Two Investing Themes To Consider In 2015

While the dawn of a new year doesn’t change the fundamental landscape of global economies, it’s still the time that investors contemplate the major growth trends that could work in the year to come.
Perhaps the primary question on the minds of investors is: What will happen with oil prices in 2015, and are oil producers worth a look? I have no crystal ball, as evidenced by my belief that U.S. oil producers were a good investment in 2014.
The collapse in oil has certainly proven me wrong at the moment. That said, the price of oil tends to overshoot to both the upside and the downside.
History and common sense suggest that the current price under $50 is much closer to a near-term bottom than a near-term top (see 10-year chart below).
My stance is to maintain exposure to best-of-breed U.S. producers. These are companies with the best property and the lowest production costs. We don’t know exactly when oil prices will recover. But they will. And best-of-breed producers will be among the leaders when it happens.
Investors are also wondering if biotech stands a chance of outperforming for a fifth year in a row. The short answer is “yes”, though challenges remain.
Well publicized pricing pressures, as evidenced by Express Scripts’ (Nasdaq:ESRX) public disdain of Gilead’s (Nasdaq:GILD) pricing for hepatitis-C treatment, could derail at least some leading stocks. And lack of conviction on the part of fund managers and retail investors could lead to a large outflow of invested dollars.
However, broadly speaking, large-cap biotech valuations remain attractive when factoring in long-term growth. Large-cap biotech trades with a 2017 PE of 14.1 versus 15 for the S&P 500, despite estimated annual EPS growth 2.5-times greater.
The keys for biotech are to maintain profit margins, maintain pipeline success and meet (or exceed) expectations for recent blockbusters.
Also, biotech companies have an ace in their pocket that can be played if and when necessary. That is dividends. The sector has yet to initiate dividends in any meaningful form since cash flow is typically directed toward acquisitions, drug development and other growth-generating projects.
However, cash flow for some large-cap biotech stocks may reach a point where dividend initiation makes sense. I expect this would be more of a 2016-2017 theme then a 2015 theme, but nevertheless, take note that the potential exists – biotech may “pull an Apple (Nasdaq:APPL)” as it moves to the next stage of cash generation.
Furthermore, concerns about pricing may be overblown. In Gilead’s case, the company’s recent deals with Anthem (NYSE:ANTM) and CVS (NYSE:CVS) to be the exclusive supplier of hepatitis-C treatment is testament to the reality that the company can still “win” despite pricing pressure.
In 2015, I suggest long-term investors continue to add exposure to biotech and energy. Obviously, the right stocks are critical, so look to best-of-breed names. And dollar cost average into your positions to spread out your risk.

Cheap Oil Here to Stay – For Now 

Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder.

Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom. Click here for all the details.

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