’s the only way to manage a portfolio.
Have a merry this and a happy that… and think companies and options you can sell, not just stocks.
This post originally appeared in mainstreetinvestor.com.