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Looking Ahead: Six Investing Ideas for 2016

11 January 2016 in Trading Ideas

Key Takeaways

For many investors, the end of the year brings the inevitable question of whether and how to rotate your portfolio. Should you stick with last year’s winners? Or are you inclined to bet that 2015’s underperforming sectors are bound to bounce back?

The energy sector presents just such a quandary. At the end of last week, it was down 22%, as measured by Standard & Poor’s — and that’s after a 10% drop in 2014.1

However, with crude prices hitting a 52-week low just 10 days ago, are you certain we’ve hit bottom?

As we turn the page on another investing year, it might benefit traders to consider which financial markets and sectors are growing, and which appear to have seen their better days.

Here are six investing opportunities you could be hearing more about next year:

Got glut?

Speaking of the energy sector, natural gas prices have gone from bad to worse. Earlier this month, natural gas fell to a 16-year-low as investors fear that warm weather and heavy supply could keep prices flatlining well into next year.2

According to a recent Wall Street Journal article, a historically strong El Niño weather phenomenon has sharply limited demand for heating fuel this year just as rampant production had pushed stockpiles to an all-time high.

Some experts believe the gas industry could double its storage surplus over the winter compared with a year ago, ending March with about 2.3 trillion cubic feet of gas in storage.

The Natural Gas Glut motif, a portfolio of stocks of companies that could benefit from low gas prices, has gained 2.7% in the last 12 months.

Balanced Attack

The past year wasn’t particularly robust for equities, and next year may offer up more of the same. Investment bank Goldman Sachs recently said it expected the S&P 500 to likely “tread water” in 2016.3

In what may be a rising interest rate environment after the Federal Reserve’s first rate hike in nine years, Goldman advised equity investors to consider companies with strong balance sheets as likely candidates to outperform those with weak ones.

With the US starting to tighten rates as Europe and Japan weaken them, a subsequently stronger dollar could help mega-cap stocks with high sales in the US beat those with significant international sales.

The Bullet-Proof Balance Sheets motif has gained 8.7% in the past 12 months. The motif has a 22% weighting in shares of Alphabet Inc (NASDAQ:GOOGL), which has about $18 billion of cash and cash equivalents as of Sept. 30, against about $5.2 billion of debt. In its most recent quarter, the company threw off $3.6 billion of free cash.4

Stay Connected

As we head toward Peak Connectivity, our time spent in automobiles may be the next great frontier.

In 2016, the worldwide market potential for the connected car industry is estimated to be worth $43.7 billion, according to PriceWaterhouseCoopers. As the Street.com noted recently, that’s an impressive figure for a technology yet to be adopted on a large scale, yet it’s just a small part of the auto industry as a whole.5

The future seems promising: PwC estimates the industry will grow to just over $122 billion by 2021. All large auto companies are investing heavily in research and development, and an untold amount of start-ups are also entering the fold to innovate.

Investors in those companies may stand to benefit. The Connected Car motif has gained 2.9% in the last 12 months.

Tough Defense

China’s surge as a global presence hasn’t been without concern about perceptions of the country’s aggressive military behavior – China asserts sovereignty over 80% of the South China Sea, for example – and that could mean long-term prospects are healthy for defense companies.6

Already, China’s behavior has triggered an underwater arms race: Japan, South Korea, Vietnam, and even Indonesia are shopping for submarines, Barron’s recently noted.

In the face of both Chinese and Russian aggression—and against the backdrop of an emerging Putin-Xi axis—the 2016 presidential campaign will certainly feature repeated calls for building more ships, more submarines, more planes, and more elaborate air, missile, and cyber defense systems. Investors may want to follow the fundamentals of publicly traded companies involved in this potential construction boom.

The Modern Warfare motif has gained 14.4% in the past 12 months.

Cashed Out

US citizens are increasingly shunning paper money to pay for goods and services. Last year, a study by Bankrate found that 40% of American consumers carried less than $20 in cash on a regular basis. About 9% of those surveyed said they didn’t carry cash at all.7

According to the Federal Reserve, cash still accounts for 40% of all US transactions but only 14% of the value of total payments. Meanwhile, debit and credit cards account for about 42% of all transactions and 34% of the value of total payments.

Now there’s a new crop of mobile and electronic payment methods—Apple Inc.’s (NASDAQ:AAPL) Apple Pay, Google Wallet, Venmo, PayPal, and more. About 14% of US households have linked their credit cards to Apple Pay, and there are more than 173 million active PayPal accounts.

Earlier this month, Apple Pay announced a deal to bring its wireless payment system to China as soon as early 2016.8

The Digital Dollars motif has increased 11.1% in the past 12 months.

Ratcheting Rates

It finally happened – the Fed raised its benchmark, ending its seven-year experiment with near-zero interest rates while emphasizing that future hikes are to come gradually over the next three years.

But come they likely will: New projections show officials expect the fed-funds rate to creep up to 1.375% by the end of 2016, according to the median projection of 17 officials, to 2.375% by the end of 2017 and 3.25% in three years.9

That implies four quarter-percentage-point interest rate increases next year, four the next and three or four the following. All of this, of course, depends on whether the Fed’s forecasts for the economy—which the Wall Street Journal noted have frequently been wrong in this expansion—hold up.

The Rising Interest Rates motif, a portfolio of stocks of companies that could benefit in a rising-rate environment, has gained 8.8% in the past 12 months.

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  1. Vito J. Racanelli, “Looking for 2016 Winners,” barrons.com, Dec. 26, 2015.
  2. Timothy Puko, “Natural Gas Falls to 16-Year-Low on Healthy Supply,” wsj.com, Dec. 15, 2015.
  3. Laurie Kulikowski, “Goldman Sachs Says These 35 Stocks Will Outperform in 2016,” thestreet.com, Nov. 29, 2015, http://www.thestreet.com/story/13377776/1/goldman-sachs-says-these-35-stocks-will-outperform-in-2016.html, (accessed Dec. 27, 2015).
  4. Lawrence C. Strauss, “Outlook Dims for Dividend Growth,” barrons.com, Dec. 26, 2015.
  5. William Craig, “Investing in the Future of the Auto Industry: The Connected Car,” thestreet.com, Dec. 22, 2015, http://www.thestreet.com/story/13405393/1/investing-in-the-future-of-the-auto-industry-the-connected-car.html, (accessed Dec. 27, 2015).
  6. Peter Navarro, “China’s Military: What It Means for Markets,” barrons.com, Dec. 26, 2015.
  7. Yahoo Finance, “From Apple Pay and Google Wallet to bitcoin: the end of cash, yahoo.com, Dec. 7, 2015, http://finance.yahoo.com/news/from-apple-pay-and-google-wallet-to-bitcoin–the-end-of-cash-165532723.html, (accessed Dec. 27, 2015).
  8. Peter Navarro, “China’s Military: What It Means for Markets,” barrons.com, Dec. 26, 2015.
  9. Rich McCormick, “Apple Pay is coming to China in 2016,” theverge.com, Dec. 17, 2015, http://www.theverge.com/2015/12/17/10471128/apple-pay-china-2016-launch, (accessed Dec. 27, 2015).
  10. Jon Hilsenrath and Ben Leubsdorf, “Fed Raises Rates After Seven Years Near Zero, Expects ‘Gradual’ Tightening Path, wsj.com, Dec. 16, 2015.
  1. Karan
    29 Jan at 5:58 pm

    Often hear Hardeep Walia on CNBC. Any plans to make Motif investing available to Canadians ? Thanks.

    • Timothy Hemsworth
      2 Feb at 7:25 am

      Hi Karen, we are always working hard to improve our company’s products and availability. We can open an account for Canadians living in the US today, and hope to be able to for Canadian residents in the future.

  2. Kenny
    30 Apr at 11:24 pm

    Do you have any plans to setup selection of a Motif under a Dollar Cost Averaging methodology where a single instruction is provided to buy the Dogs of Dow Motif for example for $1000 and do that buying every month on the 28th or 25th or 1st? It would be great to add this capability since you buy fractional shares, do Dividend Reinvesting, and now just need to add D.C.A. Thanks.


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