5 Stocks to Watch in 2016

5 Stocks to Watch in 2016

The Market Today

My Personal Forecast for 2016

One of my favorite ways to find leading stocks is to look at the list of stocks hitting new highs, to see if there are any new names popping up. So in preparation for 2016, I took a look at the stocks that were hitting new highs on the NYSE late last week, and found these five interesting stocks.

Carnival Corporation (CCL) is well known; with $16 billion in revenue, it’s the biggest cruise ship operator in the world. The company is benefiting from low oil prices, increased leisure time of Americans (and others) and a perception that there are great growth opportunities in the Chinese market. CCL pays a dividend of 2.2%.

Emergent Biosystems (EBS) focuses on drugs that protect against bioterrorism risks, including Anthrax, Botulism, Ebola and Hepatitis B. With expected revenues of $530 million this year, it’s a decent-sized company, with plenty of growth potential, as people (mainly the U.S. government) pay up for safety. 82% of revenues come from the Department of Health and Human Services.

Kroger (KR) Old Kroger, founded in 1883, is strong, while high-priced newcomer Whole Foods (WFM) is in the tank. Why? Because Kroger-with more than 3,000 stores in 34 states and revenues of $109 billion-provides great value for today’s grocery shopper. KR pays a dividend of 1.0%.

Steris (STE) is a leading provider of sterilizing equipment and services to a wide variety of institutions in the health care and life sciences industry, and that’s a specialty you can bet will continue to see great demand worldwide. With revenues of $1.9 billion, there’s plenty of room for growth. STE pays a dividend of 1.3%.

Sovran Self Storage (SSS) is a real estate investment trust, and thus not ideal for all accounts. But with revenues of $357 million, it has great growth potential. And it pays a dividend of 3.1%.

(Note: I just added a faster-growing and higher-yielding self-storage REIT to my Cabot Stock of the Month portfolio-you can get its name by clicking here.)

Summary:

What I like about all these companies, aside from the fact that their stocks were hitting new highs last week, is the fact that they are all in businesses that serve mass markets. Thus the industries they serve are almost guaranteed to be larger years from now, so if managers play their cards right, these companies are almost guaranteed to be larger as well. Of course, that doesn’t mean their stocks will be higher; any stock can go through a multi-year slump if industry P/Es contract or management embarks on an investing spree. But overall, I like the trends I see, so these are five of the many stocks I’ll be keeping an eye on in 2016.

The Market Today

The market sold off today, and what does that mean? Next to nothing. Any data point by itself is almost irrelevant. Far more important are the longer-term trends-and the longer they are, the more important they are. So let’s consider a few of these trends.

The Medium-Term Trend of the market is up. The late August selloff brought a quick bottom, and the recovery since-at least by the major indexes-has been impressive.

The Longer-Term Trend of the market is sideways. As every market observer has told you in recent days, the market made no real progress in 2015, though there was plenty of movement day-to-day.

The Longest-Term Trend of the market is up. This is the trend I see when I look at any chart that spans decades, even centuries. These charts show that markets, in general, reflect the economic value of our society. So, as long as our society continues to create value, markets-in general-will continue to trend up. And that’s why investing in the market is such a great idea, particularly if you have a long term horizon.

My Personal Forecast for 2016

Later this year, I will mark my 30th year in the business of providing investment advice on a full-time basis. (In the 15 years before that, my involvement in the business was an on-and-off part-time occupation, as frequently happens in family businesses.) So, while our official position is that we don’t like to predict what the market will do, I do feel an urge to provide some predictions about the business of investing as a whole.

1. Surprises will happen frequently.

2. Experienced investors will continue to diversify, remembering #1.

3. Beginning investors will continue to invest without a plan, frequently buying high and selling low.

4. China will continue to lead the world in growth.

5. We will elect a new president, but most aspects of our federal government will remain unchanged.

6. Great growth stocks will continue to outperform the herd of mediocre stocks, rewarding investors who are paying attention.

For ongoing, specific guidance on investing in some of these great growth stocks, your best resource is our original advisory service, Cabot Growth Investor, which is currently holding a portfolio of some of the top-performing stocks of 2015.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

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