Posted December 31, 2013 17:37
What a year it has been, the S&P 500 has gained almost 30% and many stocks have been able to double in price. This year was the year for social media stocks and other high-beta names. But, what looks good for next year? Next year, I think it is important to buy fundamentally sound names and sectors. I still believe that the high flyers will do well, but they are going to be much more volatile and, therefore, more of a trade rather than an investment.
I am still bullish on the financials. I think that Bank of America along with Citi will have strong earnings growth and outperform the S&P 500. I am a fan of EBay and Apple. Both companies have solid earnings growth and are undervalued. EBay was in a trading range the whole year and I think it is due to have a phenomenal year next year. For Apple, I believe that the China mobile deal is a step in the right direction to achieving even better growth for the company and further strengthen their already strong balance sheet. I think that the stock is going to hit the coveted level of $700, the all-time-high.
Looking internationally, I think that Japan will have a very nice year, mainly due to the continued depreciation of the Yen. With the highly accommodative policy put forth by the Bank of Japan, I think that the Japanese market will continue to rise. There are two ways that I would play Japan: buy the DXJ stock and short the FXY. The DXJ is a Japanese equity ETF, and the FXY tracks the Yen/Dollar ratio. By shorting the FXY you are betting that the Yen weakens against the Dollar.
Now, for a trade into the New Year. I believe that Twitter is going to continue to do well. There is a lot of options activity that indicates to me that Twitter will rise. Everyone’s short argument is that valuation is insane. I’ll admit it, it is insane. There is no sound reason to buy Twitter at this level based on fundamentals. However, the way that the market is trading, you have to look at the chart and the options. Twitter may crash the same way Tesla may crash, but at what point? Twitter may crash from $100 per share or maybe $200 or maybe higher. Right now, I want to limit my risk via options and I think that buying January and March OTM calls is the right speculative trade. I could be wrong and Twitter could sell-off back to the mid 40s or even lower, but by buying the option and not the stock, I am able to control the amount of money that I am risking without fearing a disaster scenario where Twitter plummets and I am stuck holding shares for who knows how long.
Happy New Year to everyone! Good luck trading and I hope that for everyone it will be a happy and prosperous year!