The best stock investments in 2014 were solid stocks to begin with that continued to appreciate as the market rallied. This will likely be the case going into 2015. Value investing in 2015 will likely be where the money is. As an example, Jim Cramer, the Mad Money host, says not to look for losers that will become winners but rather the best stocks will be winners that will remain winners.
In order to be successful in this market, Jim Cramer recommends investors stop bottom fishing. Rather, avoid the catfish and stick with the top players; gone are the days where the ugly stocks need to be bought.
“I know the idea of chasing winners can be upsetting, but unfortunately, 2014’s been all about angling from the 52-week high list, and it won’t stop now with just 20 shopping days until the end of the year,” the “Mad Money” host said.
Airlines have done well as the cost of fuel has fallen. With no immediate end to the fall in oil prices, airline stocks are likely to be good for value investing for 2015.
Selective Gains in 2015
The general consensus is that the US economy will slow in 2015 and the market advance will not be as broad as in 2014. Kiplinger’s stock market outlook for 2015 is that the market will be more volatile and that you will need to think a bit before value investing for 2015.
But for now, the bullish case is not only intact, it’s strong. A vibrant stateside economy will provide strong support for U.S. stocks, while Europe’s woes will create some compelling bargains. Analysts expect earnings growth in 2015 of 8% to 10%, on average, for companies in the S&P 500. With shares in the broad market selling at 16 times estimated 2015 earnings, prices of U.S. stocks carry a slight premium, but are nowhere near the peak levels of past market tops. And plenty of themes from lower oil prices to a rising dollar to a stronger consumer could pay off for investors in 2015.
With the price of oil lower people are paying less to gas up their cars and less to heat their homes. This typically translates into more retail sales, eating out at restaurants and vacations. These facts point to possible sectors for value investing in 2015.
The Prices of Oil and Natural Gas
How Much Does It Cost to Produce Oil?
A measure of the total cost to produce crude oil and natural gas is the upstream costs. The upstream cost includes lifting and finding costs. Lifting costs are the costs to operate and maintain oil and gas wells and related equipment and facilities to bring oil and gas to the surface. Finding costs are the costs of exploring for and developing reserves of oil and gas and the costs to purchase properties or acquire leases that might contain oil and gas reserves.
The price of oil is all about the US fracking boom and OPEC trying to protect its market share. In the Middle East it costs about $17 to produce a barrel of oil. This includes finding the oil and then bringing it to the surface. In the USA this figure is $31 on land and $52 offshore. Thus the Saudis and others better afford a drop in the price of oil than US companies engaged in high tech extraction of oil trapped in shale deposits. Value investing in 2015 will have a lot to do with how long OPEC continues to produce oil at the current rate and how badly they want to protect market share at all costs. So long as high production continues as both Japan and Europe slide into recession prices will remain low.