This weekend’s Barron cover story has some interesting facts about their Top 10 Stock Picks for 2015 and the resulting performance. The article is below for your enjoyment. Note how much the growth part of the market is out-performing the value segment this year. Also, the average loss on their best ideas list was about 6% thus far year to date. The key takeaway in our opinion is just how much the averages are being pushed by a handful of momentum stocks while the rest of the market lags. That is hard to sustain, and in our view, there will be a period of outperformance ahead for the so-called “penny pinching” stocks.
In the year of the FANG stocks, we got bitten. Dot-com heavyweights Facebook (ticker: FB), Amazon.com (AMZN), Netflix (NFLX), and Google, which changed its name to Alphabet (GOOGL) in August, delivered blowout gains in 2015 of 34%, 115%, 160%, and 45%, respectively. Among these, we picked only Alphabet a year ago as one of our best bets. Mostly, we passed up momentum stocks in favor of humbly priced ones. It has been a bad year for penny-pinchers:U.S. growth stocks have outperformed value ones by nearly 10 percentage points year to date, according to data from Standard & Poor’s. Our 2015 picks have lost an average of 6% since publication, versus a 2% loss for the Standard & Poor’s 500 index. Half of our stocks outperformed, including Gilead Sciences (GILD), Royal Caribbean Cruises (RCL), and Boeing (BA). But our stinkers stunk more than our stars shined (see table below). Engineer Fluor (FLR) slipped on falling oil investment. Macy’s (M) led a wrong-way parade by department stores. And Micron Technology (MU), a memory-chip maker we’d rather forget, proved that even oligopolies can look crowded when end markets turn weak. In 2016, we expect that the broad U.S. stock market will fare better, if not shine. The S&P 500 looks fully priced at 17.5 times projected 2015 earnings, and, during the past two quarters, earnings declined slightly versus a year earlier. But that is due to a crash in oil profits. Excluding energy, earnings are rising at a 5% clip. Assuming similar growth next year, with a steady price/earnings ratio and 2% in dividends, stock investors could end up with a total return in the high-single digits.