NEW YORK (Real Money) -- We are nearing the home stretch, and in the home stretch, we get a pattern that plays out whenever the indices are having a terrific year, something that you have only really participated in if you are invested in the S&P 500.
The combination of seemingly endless takeovers and the concentration of winners in areas that were least expected -- namely companies that do well when rates plummet and commodity inflation is in check -- has eluded most stock pickers. It makes sense: from the very beginning of the year, the group think revolved around the need for higher rates. The macro, that the Federal Reserve would have to take action -- totally defeated the micro with these managers. But the micro ruled.
The sectors that stand out? I have found 12 of them, 12 sectors where you can almost throw darts and win with a couple of rare exceptions. I think the gravitational pull of these sectors is so strong that you can expect some of these stocks within these sectors will be anointed, meaning they will be adopted on every dip and will be “go to” as if they are wide receivers that will be targeted over and over because they have such obvious support.
Going into December, I always identified the best of the best, the stocks I expected would be supported no matter what. So I would begin to accumulate them using deep-in-the-money calls out several months, and I would simply buy more calls on every single dip.
So let me give you the 12 sectors and the best of the best within those sectors starting with the strongest, namely health care.
The health group is ideal in a slow- growth low- inflation environment. It’s become obvious of late that our growth, aided by lower petroleum prices, is better than expected. But somehow this group just won’t quit, in part because there are so many takeovers in it and, in part, because many investors STILL don’t believe the strength can continue.VRX data by YCharts
The health care cost containers came on strong and the obvious one is UnitedHealth (UNH) because it’s a Dow stock, but Humana (HUM) , Aetna (AET) , Cigna (CI) and WellPoint (WLP) all have a ton of game.
You want to know what else works: the real estate investment trust companies with Ventas (VTR) and Health Care REIT (HCN) stand out (real estate investment trusts have been terrific, but the health care ones I think have the most to run. That said I think you could make a case to just buy the IYR (iShares Dow Jones U.S. Real Estate ETF).
If you want the strongest and most visible, it’s going to be Actavis. McKesson’s the easiest; that group is loved so much it’s hilarious. UnitedHealth for visibility. Ventas for yield.
Biotech’s monstrous this year. You really don’t want to out think this. We have senior and junior biotechs that work. Celgene (CELG) and Regeneron (REGN) are coin flips, both have remarkable years on new products that weren’t even in the numbers at the beginning of the year: Celgene with a psoriatic arthritis therapy and Regeneron with cholesterol and asthma answers.
Some think that the last move in Amgen (AMGN) may be the beginning of something big. However, I don’t like guesswork. Same with Gilead (GILD) and Biogen Idec (BIIB) . They are resting. We won’t know Gilead until we see more from competitor Abbvie on Hepatitis C. Biogen Idec need to put up a better next quarter.CELG data by YCharts
The juniors: ISIS Pharmaceuticals (ISIS) , BioMarin (BMRN) and Agios (AGIO) make the most sense. ISIS has several drugs in Phase III that seem on the verge of blockbuster status, BioMarin just made a well-acclaimed acquisition and Agios has a new kind of method of killing cancer.
With the Senate going Republican and a wartime Secretary of Defense coming, this is a moment where any defense stock’s going to win because it is inconceivable to most investors that the defense budget gets restored to pre-sequester levels.
Here’s an oddity: the auto companies are just beginning to perk up on the decline in oil; that breeds bigger truck purchases where the gross margins are bountiful. But the stars of the group? Auto parts.
You have to marvel at O'Reilly Automotive (ORLY) , Genuine Parts (GPC) , Snap-On Tools (SNA) , Advanced Auto Parts (AAP) and AutoZone (AZO) . The latter’s got that amazing buyback, but ORLY’s become the loved stock. I am partial to Snap-On Tools but it doesn’t have O’Reilly’s momentum.
It’s taken sometime, but housing’s finally become a favorite. How did this happen? I think it’s the easier lending standards that are being adopted allowing lower FICO scores. It can also be lower gasoline as a spending boost.LEN data by YCharts
Oh, and Williams-Sonoma (WSM) works for the high end for certain. Don’t overlook Stanley Black & Decker (SWK) , with Home Depot saying the tool aisles are hot, although you have to deal with some European exposure there.
That lower gasoline price is putting money in peoples’ pockets and that last decline is going to make this group even hotter than dreamed.
Ross Stores (ROST) had been a great growth story, and now it looks like it is back.
Any dollar store works -- I like Dollar General (DG) .
VF Corp.'s (VFC) a fantastic weather story, which is all about North Face and TImberland.
Small-cap aficionados will want to be in a resurgent Tractor Supply (TSCO) .