NEW YORK (TheStreet) -- Low oil prices, global monetary conditions and political and regulatory uncertainty mean 2015 will be a challenging year for investors. Here are my expectations on how these items will play out in 2015.
Will Oil Prices Stay Low?
Will oil prices stay low -- below $80 a barrel -- through 2015? Unlikely. Pressure for higher prices can potentially develop in a couple ways.
First, Saudi Arabia's quest to drive out non-OPEC producers that need higher oil prices to be profitable should find some success as oil prices have stayed low for some time. There will also be pressure for higher prices from desperate and oil-dependent countries, such as Russia and Venezuela. The new paradigm of significant North American production, however, makes the path to higher prices difficult to predict. Exploration and production may be an area that will not earn a great deal of investment under such conditions.
Pipeline companies, such as Williams Companies (WMB) and Kinder Morgan (KMI) , that generally employ long-term customer commitments in existing and new projects could be good bets. While such companies have been impacted by the decline in energy stock prices, their earnings outlook is not nearly as sensitive as the stock price movements imply.
How will global monetary conditions impact investors next year?
Domestically, the Federal Reserve has ended quantitative easing and appears poised to raise short-term interest rates sometime in 2015, based on expected strength in GDP and hiring. Conversely, Europe and Japan are actively engaged in quantitative easing to address conditions of weakness.
China also appears to be on a trend of decelerating growth. Overseas quantitative easing has led to very low long-term rates in Japan and Germany that should keep a lid on domestic long-term rates. In the U.S., the Fed will likely be cautious and methodical in its short-term rate decisions, much like it was with the tapering of quantitative easing.
From an investment standpoint, domestic bank margins should benefit from higher short-term interest rates. However, I would be cautious on banks with exposure to energy production.
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The results of the mid-term elections point to a change in the works. Republican strength makes greater government intervention in business less likely even in the absence of meaningful legislation. This should be a general positive for domestic markets. Greater bi-partisan cooperation could mean surprises.
Domestic equity markets have 7% to 9% return potential based on expected earnings growth, buybacks and minimal changes in valuation that currently sit modestly higher than historic averages. International markets are a bag of mixed potential dependent on conditions that largely lack clarity and are not helped by expected declines in monetary incentives, such as the end of quantitative easing and expected increases in short-term rates from the United States.
TheStreet Ratings team rates KINDER MORGAN INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate KINDER MORGAN INC (KMI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, expanding profit margins, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
You can view the full analysis from the report here: KMI Ratings Report