Where We'll Find the Biggest Potential Profits of 2016

Editor's Note: Normally this 2016 forecast would go to Keith's paid Money Map Report subscribers, but we're sharing this excerpt with you because his readers had a very successful 2015, and the trends he's tracking into the new year could pay off even more - no matter what the markets do. Here's Keith...

In my 2015 forecast, I predicted that defense, natural resources, and medical device companies would be the big stories of the year, despite volatility that was going to give most investors fits.

Sure enough, Raytheon Co. (NYSE: RTN) has taken off as the war against ISIS intensifies. Returns are now 214.66% and counting. American Water Works Co. Inc. (NYSE: AWK) has logged an impressive 112.66%, and Becton, Dickinson and Co. (NYSE: BDX) is rocking 124.62% to date. Bear in mind, these gains come despite the Dow and S&P 500 being modestly down for the year.

I also urged you to avoid or short companies that didn't have the quality we know leads to bigger profits and more stable income, like Twitter Inc. (NYSE: TWTR) and GoPro Inc. (Nasdaq: GPRO). Those shorts have produced returns of 36% and 71% to date.

As exciting as those numbers are, 2016 could be even better...

The Bull Market Lives On... for Us

The Fed continues to fly by the seat of its pants using badly flawed economic models with no bearing on reality, Europe's already challenging fiscal situation is being compounded by an unprecedented migration from the Middle East, China's slowing down, and Japan fell into its fourth recession in five years, only to have the numbers revised away a month later. Nationalism is on the rise worldwide, as is protectionism.

So the investing backdrop is challenging, to say the least.

But some of our favorite companies continue to pull ahead. We saw a 30% performance gap between the best and worst segments of the S&P 500 in 2015, and I see that becoming even more graphic this year. If projections hold, earnings growth may average 8% in 2016.

The run could last another three years, although not all in a straight line. Since 1926, economic recoveries have lasted an average of 58 months, so you could argue that the current expansion is past its prime at 78 months. However, three recoveries since 1981 have gone on for an average of 95 months, according to Kiplinger. Central bank meddling, wrong though it is, has that positive side.

Investors remain more interested in buying than selling. During the run-up following last August's flash crash, for example, volume was 5:1 in favor of buying several days running. According to InvestTech CEO James Stack, stocks tend to rise an average of 24% over the following 12 months when we see that happen.

Further, we'd still have to go another 36 months to match the nine-year bull market that started in October 1990 and produced returns of 546%.

Smart Risks and Good Companies Will Beat Beat Bad Markets

Overweighting U.S.-based large-cap stocks that provide products and services with the pricing power will be necessary to overcome more central bank meddling and increasingly challenging global protectionism.

Fuel for growth, technology-enabled opportunities, and allocation will be key - they're all in industries where revenue is rising and earnings are stable or increasing.

The synchronized recovery central bankers and politicians have tried to engineer will, unfortunately, remain a fantasy. Recovery, reform, and resurrection will be worldwide buzzwords.

Despite runaway debt and resulting stagnant growth, America's still the global economic leader. The BRICS are B-U-S-T-E-D but, at a 50% discount to U.S. stocks, chances are we'll be doing some shopping there in the next 12 months.

Prepare to Capitalize on Volatility

Any serious investor will have to be prepared for periodic market disruptions and volatility. ISIS is hardly the "JV team" President Obama once envisioned. Sadly, terrorism will grow in sophistication, as will its potential to overwhelm financial markets in the short term.

It will be critical to pay extra careful attention to your trailing stops. I update my Money Map Report readers on my recommended trailing stops every week so they can protect their capital and profits as volatility rises.

At the same time, I want you to be prepared to buy. Every major market disruption is an opportunity to pick up the best companies at a discount. It's emotionally tough but that doesn't change the fact that "buy low, sell high" is the best, most profitable, and secure path to profits.

In contrast to most investors who will be taken by surprise, my Money Map Report recommendations will use volatility to our advantage by capturing profits and making exciting new tactical buys.

Bonds remain relevant, for now. Yellen has already begun one of the slowest rate hike cycles in history. This leaves the cost of capital low, the dollar strong, and energy cheap. Tax-advantaged munis and government paper will benefit in 2016.

Gold prices will remain trapped in a tightly defined range of $900 to $1,100 for much of the year depending on how the Fed handles additional rate hikes. That's good because it will give investors an entry point to hedge their bond portfolios before the real run starts.

Other themes we'll follow closely in 2016 include:

  • Digital protection: Thieves have stolen more than 200 million charge accounts and personal information in the past 24 months. They will steal more.
  • The "War on Success" continues unabated. Taxes will rise, as will the real cost of everything. Our politicians, as usual, will be clueless to the consequences.
  • Startups will have to prove it or lose it: FOMO - the fear of missing out - will be replaced by NLYA - not losing your asteroids - on the next round of IPOs.
  • Productivity growth remains slower than expected. Pessimists will call for more stimulus, not knowing that makes matters worse. Still, they'll probably get it since no politician wants to fail on his or her watch.
  • China will not collapse, but the slowdown will change global business in two ways. First, companies that overextended in China will collapse, and there will be a sharp rise in defaults. Second, there will be a fresh round of investment into China by Western companies doubling down.
  • Nowcasting: The practice of combining current data with forecasting will come into its own, speeding up corporate decision-making and profit-taking.
  • Human augmentation: We're less than five years away from the earliest human/machine interfaces, and we're tracking emerging human augmentation companies more closely than ever.
  • Protracted low prices are wreaking havoc on overleveraged energy companies, leading the strongest to make exciting new investments... in each other. That will translate to strong growth when prices stabilize, and sooner than most expect.

In closing, never forget that there's always a bull market somewhere. My job is to help you find it... together!

Best regards for great investing and a fabulously profitable 2016.

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

The first wave of the human augmentation revolution Keith mentioned is just a few years away, but his Total Wealth readers already have a head start in profiting from the trend that will surge 1,136% by analysts' expectations. In fact, Keith's pick to play human augmentation doubled within six weeks of his recommending it to Total Wealth readers... and Keith predicts a few more doubles for the small-cap robotics company that continues to live up to its potential in earnings reports. For a full and free report, including ticker symbol, click here - it's free!

Follow Keith on Facebook and Twitter.

About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

Read full bio