It’s mid-December, the holiday home stretch — the time for looking ahead to the next year in life, the economy and markets. And on CNBC’s FastMoney Halftime Report, it’s time for what might be called the preseason prediction period for the year-long contest among its trader commentators.
The official name for this competition is the Playbook Playoff, and for the noon show on Friday December 13, I was asked to serve as a sort of odds-maker to evaluate and rank the investment ideas of the eight contestants.
Their picks, and rules of the contest, can be found here. What follows are my observations on the stocks and exchange-traded funds revealed on Halftime Report, along with my ranking of the traders’ contest portfolios.
First, a comment on the picks collectively: In aggregate, these traders seem to think most of the trends at work in the 2013 rally will remain in place at least into the first part of next year: steady economic growth, leadership by technology, financial and cyclical stocks, with little apparent concern for much downside risk.
If these eight pros were a single investment committee, your 2014 portfolio would look like this:
Plus, you'd have a short bet on treasury bonds: 4.1%
This is hardly a well-balanced assortment. The average performance of the 24 picks year-to-date through Wednesday was a gain of about 57% — double what the S&P 500 gave us in 2013. Only two of the stocks were down on the year in ’13.
This represents a bet, implicitly, that the beneficiaries of upside momentum in 2013 will continue to be favored next year, that contrarian trades generally hold little appeal, that the economy will likely grow faster, bond yields will go higher and tech (especially) will continue to lead.
This all could be true, but it doesn’t often happen exactly that way.
Here are the players and their picks:
Pete Najarian, co-founder, Optionmonster.com:
KKR Financial Holdings LLC (KFN)
BP plc (BP)
Hewlett-Packard Co. (HPQ)
I like the contrarian attempt evident here. KFN, which holds high-yield debt and loans, is a misunderstood rising-rate play. It's hard to see BP as a high-octane mover. HPQ has had a great run but is cheap assuming cash flow stays roughly stable, and is being reoriented under CEO Meg Whitman.
Stephanie Link, chief investment strategist, TheStreet.com:
Eaton Corp (ETN)
Starwood Hotels (HOT)
This is a very defensible list of core names with strong, but well-known, positive fundamental drivers. Eaton is a good global-growth play. None in this list are unloved or particularly cheap.
Josh Brown, CEO, Ritholtz Wealth Management:
KraneShares CSI China Internet ETF (KWEB)
Guggenheim Solar ETF (TAN)
Financial Select SPDR ETF (XLF)
It's tough to stick with ETFs, given the rules will favor crazy single-stock lottery tickets. This has a bold, growthy mix, though. The China ‘Net story is already borderline nutty, but the ETF won’t directly reap any upside Alibaba pop.
Mike Murphy, CEO, Rosecliff Capital:
Micron Technology Inc. (MU)
Facebook Inc. (FB)
Genworth Financial Inc. (GNW)
Do his initials stand for “Mo-Mo”? He's betting on huge ’13 momentum winners to repeat; the average 2013 gain for these three is 137%. For Facebook to justify upside, it needs to become Google (GOOG) – fast. GNW is a very interesting long idea, even after its surge this year.
Jon "Dr. J" Najarian, co-founder of Optionmonster.com:
Intel Corp. (INTC)
Baker Hughes Inc. (BHI)
Broadcom Corp. (BRCM)
I respect the contrarian salvage instinct that runs through the Najarian bloodlines. Intel has been part of my Old Tech bull theme for a while, though its fundamental headwinds seem to be intensifying. BHI stock is having a serious gut check. Broadcom has to prove it can brave heavy secular pressures. I wish Najarian luck.
Stephen Weiss, managing partner, Short Hills Capital:
Citigroup Inc. (C)
Gilead Sciences Inc. (GILD)
ProShares Short 20+ year treasury ETF (TBF)
I don’t have strong arguments against any individual name here, though two of the three picks (C and TBF) are the same bet, really: a steeper yield curve and a better economy. GILD is an expensive darling, up 85% for the year, and has 23 analyst Buys with no Sells.
Joe Terranova, chief market strategist, Virtus Investment Partners:
Apple Inc. (AAPL)
Michael Kors Holdings Ltd. (KORS)
EOG Resources Inc. (EOG)
AAPL continues to make some sense for a variety of reasons, though its climb back above $550 has used up plenty of energy. KORS is in a fundamental sweet spot but I worry the market’s already paid up for it – its two-year chart looks exactly like Lululemon (LULU) from mid-2010 to mid-2012. EOG is intriguing as a natural-gas play.
Simon Baker, CEO Baker Asset Management:
Groupon Inc. (GRPN)
FedEx Corp. (FDX)
Himax Technologies Inc. (HIMX)
Tactically speaking for contest purposes, this mix is shrewd: A “show-me” name with momentum (GRPN), a macro-driven blue chip (FDX) and a wild-eyed, tasty “risk burger” (HIMX). HIMX seems to have perhaps gone ‘round the bend, but who knows? At least FDX will keep this portfolio from going to zero.
My final ranking, offered with the open admission that it is based on an “educated gut feel” more than a rigorous forecasting model, looks like this. Keep in mind that the preseason handicappers rarely get the final standings exactly right:
5. Dr. J