January began with unsettling news and trends in global markets. A sell-off that crossed stocks of nearly every type came on the heels of dramatic falls in the China stock markets. A sell-off wave moved across Asia, to Europe and the US markets. In short periods, the S&P fell 4.9 percent; the Dow fell 2.3 percent, and the NASDAQ index fell 3.2 percent.
China’s Internal Problems and Trade
The underlying weakness in the China markets relates to its currency as much to the dynamics of the stock markets. A weaker Renminbi or Yuan favors increased exports that are sill an important economic driver for the China economy. Seen as a difficult beginning to the year, most experts believe the fundamentals of the US economy are sound and that the China markets will not pose a long-term threat to stocks elsewhere. In the past year, China’s Government and Central Bank intervention has not proven effective at managing values and avoiding extreme stock market volatility in China. The selection of the Renminbi as a global reserve currency may also provide added impetus for government intervention in the markets.
Solid Large Cap stocks for 2016
The hallmarks of the following selections are long-term growth potentials. The underlying dynamics suggest a positive direction rather than a trend or short term impetus. In offering comments on stock choices for 2016, we do not guarantee the results of any investment. Stocks can gain or lose, and investors trade at their risk; investors in stocks, bonds or mutual funds can lose investment amounts including principal.
• Southwest Airlines Co (NYSE: LUV) will benefit from the further crash of global oil prices as world events suggest a protracted drain on oil prices as producers refuse to cut and the world glut continues. The Southwest position as the leading domestic US carrier will help as more Americans take advantage of low airfares to fly rather than drive and enjoy the benefits of low ticket prices and special promotions.
• CVS Health Corp (CVS) This huge pharmaceutical and medical services company has put itself in the midst of Medicare reform and a national focus on reducing healthcare costs by greater efficiency, free diagnostic and screening services, and more generic medications. CVS stocks offer some growth potential in the near and long term as an aging US population gets more at home with Obamacare, Medicaid expansion, getting rid of the donut hole on Medicare part D.
• Walt Disney Co ( DIS ) a large cap diversified entertainment company that currently has two centers of operation in entertainment content and Disney’s branded businesses. Trading near its 12 months high, the company has splashed its success across movie screens worldwide and will continue to ride a marketing avalanche of products and promotions. Its tourism and media entertainment businesses also are in good position for profitable operations in sports online and entertainment content.
• Phillips 66 ( PSX) is an example of an oil company that has advantages on low oil price environments. Low prices have increased their profit margins as refiners and suppliers of a wide range of petroleum fuels and distillates. A favorable P/E of 10 suggests the stock price is in the low range, and its yield should continue to make it attractive.
• SolarCity Corp. (NASDAQ: SCTY) is a rising stock that has a good long-term position in national programs to increase solar energy deployment. Consistent with national climate, energy, and pollution goals, solar deployment is also a source of new jobs.
Socially Conscious Investing
Many investors have noticed the political controversy surrounding gun control and gun violence in the US. Socially conscious investors that may already have determined to avoid investment in tobacco, oil, and unsustainable energy practices have also focused on the rising stocks of gun manufacturers. The stocks of Smith Wesson Holding Company and Sturm, Ruger & Co. have soared in the wake of suggestions of increased scrutiny gun sales and background checks. Socially conscious investors may wish to consider whether to add these stocks to their portfolios.