WASHINGTON, Jan. 3, 2016 – Here’s our final list of 2016 bounce-back stocks—investments we believe have a better than even chance of a good pop in early 2016 since most endured generally unjustified mass-selling at the end of 2015. Again, we emphasize that nothing in our bounce-back lists is “guaranteed,” as most investors learned once again last year if they had any skin at all in the Wall Street game.
Today’s candidates, which we offer a day before the start of trading in the New Year, include a trio of beaten down “asset management companies,” sometimes dubbed “vulture capitalists”; one tech spec; one agriculture spec; and a half-dozen issues that provide good income (dividends) in the longer term, but may have a capital gain-style pop within the next 60 days of trading.
Best advice, as is true for all bounce back candidate stocks, is to pick them up on a down day and not chase them.
Asset management companies: Blackstone Group, Carlyle Group, and KKR & Co.
These three large and generally successful and profitable asset management companies proved far from successful in 2015. All three companies—Blackstone (symbol: BX), Carlyle (CG), and KKR (KKR) ran into some bad luck (and investments) in 2015, as did a likely majority of seasoned professional investors and hedge funds. Reasons varied for all three companies’ failure to thrive, at least in the earnings sense. But you can fairly attribute the negatives to the simple fact that no rational investing strategy whatsoever worked consistently last year.
2016 may very well offer more of the same. However, each of these three companies seem to have pared their mistakes from their investment portfolios and look to do reasonably well this year, even if 2016 marks a continuation of last year’s aimless-to-negative churning.
Meanwhile, the best thing of all that these companies have to offer the retail investor is marked-down shares of stock that carry considerably above-average yields—although the yields for each can vary considerably by quarter. The current annual dividend for BX is nearly 10 percent per share; CG currently offers approximately 22 percent per share; and KKR comes in yielding a bit over 10 percent a share.
Again, dividends in these types of companies can vary considerably. So, as auto fuel efficiency estimators are fond of saying, “Your mileage may vary.” That said, the high dividends here and the generally high level of expertise each company’s management team has demonstrated makes all three at least a decent bet for a bounce, with decent dividends likely Wile-U-Wait.
For our local DC readers, BTW, CG is HQ’d right here in town, and company founder and co-CEO David Rubenstein has for many years been a generous contributor to the Kennedy Center and the DC arts scene. Does that have anything to do with our listing of CG? No. But we thought you might like to know.
Tech Spec: Micron Technology
HQ’d in Boise, Idaho of all places, longtime memory manufacturer Micron Technology (MU) spent most of its 2015 trading days getting hammered, largely due to the slowly fading profitability of now-commoditized memory chips. Nonetheless, the company has been ramping up its presence in the area of solid state virtual disc drives, which, unlike those memory chips, is an area that’s getting hotter and hotter. Plus, MU might be a takeover candidate in 2016, making it more attractive at its current low levels.
MU is just one of these durable stocks that hit a really bad patch in 2015, reminding us of the title of a 1960s-era Broadway show: “Been Down So Long It Looks Like Up to Me.” No dividend here. But maybe a decent pop, particularly if those takeover rumors prove true early in 2016.
Agriculture: Looking at that MOO cow…
Very simple story here. The well-structured Market Vectors Agribusiness ETF, whose clever symbol really is “MOO,” tracks agribusiness, which, of course, was absolutely lousy in 2015 along with pretty much anything that had to do with commodities.
MOO consists of a passively managed basket of stocks that tracks its parent company’s Global Agribusiness Index, which range from seed and chemical manufacturers like Monsanto and Syngenta AG (MON and SYT), to animal biopharma company Zoetis (ZTR), to tractor manufacturer John Deere & Co. (DE), to chicken producer and packaging giant Tyson Foods (TSN), etc.
The potential bounce-back play here is simple. Having been beaten down and sold as a loser in 2015, MOO’s components could very well stage a comeback precisely because manufacturing and farming costs are largely down for 2016, given the tremendous drop in fuel prices. MOO has an excellent track record according to Morningstar, and it is looking oversold here.
Let’s not forget those telcos and financials…
What used to be called traditional telephone companies are increasingly doing it all these days. Still essentially utilities, they’re not big growth candidates. But they are highly involved, for the most part, in broadband and data for the most part. And, best yet, they were also beaten to a pulp in 2015, leading them with high yields that, assuming flat to half-decent quarterly numbers in 2016, could make them quite desirable for yield-hunters and those looking for a little piece in their portfolios.
Candidates include the old “Baby Bells”: AT&T (T), Verizon (VZ), and CenturyLink (CTL), which digested the old Qwest a few years back). Others include high-yielding British telco and former Verizon partner Vodaphone (VOD) and a somewhat more speculative but high-yielding rural telco and broadband provider, Frontier (FTR).
Of all these, FTR is the most speculative, but also offers, currently at least, the best yield. AT&T, on the other hand, has already begun a nice upward move, and may have a little less juice left in it than the others. But then, after 2015, who knows. The game here once again, as with those asset-management companies, is to collect those high dividends that are a hallmark of this kind of stock while waiting for that bounce.
Regarding financials, many banks, particularly regionals, are decent bounce-back candidates for 2016. But so are insurance giants, including dividend aristocrat Old Republic (ORI) with its 4 percent annual yield. It has stabilized in recent weeks and looks like it wants to go up in 2016.
That wraps up our series on 2016 stock bounce-back candidates, our annual list of oversold stocks that could bounce up nicely if January 2016 turns out to be half-decent, which, of course, nobody knows. The advantage of many of these 2016 candidates is their currently high dividends. We’ll pick and choose, and time will tell.
Full disclosure: This columnist currently has holdings in Blackstone, Carlyle, AT&T and Old Republic.