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All Contents © 2018The Kiplinger Washington Editors
By Daren Fonda, Senior Associate Editor
James K. Glassman, Contributing Columnist
Anne Kates Smith, Executive Editor
| January 2017
Amid a dense fog of uncertainty, an aging bull will have to find its footing in 2017. Rarely has the way forward been so obscured by the murky policies of a new political regime, as well as by questions about economic growth, monetary policy and the animal spirits—or lack thereof—of America’s corporate chieftains.
With change afoot, along with an essentially sound economy, you’ll do best by favoring stocks over bonds, zeroing in on companies with strong long-term growth trends and rising dividends, and by finding sectors that will prosper with Donald Trump in the White House.
Here are 27 stock picks that Kiplinger's investing editors Daren Fonda and Anne Kates Smith, as well as columnist James K. Glassman, see offering promise in the year ahead.
Stocks are in alphabetic order. Share prices and other data are as of December 8, 2016.
52-week high: $839.00
52-week low: $672.66
Annual revenues: $85.5 billion
Projected 2017 earnings growth: 20%
The market value of Alphabet is $552 billion, so it’s hard to fathom it getting much bigger. But the owner of Google, YouTube and other tech businesses hasn’t peaked. Recent product launches include the Pixel smartphone and Google Home (a virtual personal assistant). Add those products to Alphabet’s other businesses—including thriving sales of online ads, apps and cloud-based services—and you get a firm that analysts believe will generate 20% profit growth in 2017. At 27 times estimated earnings, the stock doesn’t look expensive.
52-week high: $847.21
52-week low: $474.00
Annual revenues: $128.0 billion
Projected 2017 earnings growth: 93%
The giant of online retailing also has a strong position in cloud computing, and is moving aggressively into video content and artificial intelligence (not to mention drone delivery). Amazon.com took a hit in October because of disappointing earnings, but this well-run company continues to have its eyes on the long term. Value Line sees revenues rising 19.5% annually over the next five years.
52-week high: $122.74
52-week low: $81.87
Annual revenues: $3.5 billion
Projected 2017 earnings growth: 10%
CME Group owns the Chicago Mercantile Exchange and other trading venues where speculators bet on everything from the price of pork bellies to the future level of Standard & Poor’s 500-stock index. CME has expanded by merging with other exchanges and providing more services to traders.
CME pays a regular dividend of 60 cents a share and will likely pay a special dividend at year-end. That could lift the total payout to $5.67 a share in 2017, estimates Bank of America Merrill Lynch, giving the stock a hefty 5.1% yield.
52-week high: $9.74
52-week low: $4.35
Annual revenues: $89 million
Projected 2017 earnings growth: 17%
CPI Aerostructures makes structural parts, such as wing assemblies and fuel panels, for commercial and military aircraft. The firm recorded a huge loss in 2014, but it has recovered and, according to Dan Abramowitz, a small-cap stock specialist based in Rockville, Md., says it enjoys “a large and growing backlog” of orders. With a market cap of $69 million, CPI is the smallest company on our list, so expect a wild ride. But the potential reward looks like it’s worth the risk.
52-week high: $102.82
52-week low: $75.71
Annual revenues: $3.8 billion
Projected 2017 earnings growth: 6.5%
A real estate investment trust, Crown Castle leases space on nearly 40,000 cell-phone towers to wireless carriers, such as AT&T and Verizon. Income is climbing as customers consume more data on mobile devices. Cable providers such as Charter Communications and Comcast also plan to roll out wireless service in 2017, boosting demand for space on cell-phone towers. As a REIT, Crown Castle must shell out at least 90% of its taxable income to investors. Paying $3.80 per share, the stock yields 4.4%.
52-week high: $183.00
52-week low: $142.64
Annual revenues: $11.3 billion
Henry Schein is an 84-year-old company that distributes health supplies to physicians, dentists and veterinarians. A mid-cap stock, Schein is not a superfast grower, but it has a rock-solid niche, with earnings expected to rise at a good clip. Of note: Schein has been in the portfolio of T. Rowe Price New Horizons (PRNHX) since 1996.
52-week high: $90.54
52-week low: $68.18
Annual revenues: $26.8 billion
Projected 2017 earnings growth: 19%
Warren Buffett, who turned 86 in August, is still America’s greatest living investor. He frequently buys entire companies for Berkshire Hathaway, the company he runs. A few years ago, he purchased about one-fourth of Kraft Heinz, the world’s fifth-largest food company, with such venerable brands as Jell-O, Oscar Mayer and Velveeta. On a P/E basis, the stock isn’t cheap. It is unlikely to soar, but it offers a 2.9% dividend yield and could add ballast to any portfolio.
52-week high: $38.94
52-week low: $26.51
Annual revenues: $410 million
Running clinical trials for biotech firms, Medpace handles everything from the design of a research study to its execution. Sales should climb at a 13% annual pace through 2020, and the firm should be able to maintain industry-leading profit margins above 30%, says UBS. Medpace would face setbacks if drugmakers were to reduce spending for clinical trials. But the small firm, which went public last August at $23 a share, takes a “unique and full-service approach” to the business, says UBS. It rates the stock a “buy” and expects the price to hit $35 over the next year.
52-week high: $20.99
52-week low: $9.31
Annual revenues: $12.4 billion
Projected fiscal year 2018 earnings growth: 35%
Micron Technology, an Idaho-based semiconductor maker, has been struggling, but some analysts see profits rising sharply over the next year or two. Micron has found favor with Parnassus Endeavor (PARWX), one of the top-performing large-company funds over the past five years. It’s the fund’s top holding and one of the few stocks it added in 2016. But it’s a contrarian play for sure.
52-week high: $189.95
52-week low: $111.09
Annual revenues: $1.5 billion
Projected 2017 earnings growth: 58%*
Palo Alto Networks sells sophisticated hardware and software to protect networks against cyberattacks. Sales are rising steadily as the firm expands its product lineup and signs up more customers for subscriptions to its cloud-based software, creating revenue streams that should last for years. Although growth is slowing, analysts still see revenues increasing a healthy 28%, to $2.3 billion, in the fiscal year that ends in January 2018.
* Based on operating earnings
52-week high: $152.58
52-week low: $115.73
Annual revenues: $24.2 billion
Projected 2017 earnings growth: 5.9%
After stagnating for years, U.S. military spending is likely to pick up once Donald Trump takes office.
That should boost sales for Raytheon, which makes military products—from Patriot missiles to electronic warfare systems. The firm’s order backlog hit $35.8 billion in the third quarter of 2016, up by $2.2 billion from a year earlier. Foreign sales, about one-third of the total, are also rising. Bank of America Merrill Lynch says Raytheon will be a “beneficiary of a global arms race.” It rates the stock a “buy” and sees it hitting $160 over the next 12 months.
52-week high: $563.79
52-week low: $325.35
Annual revenues: $4.7 billion
Projected 2017 earnings growth: 5.2%
Biotech firm Regeneron makes one of the top-selling drugs to prevent eye diseases in the elderly. That product, Eylea, accounts for about two-thirds of the firm’s sales, estimated at $5 billion in 2016.
Regeneron’s lineup also includes Praluent, a drug to combat high cholesterol that’s being tested as a treatment to prevent second heart attacks. The company may soon win regulatory approval for a new drug for rheumatoid arthritis, and it has several other promising drugs in late-stage studies.
52-week high: $84.48
52-week low: $52.60
Annual revenues: $7.9 billion
Projected fiscal year 2018 earnings growth: 109%
Salesforce.com is a rapidly expanding company that sells web-based software that helps companies manage relationships with their customers. It’s broadening its product lineup and pushing into areas such as data analytics and digital marketing, as well as making acquisitions to fuel its expansion, such as a recent deal to buy e-commerce company Demandware for $2.8 billion.
Terry Tillman, a technology analyst with Raymond James, sees revenues rising by 25% in the fiscal year that ends January 31, 2017, and by 21% for the following year.
52-week high: $44.50
52-week low: $36.81
Annual revenues: $38.3 billion
Projected 2017 earnings growth: -0.3%
Few companies receive top rankings for both timeliness and safety from the Value Line Investment Survey. Promoted to that exalted position in late October was Sanofi , the Paris-based maker of pharmaceuticals, with an emphasis on diabetes medicines. Sanofi’s stock yields a hefty 4.31%, an indication that it may be undervalued.
The 43-year-old company is a major name in drugs for diabetes, cancer and rare diseases. It also produces vaccines for illnesses such as typhoid and dengue, and it owns biotech firm Genzyme. Sanofi also has also boosted its presence in over-the-counter consumer products (such as painkillers and cold treatments) by acquiring the consumer arm of German drug giant Boehringer Ingelheim.
52-week high: $229.10
52-week low: $174.91
Annual revenues: $5.4 billion
Projected 2017 earnings growth: 9.3%
Like Crown Castle International, Simon Property Group is a real estate investment trust, with regional malls and outlet shopping centers around the world. Simon’s stock has been flat since the start of 2015 as enthusiasm for REITs has waned (though it’s still the largest by market cap). Consider that an opportunity.
Simon Property Group is the top holding of Ivy LaSalle Global Risk-Managed Real Estate (IVRAX), an excellent REIT fund, and yields an attractive 3.6%.
52-week high: $61.79
52-week low: $50.84
Annual revenues: $21.3 billion
Projected 2017 earnings growth: 13%
Starbucks, which needs no introduction, has suffered of late, sinking 2.6% over the past year. That makes it even more attractive especially with no serious competitors on the horizon, a gorgeous balance sheet, and earnings that Value Line predicts will rise 16% annually over the next five years. You’ll find the coffee-shop chain in the holdings of Fidelity Contrafund (FCNTX), run by the estimable Will Danoff for a quarter-century.
52-week high: $50.56
52-week low: $31.36
Projected fiscal year 2018 earnings growth: 20%
You may not have heard of Take-Two Interactive, but you’ve probably heard of at least one of the games it makes: Grand Theft Auto. Take-Two’s revenues and profits have been bouncing up and down lately with the popularity of its products, but analysts see brisk earnings gains for the year ahead. Flush with cash, the firm could be a takeover target. With a market capitalization of $4.3 billion, Take-Two has about $1.5 billion in cash and short-term investments and just $512 million in debt. It’s a top holding of aggressive growth fund World Innovators (WAGTX).
Consider a sector that is typically regarded as defensive but lately has been anything but.
Health care stocks were pummeled by members of Congress on both sides of the political aisle in 2016, as Republicans threatened to repeal the Affordable Care Act and Democrats waged war on drug prices. But drug and biotech stocks rebounded strongly after Trump’s victory. Mike Bailey, director of research for FBB Capital Partners, a money-management firm in Bethesda, Md., likes Alexion Pharmaceuticals (ALXN), which specializes in treatments for rare diseases; medical device maker CR Bard (BCR); and insurer UnitedHealth Group (UNH).
Technology stocks should do well if there’s even a whiff of economic slowdown and investors shift their focus to companies that can grow in good times or bad.
S&P 500 tech companies are expected to log earnings growth of 12% in 2017, the highest of any sector save energy and materials, both clawing their way back from the brink. FBB’s Bailey recommends Microsoft (MSFT), which has exposure to cloud computing, and Visa (V), which operates the world’s largest electronic-payments network. A boost in infrastructure spending is already reflected in the share prices of many of the machinery companies and other firms you’d expect to benefit.
When rates are rising, financial stocks deserve a look—particularly now that regulations will likely be scrutinized and perhaps lightened. Beyond banks, such as J.P. Morgan (JPM) and PNC Financial Services Group (PNC), consider companies with an investing kicker, says Bailey. He likes TD Ameritrade (AMTD), which should see a boost in interest income once short-term rates rise. It is also expanding aggressively, recently agreeing to buy rival Scottrade for $4 billion.
Courtesy Marriott International
Companies that cater to consumers will benefit from any tax cuts that leave more money for spending on non-necessities. Restaurants, hotels and especially high-end retailers should prosper now that the threat of tax increases on the wealthy has been pushed aside, says Savita Subramanian, a strategist at Bank of America Merrill Lynch. Consider Marriott International (MAR) and retailer Signet Jewelers (SIG).
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