As I review the market, my own portfolio and my watchlist, it’s this time of year that I make a few moves.
I take a look at asset allocation and decide if I want to reallocate my portfolio. I look at stocks I own and make sure I want to keep them. I jettison stocks whose stories have changed.
I also look at the stocks I own or want to own that I think will outperform next year. They will form the center of my stock picks for the new year.
It was more of a stock-picker’s market this year, with the major indices all flopping around the break-even point. I think next year is going to be more of the same, so choosing some individual stocks that I think will do well is important to boost performance.
I’ve got a few choices here from different market caps, so that should also help with diversification.
Of course, these stock picks are just my own ideas. You may have your own.
Stock Picks for 2016: Lockheed Martin (LMT)
I think defense stocks are always a good place to put your capital, because there are limited defense firms and they are always going to be at the forefront of government contracts. I also think there’s a reasonable chance that we may see a Republican president next year, who is going to be more friendly to the sector than the current administration.
I’m sorry to say that with ISIS expanding unchecked in the Middle East, there will also be increasing demand by the public that more military solutions be put on the table.
You have a few choices here, but I think a stock that outperforms next year will be Lockheed Martin (LMT).
It isn’t just LMT stock’s defense segment that makes it a good pick — it is also sufficiently diversified that it has many ways to benefit stock holders. Besides defense, it has massive operations in aeronautics, information systems and mission systems.
I see 15% to 20% returns for next year in LMT stock.
Stock Picks for 2016: Ashford Hospitality Trust (AHT)
From what I can tell, next year will continue to be a great year for hospitality. While the economy is just puttering along, those with cash to spend are spending it on travel. The airlines are doing phenomenally well, as are rental cars and the online travel companies like The Priceline Group (PCLN). If you are in the mood for a large-cap play, I would actually select PCLN stock.
Barring that, however, there is no better hotel play than Ashford Hospitality Trust (AHT). AHT stock is ridiculously undervalued. Management of the REIT is even moving its strategy to focus on upper upscale and luxury hotels.
Ashford stock has great liquidity and cash flow, and it yields a sick 7.6% in dividends because the stock is so undervalued.
AHT stock is a steal at under $7, and I see a minimum of 50% in capital upside next year as the market floods to dividend stocks and value stocks.
Stock Picks for 2016: Enova International (ENVA)
Finally, my best idea for next year is Enova International (ENVA).
Prior to the Consumer Financial Protection Bureau getting its fingers into payday lending and trying to shut it down, ENVA stock was on a roll. Its year-over-year revenue and net income growth were explosive. However, the CFPB is trying to kill payday lending, and ENVA stock was the single best play in the sector because of its mastery of online lending.
There are still many legal challenges that may block the CFPB’s plans, but ENVA isn’t waiting around. It is already transitioning its model to installment lending, near-prime lending and small-business lending. Payday clients are also moving to the better installment loans, as well. The small-business and near-prime markets are also exploding because banks aren’t lending to these demographics.
The small-business loan arena is of particular interest. There are so many small businesses in desperate need of capital, and nobody is better at underwriting and risk assessment than ENVA. They’ve been analyzing the lowest level of borrower — the payday loan client — for over 10 years and know how to mitigate losses. These new loan products have more reliable clients, and ENVA will nail this sector.
The sub-$7 ENVA stock price is a joke. It’s an easy double next year, and again the year after.
As of this writing, Lawrence Meyers owned shares of AHT and ENVA.
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