The market wasn’t kind to many in 2015, but we could see some big changes next year. Keep these names on your Q1 2016 trading radar…
I hate making market forecasts, but when you do what I do for a living, it’s the equivalent of a football player getting hit in practice: It’s gonna happen and it’s gotta happen.
Before I do any prognostication, let me state my approach:
I am an agnostic. My concern, every day, is whether the market is tradable, i.e. whether we can sell options for large profits. My service has done so for almost five years, and next year may very well be our best year yet.
Why? After the Fed rate increase removes an enormous amount of overhang and uncertainty in the market, we can trade more and roll fewer positions.
We rolled this year about as much as we did last year, despite the savage drop in the price of oil, the Chinese yuan devaluation that led to a 12% market selloff, and a coupe of other technical bounces down.
I expect the market to be a bit smoother next year (especially the first half of the year), which makes it easier for us to trade.
What should we look for in Q1? Here are 26 names…
Upside Surprises in Travel
This will be a great travel season due to falling oil prices and changes in consumer preferences.
The names are the obvious ones: Expedia (EXPE) and the airlines—all of them, led by American (AAL) and Southwest (LUV).
Among the hotels, Hilton (HLT) is grossly undervalued right now.
Also, two cruise lines, Royal Caribbean (RCL) and Carnival (CCL) are poised for solid growth.
A Bottoming in Oil
The market anticipates things like this up to six months in advance, and this bottoming in oil futures and the impact on equities should be seen in Q1.
Look to refiners Tesoro (TSO), Valero (VLO) and HollyFrontier (HFC) to bounce back as investors put more cash into energy funds.
Also look to resilient frackers: EOG Resources (EOG) and oil service companies Halliburton (HAL) and Schlumberger (SLB).
A Swing Toward Financials
Higher interest rates mean widening loan spreads for banks.
In my service, we don’t trade most regional banks due to liquidity issues with their options, but they will lead the way.
Visa (V), Bank of America (BAC) and Wells Fargo (WFC) are the pick of the litter.
Look to Tech…
Tech—specifically fourth-quarter phone and chip sales—will surprise people, led by Apple (AAPL), Skyworks (SWKS) and Corning (GLW).
… and Look to the Internet
The use of the Internet has turned a previously unseen corner, and the growth in both advertising and sales is accelerating.
I like Alphabet (GOOG), and I like the growth prospects for three very high multiple stocks, Amazon (AMZN), Netflix (NFLX) and Facebook (FB). They’re too expensive for my portfolio, but maybe not for yours.
Anyone Else?
Other names I like for Q1 gains include Starbucks (SBUX), Blackstone (BX), Gilead Sciences (GILD) and CVS Health (CVS).
To steal a phrase I picked up a long time ago in sales training, “I eat my own cooking.” I own or trade many of the stocks I call my favorites. These names will likely dominate trading in the first quarter.
A happy and prosperous 2016 to you.
(Michael Shulman owns shares of EXPE, AAL, RCL, TSO, EOG, HAL, AAPL, SBUX, BX, GILD and CVS.)
This post originally appeared in mainstreetinvestor.com.
