In recent years, the job market has been brutal on older private-sector workers. We all know folks in their 40s, 50s and 60s who were laid off from career jobs. They searched fruitlessly for comparable work, and ended up working at Target and Home Depot ... if they were lucky.
As an older American, I am well-acquainted with these people. These were also the people who were supporting families, paying mortgages and keeping the American economy alive. Mortgage payments fell by the wayside, people lost homes, marriages fell apart and the American economy experienced prolonged weakness; so weak, in fact, that the Federal Reserve had to drop borrowing rates down to about zero in order to minimize the economic pain.
My friends were “in the wilderness"; and so, I prayed for them, every day. Their circumstances were heartbreaking and relentless. These people are smart, industrious, patriotic Americans and there was seemingly no longer a place for them in our culture.
When corporate America took jobs away from the older Americans, and gave those jobs to younger Americans, what did those new salaries get spent on? Food, clothing and entertainment.
Unexpectedly, in the first half of 2015, my friends started getting jobs. Samuel, Jean, Rick and Louis all got hired. Every time I spoke with Rick, he regaled me with stories of how much debt he was paying down, and how much money was going into his investment account. Samuel immediately improved his housing situation. Louis’ income will allow him to start dating again; after all, you can’t confidently invite a woman to dinner when you don’t know whether your joblessness will outlast your savings account.
Beth was hired, repeatedly, for jobs that were far too easy for her. But you know how that goes. Everybody around you figures out that you’re smart and principled, and suddenly you become alienated from your co-workers, and jobless again. Finally, in the summer, Beth got the exact job that she’d been aspiring to. She’s thriving, and thrilled, with an income that allows her family to, once again, have discretionary spending money.
In the summer, Tom, Jolene, Sean and James landed great jobs, at the pinnacle of their career fields. Within weeks, they each immediately acquired better housing.
Finally, last week, Allen landed a great job. His greatest financial priority is improved housing, and that will come in early 2016.
Morgan Stanley strategists commented last week, “More people are working, they are working more hours per week and they are making more money per hour than they were a year ago.” Yes they are.
Now, let’s follow the money, to see which industries seem to be thriving. My friends’ new career jobs are in the areas of healthcare (equipment maintenance, HR, technology), finance (office manager), retail (service, management), homebuilding, political issues and IT management.
I know that they’re spending their money on housing, and aggressively working towards getting their personal finances back in good shape. They’re also spending money on healthcare, car maintenance and hobbies/entertainment. Remember, these are not millennials living in their parents’ basements. These are older Americans with strong work ethics who had maintained the American Dream for decades, until cultural bias and economies pushed them out of the workforce. They’re going to rebuild their lives, and in so doing, they’re going to rebuild America.
Follow the money, and you’ve got your list of industries in which to invest in 2016: housing, finance, healthcare, and consumer discretionary sectors. While I would personally be cautious on healthcare, due to a potential collapse of Obamacare, that’s your call. I’ll continue to recommend profitable, undervalued healthcare companies; and I’d like for you to be aware of the enhanced risk, possibly using stop-loss orders to protect your downside.
From a stock-investing point of view, what’s missing from this list of occupations and expenditures? Manufacturing and energy jobs. With falling energy prices, and a recession in American manufacturing (enhanced by decades of bad trade deals), we’re seeing ongoing job layoffs in those industries. Considering that stock prices can’t really be expected to climb until companies are forecast to achieve rising annual profits, it’s definitely not time to be buying stocks in those industries.
There’s a lot more to “buying low” than just identifying falling prices. Believe me, when it’s time to buy low in a downtrodden sector, I’ll let you know. But I’m going to wait for share prices to stabilize, and for profits to rise again. There’s no point in buying low if the stock’s just going to languish for another couple of years!
Updates on Growth Portfolio Stocks
Adobe Systems (ADBE) is a software company. ADBE is a fairly-valued aggressive growth stock. ADBE reached new all-time highs in mid-December, and the chart remains bullish. Please be aware that there could be some post-window dressing selling in January, which would push the stock price down. I’ll be watching that closely. For now, ADBE is a strong buy for buy-and-hold investors, but short-term investors should be cautious. Rating: Strong Buy.
Chemtura (CHMT) manufactures specialty chemicals. CHMT is a vastly undervalued aggressive growth stock. CHMT reached new highs in November, and is now having a price correction with the overall market. Once the share price rises above 28.50, I expect it to meet short-term upside resistance at 31.Rating: Strong Buy.
Delta Air Lines (DAL) hosted an Investor Day in mid-December. Apparently Wall Street analysts liked what they heard, because they’ve since raised their 2016 EPS growth expectation from 27.5% to 38%. With an 8.2 P/E, DAL is a wildly undervalued aggressive growth stock.
I have Delta at a buy rating, rather than a strong buy, due to the company’s intended purchase of a 49% stake in Grupo Aeromexico. The purchase will potentially increase Delta’s debt obligations to levels that don’t meet my investment criteria. However, the company is also focused on debt reduction. I will not upgrade Delta until I see the final 2015 debt ratio, in a few months.
DAL shares traded at new highs in December, between 49-52. The stock is breaking out again. Buy DAL now to catch the next run-up. Rating: Buy.
D.R. Horton (DHI) is a homebuilder. DHI is an undervalued growth stock with a 1.0% dividend yield. The stock broke past annual highs in late November, and is now trading between 30.50-33.00. I expect DHI to climb past 33 this winter. Rating: Strong Buy.
E*Trade (ETFC) offers financial brokerage and banking products and services. This month, Moody’s Investors Service raised the ratings on E*Trade Financial and E*Trade Bank. ETFC is a very undervalued aggressive growth stock. ETFC’s price rebounded nicely from the August market correction, and is now trading between 28.50 and 31.00. Rating: Strong Buy.
Priceline (PCLN) is an online travel service company. PCLN is a fairly-valued growth stock. PCLN reached new all-time highs in November, then experienced a big pullback. I believe the stock will rebound toward the November high of 1,476 this winter, barring unforeseen bad news. Rating: Buy.
Royal Caribbean Cruises (RCL) --Wall Street raised its 2016 consensus EPS estimate a fraction last week, to reflect 29.5% growth (December year-end). RCL is a very undervalued aggressive growth stock with a 1.5% dividend yield. RCL briefly reached a new all-time high last week. The stock could easily launch upward immediately. Rating: Strong Buy.
Vulcan Materials (VMC) produces construction aggregates. VMC is a dramatically undervalued aggressive growth stock. VMC reached an annual high in late November, then corrected with the recent weak stock market. Rating: Strong Buy.
WellCare Health Plans (WCG) --WCG is an undervalued aggressive growth stock in the managed healthcare sector. The stock price has been stuck in a volatile sideways trading pattern all year, with strong support at 77. Rating: Buy.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 12/28/15 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 94 | 10% | Strong Buy |
| Chemtura (CHMT) | 10/6/15 | 31 | 27 | -11% | Strong Buy |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 52 | 13% | Buy |
| D.R. Horton (DHI) | 10/6/15 | 31 | 32 | 6% | Strong Buy |
| E*Trade Financial (ETFC) | 11/12/15 | 29 | 30 | 1% | Strong Buy |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,273 | 0% | Buy |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 100 | 9% | Strong Buy |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 96 | 2% | Strong Buy |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 80 | -4% | Buy |
| Growth Portfolio Total Return | 2.80% |
Growth & Income Portfolio
Growth & Income Portfolio stocks have bullish charts, good projected earnings growth, dividends of 1.5% and higher, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels.
Big Lots (BIG) is a discount retailer. BIG is an undervalued growth & income stock with a 2.0% dividend yield. There will be plenty of time to buy BIG, and other downtrodden retail stocks, once their share prices stabilize. Please give BIG a little time to recover. There’s absolutely nothing wrong at the company, and the fundamentals are GREAT. The average rating on Wall Street is a buy, and the average price target is $50.50--29% above today’s price! Rating: Hold.
Carnival (CCL)is a cruise vacation company. Wall Street raised its 2016 consensus EPS estimate last week, to reflect 24.4% growth (November year-end). CCL is an undervalued growth stock with a 2.2% dividend yield. The stock launched up to annual highs around 54 last week, after a strong full-year earnings report. CCL could climb toward all-time highs around 58 this winter. Rating: Strong Buy.
Federated Investors (FII) is a global investment management company. As an industry leader in the management of money market funds, Federated is uniquely positioned to increase its net income from asset management fees, as interest rates rise. In addition, as investors flee from heightened volatility in junk bond mutual funds, they will likely park their money in money market funds, bringing an additional surge of fee income to Federated Investors. FII is one of the best possible financial stocks to own, to capitalize on rising interest rates.
FII is slated for 24% EPS growth in 2016 (December year-end), with a hefty 3.4% dividend yield. The stock is likely to trade up to 32 shortly, rest a short while, then rise to about 35. Rating: Strong Buy.
GameStop (GME) owns and operates 6,200 video game & electronics stores in the U.S., Canada, Australia and Europe. GME is a wildly undervalued growth & income stock with a 5% dividend. The stock’s chart will certainly remain bearish until at least January. I would expect the share price to turn upward at some point between early January, and the company’s full-year 2016 earnings report on March 24th. The rating will be hold until the share price appears super-stable, at which point I’ll encourage bargain-hunters to snap up shares while the dividend yield remains high. Rating: Hold.
General Motors Company (GM) --GM is a very undervalued growth & income stock with a 4.1% dividend yield. As of September 30th, GM was the most widely-owned stock in hedge funds, held in a whopping 88 hedge fund portfolios. The stock recovered nicely from the August market downturn, currently trading between 33-36.50. There’s additional upside resistance at 39. Rating: Strong Buy.
H&R Block (HRB) is a leader in tax preparation services. Wall Street’s analysts have lowered their current year earnings expectations for H&R Block. EPS are now expected to grow 10.9% and 18.7% in 2016 & ’17 (April year-end). The dividend yield is 2.4%. The stock is now overvalued based on 2016 numbers, but undervalued based on 2017 numbers.
The share price is recovering from a drop in early December. There’s upside resistance at 37. Rating: Strong Buy.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 12/28/15 | Total Return | Rating |
| Abercrombie & Fitch (ANF) | 11/9/15 | -- | -- | 15% | Sold 11/30/15 |
| Big Lots (BIG) | 10/6/15 | 49 | 39 | -20% | Hold |
| Carnival (CCL) | 10/6/15 | 50 | 54 | 9% | Strong Buy |
| Federated Investors (FII) | 11/30/15 | 31 | 29 | -8% | Strong Buy |
| GameStop (GME) | 10/6/15 | 43 | 28 | -34% | Hold |
| General Motors (GM) | 10/6/15 | 32 | 35 | 8% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 33 | -6% | Strong Buy |
| SanDisk (SNDK) | 10/6/15 | -- | -- | 27% | Sold 11/2/15 |
| Union Pacific (UNP) | 10/6/15 | -- | -- | -5% | Sold 11/2/15 |
| Growth & Income Portfolio Total Return | -1.20% |
Buy Low Opportunities Portfolio
Buy Low Portfolio stocks have neutral charts, strong projected earnings growth, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels. (Dividends are not a portfolio requirement, but some of the stocks will have dividends.) Investors should be willing to wait patiently for these stocks to climb.
Updates on Buy Low Opportunities Portfolio Stocks
Axiall (AXLL)--formerly Georgia Gulf Corp.--manufactures chemicals & plastics. AXLL is a very undervalued aggressive growth stock. The stock price seems to be done falling, and will likely begin a slow recovery in January. Dividend investors should buy now, to lock in the 4.2% current yield. Rating: Buy.
Boeing (BA) --Boeing will report fourth quarter 2015 results on the morning of January 27th. BA is an undervalued growth & income stock. The recent dividend increase boosts the current yield to 3.0%. As soon as the share price stabilizes, I will likely raise the rating to buy. Rating: Hold.
Boise Cascade (BCC) is a leading U.S. wholesaler of wood products and building materials, benefitting from a strong home-building market. BCC is a volatile, undervalued aggressive growth stock. BCC is revisiting its October lows; and has bounced around between 25-32 in recent months. Traders and longer-term investors should buy now. Rating: Buy.
Harman International Industries (HAR) is a manufacturer of vehicle audio systems. HAR is an undervalued growth stock with a 1.5% dividend yield. The stock price revisited its August-September lows in December, and is likely to rebound to 103 in January. Rating: Buy.
Intuit (INTU) is an industry leader in financial management software solutions. INTU is an undervalued aggressive growth stock with a 1.2% dividend yield. INTU’s price improved steadily since the August market correction; most recently trading between 95-108. Rating: Buy.
Johnson Controls (JCI) operates in the areas of energy management and auto batteries. The company intends to spin off its automotive seating & interiors business in October 2016. Thereafter, Johnson Controls plans to resume its share repurchase program.
JCI is an undervalued growth & income stock with a 2.8% dividend yield. The share price recently revisited its lows from August-September, and could rise back to 45 in January. Rating: Buy.
Robert Half International (RHI) is a staffing & consulting company. RHI is an undervalued growth stock with a 1.7% dividend yield. The stock’s chart will likely remain weak through year-end, due to tax-loss selling. When the share price stabilizes, I’ll change the rating to buy. Rating: Hold.
Whirlpool (WHR) is a global appliance manufacturer. WHR is a very undervalued growth stock with a 2.4% dividend yield. The weak stock market pulled WHR down to its September-October lows. We could see a rebound to 166 this winter. Rating: Buy.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 12/28/15 | Total Return | Rating |
| Axiall (AXLL) | 11/9/15 | 22 | 15 | -30% | Buy |
| Bank of New York Mellon (BK) | 10/6/15 | -- | -- | 11% | Sold 11/6/15 |
| The Boeing Company (BA) | 10/6/15 | 135 | 145 | 7% | Hold |
| Boise Cascade (BCC) | 11/9/15 | 30 | 26 | -14% | Buy |
| Harman International Industries (HAR) | 10/6/15 | 105 | 94 | -10% | Buy |
| Intuit (INTU) | 10/6/15 | 91 | 98 | 7% | Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 40 | -8% | Buy |
| Robert Half International (RHI) | 10/6/15 | 51 | 47 | -8% | Hold |
| Whirlpool (WHR) | 11/3/15 | 160 | 149 | -7% | Buy |
| Buy Low Portfolio Total Return | -5.80% |