It's prudent in a bearish market to choose an eclectic combination of stocks that can offer solid long-term value. They can increase the likelihood that if one industry or investment goes sour, that you will be covered.
Below, we pick three stocks in different industries that are among the most promising opportunities of 2016.
The performance and prospects of each offer a compelling argument for investors looking to guard against volatile markets.
Let's get you into the world of deep value with these stocks that have it all: rock solid businesses, good liquidity, and cheap valuations based on potential growth.
AAPL data by YCharts
1. Apple (AAPL)
Tech behemoth Apple has witnessed a spate of selling driven by chip supplier warnings and the surrounding iPhone order cut buzz. A middling earnings report card and soft guidance added to the confusion.
If you're a short-term investor, you'd probably think: Sell.
But think again. Apple remains one of the biggest wealth creators in U.S. market history. It's among a handful of stocks that have cumulatively clocked at least 10,000% gains over the last three decades.
A fortress like balance sheet with $38.39 billion in cash and massive free cash flow ($62 billion in the trailing 12-months alone) makes Apple one of the safest technology plays around. Its 10-year revenue growth of 32% and 10-year net income growth of 44% is testament to the stock's strength.
At a forward price-to-earnings (P/E) of 9.80 times, Apple is cheaper than Alphabet ( 17.56 times) and the S&P 500 (18.1 times).
With a five-year EPS outlook of 11.93% per year, Apple is set to out-perform most of its peers in the industry. Analysts have a 12-month median price target of $132, about a 34.5% jump from current levels. Apple is among the best technology bets you can make now.
You see Jim Cramer on TV. Now, see where he invests his money and why Apple stock is a core holding of his multi-million dollar portfolio. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.
ADS data by YCharts
2. Alliance Data Systems (ADS)
Alliance Data Systems is a provider of transaction-based, data-driven marketing and loyalty solutions serving large, consumer-based businesses in a variety of industries. The stock is trading near 52-week lows and has been corrected by 30.43% in 2016 alone.
This is amiss and reflects nothing more than over-anxiety.
Analysts are projecting double-digit EPS and sales growth for 2016 and 2017.
If the S&P 500 is grows between 3%-9% over these two years, Alliance Data at a five-year expected price-to-earnings (PEG) ratio of 0.87 is a deeply undervalued growth play.
Stable margins, earnings and a billion dollars of free cash flow every year makes the stock a great value pick considering that Discover Financial Services and American Express both have PEG ratios of over 1 but can't boast of superior return on assets (as opposed to Alliance Data).
IBKR data by YCharts
3. Interactive Brokers Group (IBKR)
Interactive Brokers Group is a leading electronic broker. Goldman Sachs has suggested a sell, but the company is being short-sighted.
Interactive Brokers makes it to this list for its industry-leading strong margins, good free cash (FCF) flows (on a TTM basis FCF is $977 million, close to its revenues of $1.2 billion) and strong growth prospects ( 17.85% EPS growth for the next five years).
Wall Street analysts made the mistake of expecting too much from Interactive Brokers, which could explain the recent earnings misses. The stock offers good value, as it trades at a PEG ratio of 1.20.
Analysts have a 12-month median price target of $40 ( Goldman Sachs is in agreement with this) implying a solid 20% upside from current levels. Its 1.21% dividend yield offers a strong income opportunity as well.
Interactive Brokers is a high growth and value opportunity compared to peers like Charles Schwab, TD Ameritrade Holding and E*TRADE Financial.
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