5 Mega Stocks Poised to Deliver Mega Returns in 2017
With 2016 coming to an end, investors and analysts are evaluating the year that was and looking at the prospects in the year to come. While 2016 began on a relatively weak note, the third quarter saw a marked recovery in the economy, which pushed markets to new thresholds. However, the Dow Jones Industrial Average still remains shy of the 20,000 mark even after coming close several times this month, probably due to lower trading in the holiday season.
The numbers were strong in the last few months as evident from encouraging third quarter earnings and employment rate. The strength of the economy also prompted the Fed to finally raise the interest rates by 25 basis points to 0.5%−0.75%. Markets performed particularly well on the election of Donald Trump as the next U.S president.
Trump’s pro-growth policies, including prospective tax rate cuts, infrastructure spending and regulatory rollbacks have boosted investor sentiment. Lately, oil prices have also been on the rise. The decision of OPEC members and several non-OPEC nations to cut back production resulted in the upward movement. Finally, the dollar also strengthened significantly to touch a 14-year high this month.
However, as we look forward to 2017, mixed opinions regarding the markets prevail. While the economy is expected to continue this bull run, several uncertainties lie ahead.
Will Trump Administration Deliver the Goods?
The market has been reacting favorably based on the expectations from the Trump administration. However, the ability of the government to deliver on its promises is yet to be seen. Investors are extremely optimistic of Trump’s policies supporting growth in the economy and providing benefits to companies.
A lot of positive sentiment has also been reflected in stock prices, which limit the potential upside. If the policies fall short of expectations, market trends could be in for a reversal.
The Fed’s Decisions in 2017
The decision of the Fed to raise the interest rate in the December meeting was largely expected. However, investors are skeptical on the number of hikes in 2017. Fed officials have hinted at three hikes next year, which could significantly impact the market.
A rise in interest rates would make it more expensive for companies to borrow funds, particularly impacting those with high levels of debt. Moreover, higher interest rates would also further strengthen the dollar, which has an adverse impact on the sales of companies focused on exports.
The Future of Eurozone
One of the biggest surprises of 2016 was the vote in favor of Brexit. With UK’s exit from the European Union expected to begin in March, the Eurozone faces a disintegration risk. The Brexit vote and talks of multiple referendums have increased uncertainties related to the future existence of the economic group of countries.
The probability of the exit of other member nations such as France and Netherlands has also increased. Uncertainty regarding the Eurozone remains, which further increases the risk of companies exposed to it.
Key Picks
Given the uncertainties that are likely to prevail in the global markets in 2017, we believe that large-cap stocks will be the safest bet to beat the odds. Large-cap stocks are an ideal investment option for investors looking for performance stability that comes with lower risk than small-cap and mid-cap stocks.
By virtue of their dominant market position, global footprint and relatively consistent cash flow stream, these companies tend to be more reliable investments. We have zeroed in on stocks with a market cap of greater than $50 billion.
Further, to narrow our search, we have chosen stocks that have performed well year to date. This year the markets were in for some surprises. We believe the ability of these stocks to perform well under unexpected circumstances may also help them to ride out the uncertainties next year.
Finally, the stocks have a PE ratio of less than 20. Stocks with a low PE value are great picks as it implies that the stock is currently trading at a price less than its intrinsic value. A Zacks Rank #1 (Strong Buy) or #2 (Buy) further underscores the stock’s strength. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here we have short-listed five such large cap stocks:
Broadcom Limited AVGO is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. The company, based in Singapore, has a market cap of almost $72.7 billion. The company has provided a return of 25.6% this year and has a PE of 15.07. The stock also sports a Zacks Rank #1.
The Goldman Sachs Group, Inc. GS, headquartered in New York, is a global investment banking and securities firm, providing a number of financial services. The company has a market cap of around $96 billion. The company has provided a return of 34% this year and has a PE of 15.41. The stock also carries a Zacks Rank #1.
General Dynamics Corporation’s GD primarily focuses on shipbuilding and marine systems, business aviation and information systems. The company, based in Falls Church, VA, has a market cap of around $53.2 billion. The company has provided a return of 27.1% this year and has a PE of 17.83. The stock holds a Zacks Rank #2.
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BASF SE BASFY is the world's largest chemical company, with a portfolio ranging from chemicals, plastics, performance products and agricultural products to oil and gas. The company, based in Germany, has a market cap of around $84.2 billion. The company has provided a return of 20.7% this year and has a PE of 17.25. The stock sports a Zacks Rank #1.
Morgan Stanley MS is a preeminent global financial services firm. The company, based in New York, has a market cap of around $80.8 billion. The company has provided a return of 35.6% this year and has a PE of 15.79. The stock sports a Zacks Rank #1.
Where Do Zacks' Investment Ideas Come From?
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GENL DYNAMICS (GD): Free Stock Analysis Report
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GOLDMAN SACHS (GS): Free Stock Analysis Report
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