Here’s a fun fact that’s sure to wow your neighbors at their next party: Apple (AAPL) is now worth more than all the energy stocks in the S&P 500. AAPL soared 89% in 2019, while energy stocks in the S&P 500 rose barely 6%, and that includes dividends!
One reason for the “Apple versus energy sector price anomaly” is that many “blue states” have banned fossil fuel investments. So, there’s been a persistent selling pressure in energy companies from ESG (Environmental, Social & Corporate Governance) index products. Naturally, these ESG index promoters will be boasting that their ESG oversight performed better in 2019 simply by avoiding the energy stocks in the S&P 500.
Frankly, without energy, the U.S. economy would come to a grinding halt. And that includes virtually all Apple products. Clearly, as with Tesla (TSLA), which we talked about just yesterday, a bubble is forming under some stocks that are overweighted in the S&P 500 (as well as the NASDAQ 100), while some stocks that are underweighted are lagging the S&P 500. This is partially because they are excluded from ESG index products.
We also need to remember that there is still a worldwide crude oil glut. And if Iran keeps attacking key facilities, like its recent drone attack on Saudi Arabia’s massive Aramco facility, future supply disruptions could ensure that the energy sector performs better in 2020 than it did in 2019.
When you also consider that the U.S. is the largest energy producer and exporter in the world, this tells me that we may be in for another energy “mean reversion” rally this year. This is when investors buy weak stocks with little upside that might pop briefly, rather than stocks with strong momentum and plenty of future upside. So, low-quality stocks are propelled higher by buying pressure from index funds and ETFs, as well as some short covering.
Now does this mean that you should run out now and snap up shares of all the energy stocks? Absolutely not.
Low-quality stocks can only stay at the top for so long. Eventually, their weak fundamentals get the better of them and they sink back to the bottom – taking investors’ hard-earned money right down with them. Remember, the “smart money” will always gravitate back to stocks with superior fundamentals.
Your Best Bet for a Prosperous 2020
So, your best bet for a prosperous 2020 is in those stocks that have strong fundamentals, earnings and sales growth to keep them driving higher throughout the year. This is especially important now that the fourth-quarter earnings announcement season is less than a week away. I expect those stocks with superior fundamentals to be the leaders.
These are just the sorts of companies I recommend in Breakthrough Stocks. The Breakthrough Stocks are currently characterized by 39.7% annual forecasted sales growth and 172.7% annual forecasted earnings growth – and analysts have increased earnings forecasts over the past three months. The companies that beat analysts’ estimates and provide positive guidance are expected to fare the best, so I anticipate that the Breakthrough Stocks will “melt up” in the coming weeks.
In addition, the Breakthrough Stocks Buy List has an average profit margin expansion of 63.4%, which is why our forecasted earnings are growing even faster than forecasted sales. In comparison, the S&P 500 is expected to post 2.6% annual sales growth and lackluster earnings growth in the fourth quarter due to profit margin compression, according to Factset.
In yesterday’s Breakthrough Stocks January Monthly Issue, I recommended a brand-new stock. It is an international logistics company – one that’s set to double its fourth-quarter earnings, year-over-year.
In the third quarter, it did even better: Those earnings surged 215% year-over-year. That was more than a third larger, on a per-share basis, than Wall Street analysts had expected. So, you can see why I recommended this stock as our January New Buy.