Investing Trends for 2015

12/12/2014 10:00 am EST

Focus: STOCKS

In the yearend cover story for Kiplinger's Personal Finance, Anne Kates Smith highlights the top investment trends for 2015, along with the stocks best positioned to benefit from falling oil prices, a strong US dollar, and ongoing strength in the healthcare sector.

Steven Halpern: Joining us today is Anne Kates Smith, contributing writer for Kiplinger’s Personal Finance.  How are you doing today, Anne?

Anne Kates Smith:  I’m great.  Thank you.

Steven Halpern:  Well, thank you for joining us.  You just wrote the yearend cover story for Kiplinger’s focusing on where to invest in 2015 and you note that—looking ahead—we should see a year of adjustments but ultimately a year that will reward investors.  Could you expand on that?

Anne Kates Smith:  Yeah, we’re looking for another good year in 2015.  Maybe not a great year, but still a good year.  We think the market might be a little more volatile this year than last year; but, that said, we see lots of opportunities.  

The US economy is growing nicely.  There are bargains overseas where the economies aren’t so hot; and, there are a lot of themes that support a strong stock market in 2015.

Steven Halpern: Now, you note that several of the market’s current themes can be viewed as double edge swords.  How do you see both the winners and the losers based on the decline in oil?

Anne Kates Smith: Yes, that’s part of the whole adjustment process.  There are a lot of themes in the market today, but they’re all two-sided, so you have to make sure you’re on the right side of them.  With oil prices having fallen so dramatically, that’s great news for the economy.  

It’s great news for stocks that have to pay for oil.  Just like consumers are saving at the gas pumps, a lot of companies are saving too and, of course, the obvious candidates are transportation companies, airlines in particular.  

We recommended Delta Air Lines (DAL), JetBlue (JBLU), United Parcel Service (UPS), companies that use crude oil in their production process; paint makers, companies that make varnishes, paints, stains, stuff like that; PPG Industries (PPG) is one that’s recommended, The Valspar Corp. (VAL) is another, and Berry Plastics (BERY).  

Then, consumers who are saving so much money at the gas pump feel like they’ve just gotten a tax cut.  They have more money in their pocket because they’re not spending it on gasoline.  

Some of those people will go shopping with the money, especially lower to middle income consumers who feel the difference more acutely for not having to spend so much on energy costs; so, companies that benefit from that target market will do well: Costco Wholesale (COST), Wal-Mart (WMT), Dollar General (DG), Burlington Stores (BURL), companies like that.

Steven Halpern: Now, in a similar situation, you also point out that the strong dollar could be viewed as a double edge sword with some winners and losers. Could you explain your outlook there?

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Anne Kates Smith: Correct.  Well, the strong dollar hurts exporters because their goods become more expensive overseas.  That might be bad news for a lot of multinational companies, for instance.  A strong dollar typically favors domestic producers.  Often, small stocks are in that area, small company stocks.  

Now, they had a great run for many years, and they’re often not the best performers in the later stages of the bull market, and that’s part of this double-edged thing.  Normally, at this stage in a bull market, you’d shy away from small stocks, but the stronger dollar is really something in their favor; so, it might be worth looking at a couple of those.

Steven Halpern: Are there any specific names that stand out?

Anne Kates Smith: We did recommend several in our yearend outlook.  I’m sorry.  Let me just give you a couple of the domestic revenue focused stocks. CVS Health (CVS) is one of them.  That’s a great company that’s got a lot in its favor but also garners 100% of its revenues in the US.  United Healthcare (UNH) is another one.  

Then, in the small stock area, we mentioned Agile Therapeutics (AGRX) produces a promising contraceptive patch.  Krispy Kreme Doughnuts (KKD) is another one.  

Mueller Water Products (MWA) is benefitting from an uptick in municipal water projects.  Regal Entertainment (RGC) is another one, the big movie chain. Those are all in the small company area.

Steven Halpern: Now, finally, in your research, you suggested that healthcare, which was a winner in 2014, should continue to do well in 2015.  Are there any investment opportunities you see in the healthcare sector?

Anne Kates Smith:  You know, healthcare has been a strong theme throughout this entire bull market and I have talked to people who see it continuing to be a strong theme for years to come, much like technology was through the 1990s. Gilead Sciences (GILD) is a biotech giant that’s done very well lately.  It’s got a really promising hepatitis C drug.

For mutual fund investors, you can’t do much better than Vanguard Healthcare Fund (VGHCX).  That’s a terrific fund with low expenses that we like a lot.  If you want to take a broad-based bet on biotech, iShares NASDAQ Biotechnology ETF (IBB), and Fidelity Select Healthcare (FSPHX) is another one.  

Steven Halpern: Great.  We really appreciate you taking the time today.  Thank you so much for joining us.

Anne Kates Smith: Oh, sure.  My pleasure.  

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