Keep Your Eyes On The Prize

11/30/2015


Helped by strength in blue-chip growth stocks, the Dow Industrials and S&P 500 Index are back within 3.5% of all-time highs. The Dow Transports, benefiting from a potential merger in the railroad group, closed slightly above their October high.

While it's become difficult to unearth attractively valued growers in some segments of the market, we're finding enough fresh ideas to maintain reasonably diversified portfolios. For now, with the primary trend more bullish than bearish, we're keeping 81% to 84% of our buy lists in stocks.

Timely picks in top sectors

Year-end performance-chasing is likely, and we would not be surprised to see this year's favorites melt higher as the year winds down. But chasing one-month winners is a tough way to make a living — even in December.

Rather than trying to maximize your 2015 returns, you should do what works in the other 11 months of the year. For our money, that generally means focusing on the best 12-month picks as identified by our Quadrix rating system and individual company analysis.

Even more than usual, Quadrix is favoring consumer-discretionary and financial stocks for the year ahead. While several apparel retailers delivered poor October-quarter results, fundamentals for such consumer-dependent companies as Apple ($119; AAPL), Lear ($125; LEA), and Southwest Airlines ($46; LUV) are outstanding. All three earn Overall Quadrix scores of at least 99, with Value scores above 75.

Among financials, real estate concerns CBRE ($37; CBG) and Jones Lang LaSalle ($166; JLL) offer robust operating momentum, solid year-ahead prospects for profit growth, and reasonable valuations. Both earn Overall scores of at least 94, with Value scores of at least 62. In the banking group, discount valuations are the main appeal of J.P. Morgan Chase ($67; JPM) and Wells Fargo ($55; WFC) — though both seem capable of exceeding modest profit-growth expectations for 2016.

We're also finding attractive names in health care and technology. Centene ($57; CNC) and Gilead Sciences ($107; GILD), with Overall scores of at least 97 and Value scores of at least 77, represent top health-care picks. Technology standouts include CDW ($44; CDW) and Jabil Circuit ($25; JBL).

We don't want our buy lists dominated by one or two sectors, so we're paying extra attention to potential buys outside of consumer, financial, health, and tech. But we're not going to depart from our growth-at-a-good-price approach for the sake of diversification. Until more stocks in the consumer-staples, energy, industrials, materials, telecom, or utility sectors qualify as Buys, we may hold an above-normal cash position.


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