WASHINGTON, December 20, 2016 – We’ll likely be contributing short columns in this space in the time between now and New Year’s Eve. That’s primarily due to the fact that trading can be spotty and deceptively treacherous in the final two holiday-studded weeks of each current calendar year.
But, just like each year’s New Year’s Resolutions, investors need to look at re-juggling their portfolios for 2017, and more than ever this year. That’s because serious business and political changes are in the air as the new Trump Administration-designate begins to plan for a YUGE economic revival—you know, the one that was promised in 2009 but never delivered.
This means re-thinking current investments and planning to add some new ones that seem likely to take advantage of any new developments coming forth from the pro-capitalist, pro-working- and middle-class moving in and taking over official Washington in 2017.
To this end, let’s go right to today’s edition of our…
… to look at our preliminary list of Year-End Bounceback stocks.
To reiterate from earlier columns, our annual bounceback stock list tags stocks that were badly beaten down near the end of calendar year 2016 simply because they’d suffered losses in the current year, the better to take those effectively tax-loss sales to offset capital gains earned in portfolios in the same year.
Once this largely ritual but very really barrage of selling eases off, such beat-up stocks will often rise quite dramatically within the first two months of the New Year, if only because the selling pressure suddenly vanishes.
However, this phenomenon doesn’t apply to all stocks. We were routed this past fall, for example, in our too-large position in tiny Teekay Tankers (TNK), feeling it would rebound sooner than it did. But defensively, we were forced to sell it as a tax-loss sale, but also don’t consider it a 2017 bounceback candidate. That’s because the tanker business is not likely to have a robust revival, at least in the first half of 2017.
But the following list of stocks may prove more promising. However, keep this in mind: most bounceback stocks stay beaten down until after the first of the New Year. This year, however, the Prudent Man’s prime picks already seem to have hit the revival trail, a couple of them nearly a month early. While we usually end bounceback positions in the last couple days of the old year or the first 1-5 days of the New Year, we’re already in a few of these positions, which we’ll duly note in our list.
Therefore, should you choose to play the bounceback game, keep this in mind, as we’re charting our own actions here and not playing the investment advisor role when it comes to your portfolio.
With that in mind, here’s the first four stocks in our current bounceback list, in sector order:
American Electric Power (AEP) and FirstEnergy (FE). Although utility stocks are temporarily on the outs in a rising interest rate environment, these two are interesting. Both Ohio-based mega-utility companies are onetime coal-based and are now switching as quickly as possible to other fuels, courtesy of the amazingly coal-hostile Obama EPA. Potential rollbacks of EPA’s near dictatorial, global-warming climate change rules could give both companies’ coal phase backs at least a modest reprieve. Yet both are well on their way to becoming far less coal-dependent anyway. They both pay great dividends right now, which is a plus. AEP is probably in a bit better financial shape than FE. But both could provide short and even long-term bounces once Trump’s new energy policy—bound to be more productive than Obama’s—becomes clear.
U.S. Silica (symbol: SLCA). We’ve already established a half-position in this major miner-producer of industrial sand, most notably the sand used in fracking. Other specialty sands are produced as well, however, including high-grade silica that’s used in fiber (optical) cables. Smashed by the huge drop in oil prices, circa 2015-2016, SLCA is already bouncing back along with black gold. Assuming pricing remains strong, so should domestic drilling which should mean more sales and profits for SLCA. Fingers crossed. The stock has already made a decent move, but we think there’s more to be had and plan to add to this position on any significant pullback.
British Petroleum (BP). Yeah, BP. The major oils are boldly attempting to get back on the comeback trail right now, similar to the action in U.S. Silica above. After a couple of years of badly depressed crude oil prices due in a major way to Saudi Arabia’s damaging but ultimately failed overproduction geared toward crushing the American shale industry, prices appear to be rising again for this key commodity, and most analysts expect that price to peak between $50-60 bbl., more or less, at which price most American and international production could be nicely profitable once again. With stock prices badly damaged by the artificial oil glut, most major producers have cut back on exploration and have also sold off significant amounts of speculative properties and/or leases. From this now lean investment stance, any sustained move in oil prices at or above $50 bbl. should make these generally high dividend paying stocks a fine investment in 2017, assuming prices don’t tank once again for whatever reason. Which gets us specifically back to BP, which has a special kicker: In addition to becoming lean and mean like most of the rest of the oil majors, BP has finally liquidated the albatross that has held it back for roughly 6 years, namely the tens of billions of repentance/cleanup dollars the company has had to shell out to remediate the damage it caused in its horrendous Gulf Oil Spill disaster. BP has now essentially finished paying for its sins, and this disaster will no longer be a drain on earnings in 2017. We plan to start buying these shares today and averaging (hopefully) down on any dips.
That’s it for Tuesday. We’ll post the rest of this list tomorrow.