PDF TOP STOCKS 2016 - MarketSmith

[Pages:9]TOP STOCKS 2016

A Year of Rotating Industry Groups

TOP STOCKS 2016

A Year of Rotating Industry Groups

TABLE OF CONTENTS

Introduction

5

Market Index Charts

6

2016 Year-in-Review

14

Featured Stocks, Introduction

17

Annotated Charts

18

Featured Stock Charts

26

Complete List of Stocks

152

Index

163

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TOP STOCKS 2016

A Year of Rotating Industry Groups

This past year has given investors quite a ride. In January the Dow had a dismal 10-day trading period marking one of its worst starts in history. The markets fought to recover and by mid-summer brought us some IPOs with sizable winning moves. It was a choppy fall until November's election surprise. After which, a move to new highs as the year ended was miraculous.

In fact, all the indexes reported yearly gains.

? Nasdaq was up 7.5% ? S&P 500 gained 9.5% ? Dow Jones Industrial Average rallied 13.4% ? New York Composite added 9%

Despite different flashpoints throughout the year, there were tradable rallies that could be identified using sector rotation. In the first quarter, investors sought safety in gold and mining stocks. While short-lived, IPOs showed strength in the middle of the year. Then construction and financial stocks helped drive markets to new highs. These rapid changes in leading industries required investors to commit to ongoing research on the chart, in the fundamentals, and in industry group trends.

A post-analysis of these areas in your portfolio is equally important. My goal for MarketSmith's annual Top Stocks book is to provide you with a playbook to learn from the most important data points of the past year. Top Stocks 2016 highlights 63 stocks with charts and articles to illustrate the journey a winning stock travels prior to its breakout ? the reward for studious investors.

New to Top Stocks 2016 is the "Year-In-Review" news chart published by Investors Business Daily. The illustration highlights key news occurrences with an overlay of the S&P 500 and Nasdaq. While data is the determining factor for buying and selling stocks, seeing market reaction or inaction to global events can be enlightening.

There are numerous opportunities in the market every year to capture winning stocks. Reviewing past decisions and the "ones that got away" will only sharpen your skills for future markets, so embrace their analysis. Have a winning and profitable 2017!

Best Returns,

W. Scott O'Neil President, MarketSmith, Incorporated -5-

Nasdaq Composite-Weekly

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Lumentum Holdings Inc

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Goldman Sachs Group Inc

Goldman Sachs' Relative Strength Line At New High

BANKS

Circumstances generally are improving for Goldman's Bank-Money Centers industry group. As of Monday's IBD, the group was No. 19 among 197 groups in six-month price performance.

Still, HSBC sees further upside for Goldman Sachs, which it started with a buy rating and 250 price target. HSBC sees less upside for Morgan Stanley, which it gave a hold rating and 42 target.

Source: Corporate Website

When a stock gets hammered big time, some investors like to see three waves down before they trust the troubles are over.

Investment banker Goldman Sachs (GS) has taken three gut punches. Although the monthly chart shows that the retreats haven't involved lower lows, the sell-offs were sharp enough to test even the strongest holders.

1. From October 2007 to November 2008, Goldman's stock lost 81% of its value.

2. From October 2009 to July 2010, the stock sank 33% off its most-recent high.

3. From January 2011 to October 2011, Goldman slid 52% off its most-recent high.

Considering how hard financials were hit by the recession and the regulatory uncertainty that followed, Goldman's struggles weren't surprising.

The five-year Earnings Stability Factor is 69 on a scale that runs from 0 (calm) to 99 (wild). The three-year Earnings Stability Factor improved to 32.

In the past two quarters, Goldman's revenue growth jumped 82% and 39% vs. the year-ago periods. Earnings grew to $2.85 a share in Q3 vs. a year-ago loss and to $5.60 a share in Q4, up 204% vs. the year-ago quarter. After-tax margin was 26% in Q4, the best in 12 quarters.

The Q4 earnings growth trounced the Street's consensus estimate by 48%.

Uncertainties surrounding Goldman are primarily tied to a lack of clarity on regulations. The question marks include the Volcker Rule, Basel 3 capital requirements and Dodd-Frank.

The dividend held steady at 35 cents a share through the recession until early 2012. The payout was raised to 46 cents a share payable in Q2 2012 and boosted to 50 cents a share payable in Q4 2012. The annualized yield is 1.3%.

The stock's RS line has been rising since July and is at a 52-week high. Goldman Sachs is extended from a first-stage base and has risen in eight of the past nine weeks.

2016 Update: In December HSBC started coverage of Goldman Sachs (GS). Shares of the highest-profile investment banks have been surging since Donald Trump's victory on expectations of increased M&A activity, corporate tax cuts and robust capital markets activity helped along by the prospect of lower capital gains taxes.

Shares of Goldman rose 2.3% to 228.55 on the stock market today. Morgan Stanley shares rose 0.6% to 42.09.

Adapted from the articles published on February 13, 2013 and December 5, 2016 in Investor's Business Daily.

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Goldman Sachs Group Inc

BANKS

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Thor Industries Inc

RV Maker Reaches Out To Younger Generations Of Campers

BUILDING

Source: Corporate Website

Baby boomers and older generations already are well acquainted with recreational vehicles, but being nimble enough to capture the interests of Gen Xers and Millennials requires innovation for those who sell RVs.

Still, Thor Industries (THO) has tried to be at the forefront of innovation in that space. The Elkhart, Ind.-based maker of motor homes, travel trailers and fifth wheels has been able to tap into a younger consumer who wants access to the outdoor lifestyle while meeting the needs of the more-seasoned campers.

The key is to combine lower-priced products with technological innovations. "They've been able to take off the unnecessary content to produce travel trailers that meet the price point younger consumers can afford," Seth Woolf, research analyst at Northcoast Research, told Investor's Business Daily.

Trending Toward Lower-Priced Units Some of Thor's better-known brands include Airstream, Dutchmen, Laredo, Durango, Bighorn, Landmark, Montana, Coleman and Mobile Suites. Prices can range from $10,000 for a small trailer to

$400,000 for the more expensive motor homes. But the latest trend has been toward the lower-priced units.

To address that demand, Thor introduced four new motor homes last fall. Three are smaller Class C's designed to fit a younger demographic.

But pricing isn't the only ace among Thor's cards. It came up with "hitch vision," a system that gets installed on a fifth wheel to help customers look around without having to turn their head. And it is launching a system called "in command" which allows operators to control certain RV features from a phone app, such as air conditioners, lights, jacks and generators.

Founded in 1980, Thor has grown organically as well as through a series of acquisitions, the most recent one being Postle Aluminum, an aluminum supplier for RVs, last year.

"We definitely look at opportunistic M&A strategies. We look at companies that are a good fit for our overall corporation," Martin said. "We also grow organically. With our motor home brands, we introduced several more last fall; we just bought a new factory for motor home production and we've added on to several of our facilities recently."

Thor has operations in 148 facilities in Indiana, Michigan, Ohio and Oregon. It employs more than 10,000 people and sells its products via independent retail distributors primarily in the U.S. and Canada.

Profitable Every Year Thor is the only RV company that has been profitable every year since its inception. In recent quarters, earnings per share has accelerated from 5%

to 33% to 70%. Sales increases also sped up from 19.7% to 20.3% to 21.8%. It has no debt and cash flow generation is strong.

Its overall market share in the RV industry is 35%. The other two main players are Forest River, which is owned by Berkshire Hathaway (BRKA), and privately held Jayco. Together, those three names account for 87% of industry units.

The RV industry is highly dependent on the U.S. economy, and especially consumer confidence. "Confident consumers are willing to make a large, luxury purchase such as an RV," Gabelli & Co. analyst Matthew Paige wrote in a recent note to clients.

While consumer confidence has softened a tad from last-year levels, it is still strong. The Recreation Vehicle Industry Association forecast in March that 2016 wholesale RV shipments for all categories are expected to rise 2% to 381,800 units vs. 2015.

"People in the U.S. still feel much more confident than the macro international community. Right now it's more difficult to fly; for many, the big trip to Europe may not be in the plans," said Martin.

In addition, out of the 46 million North American households that are active campers, only 9.7 million, or 21%, are RV campers. The others use tents or cabins and are a good target market for Thor to pursue. RVs are also increasingly used for a variety of nontraditional events, such as tailgating, sports tournaments or even just going to the beach.

Adapted from the articles published on April 7, 2016 in Investor's Business Daily.

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