YOUR 2016 PORT­FO­LIO PLAY­BOOK

Forbes - - Investing -

My 2016 Mar­ket views and pre­scribed po­si­tion­ing: mod­er­ate bullish­ness! I’m over­weight­ing Amer­ica but also north­west­ern Europe, South Korea and In­dia, and I’m un­der­weight­ing else­where, most heav­ily Ja­pan, Canada and Aus­tralia.

I’m over­weight health care (pri­mar­ily drugs) and to lesser de­grees tech, con­sumer dis­cre­tionary and fnan­cials (mainly banks). I’m un­der­weight­ing sta­ples and to greater de­grees tele­com, util­i­ties, en­ergy, in­dus­tri­als and ma­te­ri­als.

I’ll de­tail my sub­set rea­son­ing over the next few is­sues, but re­gard­less, I’ve never been an all-or-noth­ing cat­e­gory gam­bler—i’m al­ways global and al­ways own some of any ma­jor eq­uity group I ex­pect to lag, lest my macro views are back­wards, in which case I’d get slaugh­tered.

I sug­gest that for you, too, un­less you think you’re aw­fully clever (and likely are pretty ar­ro­gant). It’s more im­por­tant to get eq­uity-like re­turns in a bull mar­ket than to try to beat the mar­ket by a mile at the risk of get­ting wiped out. Over­conf­dence is a proven mar­ket killer.

So are con­sen­sus views that ex­pect ris­ing long rates and a more ac­tive Fed than will likely evolve. In our glob­ally com­pet­i­tive bond world it’s tough for rates to rise much while the brain-dead Euro­pean Cen­tral Bank spews

isn’t cheap but at 30 is about half the trail­ing P/E it sported when I last rec­om­mended it on Apr. 15, 2013—at 50% of to­day’s price. It’s been a pretty smooth ride and likely will be in 2016. As the world’s dom­i­nant elec­tronic-pay­ments frm it’s more a tech play than its of­cial “fnan­cial ser­vices” des­ig­na­tion. As peers strug­gle, Visa dons a halo out­shin­ing most ma­jor U.S. frms. I bet that halo bright­ens as long as this bull mar­ket does.

has slid largely side­ways since 2013, but 2016 should be its year. Why? Growth has closed the val­u­a­tion gap it sufered against smaller, less di­ver­sifed brethren. It fnally en­joys mul­ti­ples at or be­low those of many of the phar­ma­ceu­ti­cal stocks I’ve used in re­cent years—hence a 2.9% div­i­dend yield and a likely 2016 P/E of 16.

The U.K. of­ten pro­vides sneak pre­views of U.S. fnan­cial phe­nom­ena (and vice versa). Both op­er­ate more sim­i­larly than ei­ther ever fath­oms. To me the end­ing of Bri­tain’s “stronger bank bal­ance sheets at any cost” pol­icy fore­tells a sim­i­lar loos­en­ing of Amer­i­can loan-growth con­straint—and in­creased earn­ings. Hence

should pos­i­tively sur­prise, end­ing its side­ways wig­gles. It’s our over­all best-pos­tured big re­tail bank yet sells at 11 times my 2016 es­ti­mate.

Ev­ery­one knows brick-and-mor­tar re­tail­ers sufer from on­line vam­pires. Not so for the turf dom­i­nated by Think of the prod­uct, cus­tomer and, as im­por­tant, in-store “fgurin’ ” time. The more time folks aren’t in other stores the more they have for HD. It isn’t cheap at 22 times my Jan­uary 2017 earn­ings es­ti­mate, but as a clas­sic later-stage bull mar­ket win­ner, it shouldn’t be.

Since I’m bi­ased to­ward drug stocks, add to U.S. hold­ings with a for­eign stock like France’s

a global leader in vac­cines, a growth mar­ket in less de­vel­oped na­tions. It’s also strong in on­col­ogy, diabetes and car­dio­vas­cu­lar drugs. It sells at 19 times my 2016 earn­ings es­ti­mate with a 3.9% div­i­dend yield.

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