There is something about the end of the calendar year that makes investors behave somewhat illogically. Without question, many fund managers today are selling losing positions so they can start "fresh" in 2016.
To be sure, you can blame the individual; the money management industry evaluates investors on annual records. So if certain positions are underperformers, there is a huge motive to dump those shares prior to year end. Not wanting the risk of holding a losing position again, investors dump securities and buy different ones in the beginning days of the New Year.
It would not be surprising to see beaten-down stocks continue to be beaten down for the rest of the year. Energy and commodity stocks are toxic today and very few folks want to hold them. However, starting in 2016, investors who were not annihilated by the energy selloff this year may start 2016 scooping up a few energy bets.
The share prices of commodity businesses are the lowest they have been in over 15 years. While that piece of historical significance alone is no reason to invest in energy stocks, you do have valuations that are extremely dislocated from reality.
But it's not only energy stocks; Mr. Market is beating up any stock that is not glamorous or sexy. Biotech Kindred Biosciences (KIN) now trades for $3.25 despite having over $4 a share in cash on the balance sheet and zero debt. To be sure, Kindred is yet to have a marketable revenue-generating product, so each quarter the cash value declines. But Mr. Market is giving you a pipeline of over a dozen potential animal medications for free. And unlike most biotechs, Kindred's cash burn is minimal each quarter.
2015 was not a good year for "value" stocks based on how the market separates value and growth investments. Tesla (TSLA) was hot while General Motors (GM) was discarded. This was the year of the FANG: Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL). Names like Wal-Mart (WMT) and IBM (IBM) were tossed aside. (Facebook and Google are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
Next year will be tough: The skillful, rational investor will prevail in 2016. Companies are going to have to go it alone without support from the Federal Reserve. The market is going to be relentless against companies that miss short-term expectations. Those who pay a dear price to chase the flavor of the day will pay a dear price in the end as well.
