PORTFOLIO STRATEGY // KEN FISHER
For 2016 stocks the only thing to fear is fear itself.
Folks commonly Fret over fears I simply don’t think will happen. Take Brexit. As you get this FORBES issue, the vote nears. Britain voting to exit the EU is very unlikely, shy of a last-minute major terrorist attack (heaven forbid). The polls move against it. So do the betting markets. Bet with the bettors? You bet—on things like this. The exit advocates are just venting, much like 2014’s Scottish independence referendum.
Fed hiking rates in June? Unlikely. Why? The Federal Open Market Committee (FOMC) meeting takes place more than a week before the Brexit vote. Fed heads won’t want an action entangled with that vote’s outcome.
What about their July 26–27 meeting? Similarly unlikely: They won’t want to seem reactive to the concurrent Democratic Convention. Sept. 20–21? Too close to the election—they won’t want to be seen impacting it, unless things look extreme (which they won’t). The Nov. 1–2 meeting? No chance. Maybe postelection—in December. There’s simply no urgency in today’s Fed world.
Why do folks Fed-fret so much? Simply said, as noted by Deutsche Bank, the five most hawkish FOMC members are doing more jaw-jacking this year than their quieter dovish counterparts. Relax and wait. The FOMC will.
Weak economy? Nope—the Leading Economic Index numbers almost everywhere, even China, keep evolving better than expected. LEIS for a country predict its economy, but scanning LEIS all over the world proves a greater guide to global economic direction. It’s benign.
Similarly, for reasons I’ll detail in coming months, I don’t fear Donald Trump or Hillary Clinton. Or impending higher U.S. bank capital requirements. Or Brazil’s endless corruption. Or Energy draining all our energy. My Fret-o-meter says 2016 is, as I explained in April, a year of falling uncertainty, which should progressively boost stocks. Here are five to own before others realize that progression.
On the high end of drugs buy Massachusetts-based BIOGEN (BIIB, 290). Reasonably priced relative to strong growth prospects at 13 times my 2016 earnings estimate, BIIB is big in multiple sclerosis and leukemia, and has a fast future in neurology and immunology. The stock lagged recently but, once it completes the spinoff of its hemophilia lines, should do well. Buy now.
Next: MEDTRONIC (MDT, 83), global health care’s big dog, the top tech firm in nondrug medical devices and therapies for dozens of chronic diseases. It’s a natural moderate growth firm— priced well at 16 times my April 2017 earnings estimate, with a 1.9% dividend yield. Critics bemoan its one-of-the-last-of-the-tax-inversions reality, but real reality is it’s a fine Minnesotabased firm.
LVMH MOET HENNESSY (LVMUY, 33) rings many of my bells: loads of leading luxury brands, superfat gross margins, moderate growth and reasonable valuations. Luxury almost always accelerates as expansions mature—and should now. LVMUY sells at one times annual revenue, 17 times my 2016 earnings estimate, with a 2.4% dividend.
In a tough, tough realm TAIWAN SEMICONDUCTOR (TSM, 25), the world’s top contract chip maker, grows, gains market share, maintains profitability and flabbergasts most—while remaining underappreciated among stocks. At 12 times my 2016 earnings it’s priced to get more favored fast.
It sounds boring, but buy MICROSOFT (MSFT, 52). I didn’t pick it for over a dozen years—until Feb. 11, 2013 at 27—which I think was the world’s first in-print prediction of former CEO Steve Ballmer’s demise. I picked it again last summer at 46! It rose almost 25% but has now pulled back. Buy the pullback for three reasons. First, old tech runs in waves in the back of bull markets doing well overall—and nothing represents old tech better than MSFT. Second, CEO Satya Nadella is strongly addressing needed cop-toit self-help via a shift to customer productivity orientation. Third, valuations are okay at 16 times my 2017 earnings estimate, with a 2.7% dividend yield. A solid pick in a surprisingly solid year.
A YEAR OF FALLING UNCERTAINTY SHOULD PROGRESSIVELY BOOST STOCKS