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The year is coming to a close, and to investors that could mean the end of a historic rally. The S&P 500 has climbed 29 percent this year through December 30, the Dow Jones Industrial Average is up about 26 percent over the same period, and the Nasdaq is up an incredible 37.5 percent. Long story short, it’s been a good year for equity investors.
But what’s next? It doesn’t seem reasonable to expect the rally to continue at its current pace. Barring enormous underlying economic growth, such a rally would truly yield the bubble that many fear is already inflating. And given the current state of affairs, tremendous improvement in the economy seems unlikely.
Modest improvements, though, are in the forecast. Most market watchers are expecting positive movement for the markets over the course of 2014, even though many expect some sort of shorter-run correction. The trick for investors, as always, is trying to find stocks that will weather the storm.
Analysts at JPMorgan Chase (NYSE:JPM) have produced a list of some of the stocks they think could be a winner in the coming year. Here’s a survey of the picks from the report, which was seen by 24/7 Wall Street.
1. FedEx Corp. (NYSE:FDX)
FedEx stock went on a tear in 2013, and the folks at JPMorgan think it could go even higher in 2014. FedEx closed on December 30 at $143.05 per share, about 6.25 percent shy of JPMorgan’s price target of $152. Shares are up nearly 51.8 percent on the year compared to a 29 percent gain for the S&P 500.
Although the company delivered financial results at the beginning of the quarter that were underwhelming (read: missed analyst estimates), FedEx did increase its outlook for the rest of the fiscal year. FedEx is forecasting full-year earnings growth in a range between 8 and 14 percent, up from a range between 7 and 13 percent. The top of this range would show earnings growth slightly higher than the current mean analyst estimate for full-year fiscal 2014 earnings of $7.01 per share.
FedEx stock surged in October, when the company announced it would repurchase up to 32 million shares of common stock, adding to the 7.4 million worth of repurchases remaining under the previous authorization. FedEx has purchased 10 million shares this year to date.
The repurchase signaled the company’s confidence in its current and future performance, and with a trailing price to earnings of 27.65 (forward of 16.05), it’s pretty cheap compared to United Parcel Service (NYSE:UPS), which has a trailing P/E of 68.66 (forward of 19.15).
2. Mondelez International Inc. (NASDAQ:MDLZ)
Mondelez has been on less of a tear than FedEx, but the stock has still outpaced the S&P 500 over the past 52 weeks by climbing about 38 percent. Shares have been actively traded, with an average volume of about 8.6 million over the past three months, but the company itself hasn’t generated a whole lot of news that could serve as a catalyst one way or another.
The food company did do some quasi-internal shuffling this month, but it’s unclear what the ultimate effect on Mondelez’s bottom line will be. The firm sold its SnackWell’s cookie business to Back to Nature Foods, a joint venture that Mondelez launched with private equity firm Brynwood Partners.
Mondelez stock closed December 30 at $34.91, and analysts at JPMorgan have a $37 price target.
3. Phillips 66 (NYSE:PSX)
Energy companies are in right now. The folks at JPMorgan have an $81 price target on Phillips 66, an independent downstream energy business, representing an upside of about 8.4 percent. Shares have climbed approximately 40 percent on the year.
Even a rough third quarter — profits fell to 87 cents per share from $2.51 in the year-ago period — didn’t deter investors. The stock has actually accelerated price gains in the past few months, perhaps in part thanks to Warren Buffett poking around the industry. Buffett’s Berkshire Hathaway recently picked up Phillips Specialty Products, a specialty chemical division, for $1.4 billion.
4. Peabody Energy (NYSE:BTU)
At first glance, Peabody Energy, a coal mining company, seems like a weird pick. Shares have fallen more than 27 percent on the year and nearly 42 percent over the past two years. Trailing 12-month earnings are deep in the red, and the U.S. coal industry in general appears anemic at best.
But the company, JPMorgan argues, is fundamentally sound. The U.S. energy landscape may be moving away from coal, but emerging economies like China and India are ravenous for the stuff. Recognizing this, Peabody appears to have turned its attention overseas.
JPMorgan has a $27 price target on the stock, representing upside of about 40 percent from the closing price on December 30.
5. Best Buy Co. (NYSE:BBY)
Best Buy has had a mind-blowing year on the stock chart. Shares have climbed nearly 239 percent, closing December 30 at $40.01. JPMorgan analysts see it climbing as much as 22.5 percent higher, to $49. The brick-and-mortar retailer has gone from a company that looked like it was on its last legs to a top-performing stock in 2013 and a top pick for 2014.
Best Buy has found some of its success by addressing its challenges and its competitors head on. Many market watchers expected the retailer to dissolve in the face of online marketplaces like Amazon.com (NASDAQ:AMZN), but through innovative use of its real estate and aggressive price matching, Best Buy has demonstrated that it can keep consumers coming through its doors.
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