Investors in 2016 were taken for a pretty wild rollercoaster ride with enough unexpected turns to cause whiplash. Stocks took off on the wrong foot out of the gate, as crashing oil prices and concerns over China’s economic health and our own slow growth caused U.S. stocks to experience the worst 10-day start to a calendar year in history. Then the bull run resumed unfazed in mid-February until June as if the 10% dip to begin the year never even happened. Then came the political influences that caused quite a bit of volatility and even more flip-flopping amongst financial pundits on the outlook of the market. Uneasiness over the potential impact of Brexit on US markets caused a big drop (Dow -600bps) but the market again proved its resilience by recovering all of the Brexit losses in weeks.
Investors were constantly monitoring the Federal Reserve for any potential changes in stance on raising interest rates, and the market continued to benefit from the lack of any raises in rates in 2016. Another thing investors couldn’t help but monitor due to the amount of media coverage was the election cycle and the projected impacts of a Clinton vs. Trump presidency. US stocks, initially predicting a Clinton victory reacted positively as this meant a continuation of policies that had been favorable to the market. The unexpected rise of President-Elect Donald Trump initially caused some panic and many predictions of a market crash if Trump happened to win the election. Trump did win, yet the sky did not fall. In fact, the “Trump Selloff” was an hours long event that quickly got turned into the “Trump Bump” as the day after the election the market rose sharply in reaction to Trump’s victory speech where he outlined some of his plans ramp up infrastructure spending and scale back regulations and taxes that translated into expectations for a business and growth friendly market environment.
Overall, those who rode the rollercoaster tended to be rewarded as the market ended up returning nearly 9% for the year. We believe that the best strategy during such tumultuous times with major changes in macro and geopolitical events that cause wild swings in the market is not to panic and jump in and out of stocks attempting to correctly time these events and chase returns. Money managers should have an unwavering process for selecting stocks that is consistent, repeatable and most importantly, effective under any market conditions. AFG has built a research process and developed a set of investment tools designed to help money managers outperform in any market environment.
AFG’s Investment Grade methodology is a multi-factor model grounded in Economic Margin methodology that assigns a letter grade of A-F to each company in our database based on the overall attractiveness as an investment opportunity. The Investment Grade model factors in the valuation, momentum and quality characteristics of each firm to come to an overall Investment Grade. This model is also dynamic in nature as the weightings of each factor within the Investment Grade model are adjusted on a monthly basis to ensure that the factors that are adding the most value are weighted accordingly to take advantage of the factors that are adding the most alpha. Over the long term, sticking to a strategy of buying buckets of stocks that earn an Investment Grade of A or B and avoiding stocks with F Grades has proven to help investors outperform while providing a steady hand to guide managers through even the most volatile market environments.
While there is still plenty of uncertainty in the market regarding how aggressive the FED will be in 2017 in raising rates as well as which of President-Elect Trump’s policies he will push to enact and which will get passed, one thing we do know is that utilizing a proven valuation and stock selection process will help investors to maneuver through any potential market conditions. The long term track record our research has delivered proves that utilizing AFG’s research and tools puts money managers in a better position to outperform and removes much of the human emotion and biases that could lead to owning potential torpedo stocks or overreacting to outside events and buying or selling stocks based on knee-jerk reactions. AFG’s research will consistently help professional money managers outperform the market in their equity portfolios while freeing up more time to grow your business or focus on other aspects of your business’s success.
In the list below you will find 17 stocks that earn an Investment Grade of A that also look very attractive from a valuation perspective relative to sector peers. This list can serve as a solid starting pool of companies for investors searching for investment ideas within the S&P500 index and has representation from every AFG sector. AFG’s Research Team wishes all of our clients and readers a prosperous and profitable 2017!
17 Stocks to Buy for 2017 – S&P 500
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