What matters most to history are not the steady trends but the unexpected shocks that change the world the moment they occur. Such events are inherently unpredictable even though they always seem explainable after the fact.
But even though many important events are unimaginable, as Philip Tetlock describes in his book Superforecasting, predictions can still be useful, accurate, and most importantly, profitable.
Everyone has at least one good prediction in them. So in this article I’ve compiled a round-up of the 25 best stocks and financial picks for 2017. Hope you enjoy it.
1. Elazar Advisors, LLC – Long Oil
Research firm Elazar Advisors are bullish on oil for 2017. They wrote:
“Trade wars, closing of borders, OPEC, and either rhetoric or the risk of actual war can drive oil. With a new tough talking and likely tough acting US administration, well, tough talk and tough action is usually a bullish oil story.”
My Notes: It’s very easy to build a narrative for going long oil, particularly after the consolidation we saw in 2016. Trump’s new cabinet has it’s share of oil execs and I am bullish on the commodity as well.
Chart courtesy of Finviz.
2. Bloomberg – Long Phillip Moris (PM), Short RBS
According to Bloomberg:
“The tobacco giant [Phillip Morris] is getting into the e-cigarette business to help offset declining revenue from the global drop in smoking rates. Its “reduced-risk products” are catching on fast in test markets (including Japan, Italy, and Switzerland), but it will need to convince regulators and consumers the devices are truly less dangerous.”
Meanwhile, “RBS is battling a tough business environment and a shrinking capital base. Investors worry potential fines from U.S. mortgage-backed securities litigation may exceed the $5.6 billion the bank has set aside to cover such costs.”
My Notes: Bloomberg has put together an excellent list of 50 stocks to look out for in 2017. Phillip Morris caught my eye since I’ve noticed lots of ‘vaping’ shops popping up in the UK.
3. Whitney Tilson – Short EXAS, Short TMF
At a recent investing conference Whitney Tilson revealed his second biggest short position as Exact Sciences Corporation (EXAS). He added to his position after insider sales of $25 million. Tilson actually sold the stock short two years ago when the price was $23.86 but did not cover his position when the stock fell as low as $5. He thinks it can go as low as $3.
Whitney also believes that interest rates on US long government bonds are going to increase and is short TMF, his 3rd largest short position at 2.6%.
My Notes: Shorting TMF (the 20 year Treasury leveraged ETF) has two advantages. First, government debt seems overvalued. Second, the value of these leveraged securities erodes over time. The only problem is a high borrowing cost at 12% a year.
4. Chris DeMuth – Long BNCCORP, Long Bitcoin
Fund Manager Chris DeMuth has BNCCORP as one of his best stock picks for 2017. He says “now would be the perfect time for the board and management to consider their best route to maximize shareholder value. There is massive upside in a deal.”
DeMuth’s favorite currency is Bitcoin. “The currency is up 78% over the past year and could rise from its current price of just under $800 per BTC to two to three times that level over the next year.”
My Notes: BNCCORP trades on the OTC and looks like an interesting bet. I like Bitcoin too andd like to buy on pullbacks. You can get $10 of BTC for free by signing up here.
5. Peter Schiff: Sell Financials, Buy Energy
As usual, Peter Schiff is bullish on gold but he also thinks that energy has room for upside.
“I own a lot of energy stocks myself, and I think this energy rally has legs. But I think this financial rally is a massive suckers rally. Nobody really understands what higher interest rates actually mean for the financial systems, what larger budget deficits actually mean. This is a short covering rally. I think people just don’t understand what they’re doing. So the honeymoon is going to end on the financials. They’re not going to have a repeat in 2017. So I would stick with the energy sector, stick with the mining sector, but I would be bailing on the financials.”
My Notes: Schiff sometimes gets stick for being a ‘permabull’ but his analysis is often very accurate. He was spot on about the timing of rate hikes in 2016 for example.
6. Barclays: Long Healthcare
According to Barclays analysts “concerns about drug pricing have been the clear negative catalyst, with President-elect Trump recently assuming the role of the people’s champion against unjustified drug price increases. But despite the ongoing political spotlight, which has resulted in biotechnology and pharmaceuticals being the two worst performing industries in 2016, fundamental positives remain.”
My Notes: Biotech was one of the worst performing sectors in 2016 after a significant drop in approvals for new drugs. According to analysts Rodman & Renshaw that was due to timing and not a change in FDA criteria. A bit of regression to the mean points to 2017 being a better year.
7. Goldman Sachs: Long EM Stocks With Insulated Exposure To Growth, Long US Dollar
Goldman Sachs does not expect much from the S&P 500 this year so they are searching elsewhere for growth.
”Looking across the EM equity spectrum, we find that Brazil, Poland and India offer an ‘insulated exposure’ to the EM growth recovery story, without being particularly exposed to China growth or U.S. trade policy,”
Goldmans also advise to stay long US$ equally weighted against EUR and GBP.
My Notes: I do not expect much from US stocks either this year. We are eight years into this bull market and the market is expensive on most measure (such as Shiller CAPE). After the recent Trump rally, there seems to be very little risk priced into the market.
Check out the chart below to see Goldman’s full forecasts for 2017:
8. Michael Boyd: Long Federated Investors (FII)
“Federated Investors is an asset manager, but what makes them unique in the space is their sizeable AUM held within their money market products. Unlike banks which will rely on a steepening of the yield curve to drive profitability (which may not necessarily happen as the Fed raises rates), Federated Investors just needs the bump in short-term rates to see higher profit. Management is excellent, and that team has a history of rewarding shareholders.”
My Notes: The rally in big bank stocks looks overdone so this could be a better play for financials.
9. Satyajit Das: Nothing Will Change
“The current consensus identifies two themes for the coming year: rising populism, and reflation — that is, stronger growth and the return of inflation. The issues are related.
Afraid of declining living standards for the majority, electorates have embraced simplistic explanations for the problems confronting many Western societies and economies. They have supported candidates with magical solutions, promising a painless and rapid restoration of prosperity.
They will almost certainly be disappointed. The scale and complexity of modern societies, entrenched private interests, and institutions ossified by powerful countervailing forces increasingly make radical reformations difficult — even in the face of widespread dissatisfaction. In all likelihood, nothing much will change in 2017.”
Das goes on to say “Belief in the reflation narrative is similarly misplaced, because it also assumes that today’s politicians are capable of making hard choices.”
My Notes: Satyajit makes an interesting point. Although there will no doubt be huge upsets in 2017, recent history reveals that large political changes come about very slowly.
10. Jim Rogers: I Expect Problems
Jim Rogers is expecting problems for the West:
“Now we are going to start focusing on interest rates, in what is happening in the real economy. There is a lot of debt. We will all have to start paying attention to the interest rate burden that everybody is going to suffer. I expect problems in 2017.”
My Notes: Rogers has been bullish on commodities and pessimistic on the US stock market for some time. He’s also bullish on Russia and will buy gold if it drops below $1000 per ounce.
11. Eric Parnell: Rate Hike Expectations Are Too Ambitious
Eric Parnell has a different view to the market when it comes to interest rates in 2017:
“While I believe we could see at least one rate hiker either in June or September if things really come together well for the economy (a huge “if”) and the stock market is running hot (much more possible), I would give this 50-50 odds at most. As for two rate hikes by September, not a chance in my view unless something really crazy happens like the S&P 500 is heading into blow off top bubble territory.”
My Notes: I could not agree more with this. I don’t think the consensus view is going to play out at all like it is expected to in 2017.
12. George Soros: EU Is On Verge Of Breakdown
George Soros believes that democracy is in crisis. According to a recent article, Soros is quoted as saying that Brussels is “on the verge of breakdown” and could even fall under the influence of Vladimir Putin.
Writing in a blog, he warned: “Open societies are in crisis, and various forms of closed societies – from fascist dictatorships to mafia states – are on the rise.”
My Notes: Soros got it wrong about Hillary Clinton but he has been on the money many times before and likes to look for asymmetrical risk/reward. If he gets it right about the EU, we could see massive losses for the euro. I also wrote that democracy is in crisis here.
13. Wall Street Titan: Long Athersys Inc. (ATHX)
From Seeking Alpha’s Wall Street Titan:
“My favorite idea for 2017 is the same as my top pick for 2016, Athersys Inc., a leading off-the-shelf stem cell therapy pioneer. In November 2014, Japan put in place new laws that dramatically streamlined the approval process for stem cell therapies and lowered the threshold for reimbursable approval. Athersys partner, Healios KK, will commence a fully funded pivotal stroke trial in Japan in January 2017. I also expect Athersys to sign a new global partnership for their stem cell stroke therapy outside of Japan in the first half of 2017.”
My Notes: I don’t know anything about this stock and the chart looks horrible. But it’s a very compelling write up from WST and at a couple of dollars a share, this could be one to watch.
14. Stephanie Flanders: Next Global Recession Looming
Stephanie Flaunders from the FT says:
“The big issue is whether Trump’s tax cuts and spending spree will actually raise potential growth or simply shorten the economic cycle. Broadly speaking, the policies he’s suggested spending money on are not ones economists think will give the highest returns. The risk is that any short-term boost to growth will come with a shortening of the economic cycle, rather than an increase in US economic growth, and therefore bring the date of the next US — and global — recession somewhat closer.”
My Notes: It is a case of when, not if, for the next global recession. One thing is for certain, the stock market will dive well in advance.
15. Value Pendulum: Long COSCO Intl Holdings (CHDGF)
Value Pendulum’s favorite idea for 2017 is Hong Kong-listed COSCO International Holdings Ltd.
“One of the largest shipping services provider in China that also trades on an OTC basis in the U.S. It sports a 3% dividend yield and trades at approximately 0.7x P/B. It is cheap as investors have put COSCO International in the same category as other shipping stocks and ignored its ship trading agency and insurance brokerage segments. More importantly, COSCO International’s significant net cash position of HK$6.2 billion offers upside optionality from future value-accretive acquisitions.”
My Notes: The shipping sector has been incredibly volatile of late. Maybe shipping is a leading indicator for an economic slowdown? Or maybe there is a lot of opportunity in this market. This sector is definitely worth a look.
16. Adrian Croxson: Long Ryanair Holdings (RYAAY)
Croxson is head of European Equities at Och-Ziff Management and recently singled out Irish low-cost carrier Ryanair Holdings as one of his best stock picks for 2017. He said:
“[Ryanair] usually divides opinion among passengers, but as an investor you only really need to care about one thing: Its potential to continue to expand and make money for shareholders. To put it simply, we think that the net income could double over the next couple of years and we think shares will [jump],”
My Notes: I am somewhat bullish on oil prices so I am steering clear of the airline industry. But Croxson makes a good case for Ryanair which continues to be a very well run business.
17. William Koldus – Long Chesapeake Energy (CHK)
William Koldus on Seeking Alpha writes:
“Chesapeake Energy which I have written multiple public articles on, including an entry in my “Too Cheap To Ignore” series of articles earlier in 2016, and whose options I have discussed at length with members of “The Contrarian”, remains positioned, and poised to substantially outperform in 2017, as the cumulative lack of supply side investment in natural gas has tilted the supply/demand balance in-favor of the bullishly positioned investors.”
My Notes: CHK has a nice looking chart with plenty of room for upside if oil prices rally. The stock has also had a number of analyst upgrades and insider purchases.
18. Michael Markowski – Long Live Ventures Inc. (LIVE)
Michael Markowski is interested in Live Ventures Inc. which he discovered following the crash of the micro-cap market in 2016 to the lowest level that he had witnessed in 40 years:
“I have been on a hunt to find and recommend the top 100 micro-caps as soon as possible. LIVE ranks as my best ever micro-cap find. Shares are extremely liquid for a micro-cap. It has a very dynamic 33 year old CEO who stepped in to turn around company and has since acquired 40% of its shares outstanding. Based on my free cash flow analysis shares are insanely undervalued.”
My Notes: Live spiked up to $33 last week before falling back to the $20 mark. The stock is definitely a speculative investment but looks very interesting at first glance.
Edit 1/7/16: We’ve since found out some interesting information about this stock, read the comments for more info.
19. Merryn Somerset Webb: Trump Will Do What He Always Does
Columnist for the FT Merryn Somerset Webb has these reassuring words:
“In the end, Trump probably just wants to do what he’s been doing for the past couple of years — send some tweets, talk to his kids and do reality TV. We get our knickers in too much of a twist.”
My Notes: Although this is reassuring, I can’t help but think Trump will bring a lot of uncertainty. That is why I can’t see 2017 being a smooth ride for financial markets.
20. Brian Nicholls: Long Qualcomm (QCOM)
Brian Nicholls from Investor’s Place likes the look of Qualcomm:
“Qualcomm’s most recent quarter showcased something investors have not seen in a long time: growth! Sure, the growth came in comparison to big losses last year, but still, QCOM’s valuation reflected a struggling company. What Qualcomm showed is that it is improving faster than the market expects, and that it is now well-positioned to exploit those low expectations.”
My Notes: Qualcomm and Intel both dominate the semiconductor industry. Success for Qualcomm in 2017 could depend on the profitability of it’s investments into Internet of Things (IoT) technology.
21. Andrew Bary: Long Alphabet (GOOG)
According to Andrew Bary of Barrons:
“Alphabet is one of the world’s great businesses, and it’s available at a reasonable price after declining during this year’s market rally. The nonvoting shares trade around $750, or about 23 times projected 2017 earnings of $33 a share. Our 2017 estimate includes the company’s enormous $7 billion of annual stock-based compensation. Alphabet and Wall Street prefer to focus on profits that exclude the stock comp. Using that approach, Alphabet is valued at 18 times estimated 2017 earnings of $41 a share.”
My Notes: I don’t think it will be a great year for technology as a whole. That said, you can’t really argue with the fundamentals of a business like Google.
22. Simmons & Co. International: Long Chevron (CVX), Long Suncor (SU)
Analysts Simmons & Co. International favour Chevron and Suncor in the oil space basing their selections on “attractive free cash flow generation after dividends, better-than-average balance sheets, leading growth through 2019, more sustainable business models and greater certainty around capital allocation preferences – a combination which should drive premium valuation.”
My Notes: I always get burnt trying to pick oil stocks. That’s why I will be looking to trade ETFs like VDE and XLE instead.
23. Eddy Elfenbein: Long Danaher (DHR), Long RPM International (RPM)
Eddy Elfenbein runs one of the finest buy and hold blogs on the web and he’s beaten the market in eight of the last 11 years.
There are ten new additions to his list this year. Danaher is a diversified manufacturer that has been an amazing long-term winner while RPM International makes building materials and adhesives. The company has increased its dividend for 43 consecutive years.
My notes: Eddy has 23 other picks on his list including Microsoft, Fiserv and Stryker. Fiserv has been on his list every year since it started.
24. Charles Dreifus: US Small-Caps Are The Sweet Spot
Charles Dreifus, fund manager at Royce Special Equity is cautious given debt levels in Western governments and the new President:
“Due to unstable economic conditions in many areas outside the U.S., a rising dollar, and the fact that U.S. small-cap companies stand to gain the most from a lower tax rate, U.S. small caps are being recognized as the sweet spot for current asset allocation.
We would not be surprised if the market pauses to digest the recent advance while trying to calibrate expectations versus the actions it sees on the paths of successful implementation. We remain positive about the portfolio, but the number of names are shrinking because the pool of acceptable candidates is meager. Valuations keep driving things up, and I end up selling…
Let us not forget that Trump is an “apprentice” president. His first 100 days could see some errors, which could result in a recalibration of expectations.”
My notes: Agree with this view on the whole. Stocks look expensive. I will be looking at small caps in 2017 and will also be active in shorting stocks when profit-taking looks likely.
25. Jim Cramer: Long JP Morgan (JPM)
JP Morgan is Cramer’s No. 1 stock for 2017. According to CNBC it could benefit big time if the Fed raises interest rates multiple times in 2017. It could also be a beneficiary of deregulation. Even better, if the U.S. economy grows the way Trump promised, it will be one of the few stocks that can make profits without pressure on earnings from a strong dollar… ‘I would bet on if you believe that the Trump rally is far from finished,’ Cramer said.
My notes: JP Morgan shares are up over 25% since the election and look overbought to me. If the stock market takes a breather, financials will be the first to fall.
Thank-You For Reading!
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Disclosure:I have no business relationship with any company whose stock is mentioned in this article. I am long XLE and BTC.
What are your favourite predictions and picks for 2017? Let me know in the comments.