Jim Cramer’s Best Stocks for 2016 - TheStreet

Jim Cramer's Best Stocks for 2016

Originally presented at The Deal Economy Conference ? 12/3/15

So 2015 was a do-nothing year.

A year where we lived in fear of the Federal Reserve. A year marred by the collapse of Chinese growth. Still another year where Washington provided a pall of gloom despite the best job growth since before the Great Recession. Another year where just a handful of stocks and a series of takeovers provided whatever oomph the market demonstrated.

Well, I've got some good news. In years where we flat-lined, we've followed up with dramatic outperformance worth noting: 23% in 1961, 10.82% in 1971, 12.13% in 1979, 26% in 1985, 12.4% in 1988 and 13.49% in 2012, giving us an average 18% return after ones like 2015.

That's a far better record than what we've seen in an election year, which is a decidedly mixed return. I come in optimistic for stocks, but only for a few of them, and hopefully you will pick your favorites to add to your portfolio.

ECO-PSYCHOLOGICAL SCARCITY

What's ailing this stock market? Why can't I be more bullish for the entire market or at least the S&P 500?

Jim Cramer is one of America's most recognized and respected investment professionals and media personalities. He is the Portfolio Manager for the Action Alerts PLUS Charitable Trust.

In 1996, Jim founded TheStreet, one of the most visited financial media websites for individual and institutional investors. Jim also writes daily market commentary for TheStreet's Real Money premium service and participates in video segments on TheStreet TV. He also serves as the host of the "Mad Money" television program and co-host of "Squawk on the Street", both on CNBC.

Jim graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He went on to earn a law degree from Harvard Law School in 1984. From there, Jim joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While still managing his fund, Jim helped start Smart Money for Dow Jones.

I think we are stuck in an era where we recognize we have too many stocks, too many public companies, too many companies that don't warrant our attention or our investment. Too, dare I say, irrelevant companies

Jim Cramer's Best Stocks for 2016

in all sorts of industries, and some industries and sectors themselves that have become irrelevant.

I want you to keep that concept in mind, something I am christening the Eco-Psychological Scarcity Factor, where we don't have enough investible stocks and that phenomenon, I believe, is going to drive investing returns regardless of what the Fed does or who wins the Presidency.

No, I am not punting on these big issues. I think this is what we called--in political science back in the day--a critical election year, where Hillary Clinton wins so big that the Republican Party will have to change the way they arrive at their future presidential candidates the way the Democrats had to after the George McGovern era.

The Republicans are just too darned conservative socially for our country--even if you agree with them on these issues. As far as the Fed--call me no fan these days.

After a "Ben Bernanke Fed", which, despite the quiet demeanor of the man, amounted to an iron-fisted Fed with no cacophony of voices to sow confusion. These days the "Yellen Fed" stymies all but the most individual-stock focused of investors, with an on-again, offagain blowing in the wind multi-voiced ensemble of confounding Fedspeak.

That said, I think that a combination of a stronger Europe, and a slowly evolving consumeroriented economy in China, with 400 million people still to join the middle class, and many more on the way now that the single child policy is history, will give the Fed ample cover to start raising rates.

Business remains robust for many industries, even as others like the fossil fuels, dwindle away, something that would be hastened by a Clinton victory.

HOW HIGH WILL THE FED TAKE RATES?

The Fed is data dependent, so given that there might not be too much of an acceleration in economic growth after their first hike--and there might be some weakness in current areas of strength--I suspect we are in for a truly gradual series of increases.

Jim Cramer's Best Stocks for 2016

I would be surprised if we were higher than 125 basis points at end of 2016, not something that should crush us even as I think stocks would be much higher if we were just one and done.

That should leave the robust industries of the country, housing and autos, still strong, although I think the latter peaked in 2015. Strong auto sales have been a function of the job market, but it's hard to see either getting hotter than they currently are. That's because the rising cost of everything from health insurance to minimum wages to the need to meet needed but onerous regulations will put a lid on 2016 at a 2-3% growth pace.

I say that as both an Inn and a Tavern owner, small businesses which have given me more insight into the way government is run than any ten company CEOs I interview for Mad Money or Squawk on the Street.

[Of course, I invite all of you to my small plate restaurant, Bar San Miguel in Carroll Gardens, Brooklyn, where we sell Modelo and Corona and specialty margaritas because if we just made food and served liquor as an afterthought we would have closed long ago. Instead it's two years old and going strong, particularly when I host!]

Despite the uneven performance of election years and the fact that we will be fighting the Fed in 2016, the list of stocks I am about to present to you factors in these negatives.

THE ANOINTED ONES OF 2016

Yep, the Eco-Psychological Scarcity value of certain stocks, of certain companies, allows them to transcend the headwinds I see for 2016. They are the anointed ones. You need to know them.

Why is there such a scarcity?

Let's start with the obvious: technology.

The last few years have seen an explosion of stock offerings in technology, with lots more to come if the 120 unicorns--the non-public companies valued at a billion dollars or more--that are waiting in the wings manage to get to the IPO altar.

Jim Cramer's Best Stocks for 2016

Yet, here's what you need to know about those unicorns. We don't want them. We don't want them coming to market. With the exception of perhaps AirBnB and Uber, we want nothing to do with them.

I say that for several reasons.

First, the bitterness of the failed deals sticks with me and not just because I stare straight at the podium from Post Nine when we get an opening IPO bell rung at the New York Stock Exchange. There are so many poorly performing companies with stocks that have cost people fortunes that I dread the queue of companies hoping to come public.

Take Square (SQ). There's a deal that came at about half of what the private market valued it not long ago, and only a last minute deep dive in the pricing saved the stock from disaster.

I can't think of any area of tech as commoditized as anything having to do with the register, and Square's payment system has so little that is proprietary that I find it astonishing that it was able to come public at all.

The losses, the slowing customer adoption, the easily imitated product, it's all meant to lose you money. And I think that it's pretty much par for the course of what awaits us with the much ballyhooed unicorns. There's a reason why that species was mythological.

So what wins in this world of scarcity?

I'll spell them out for you and they aren't just FANG, the acronym I created for the real winners of the era--Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL), now Alphabet. Fortunately, they aren't alone for tech representatives in this, the largest cohort in the S&P 500. I've got four others: Expedia (EXPE), Linked (LNKD), Palo Alto Networks (PANW), and (CRM).

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