As the trading year comes to an end the Fed has decided to start tapering, cutting down the bond buying program from $85 billion to $75 billion a month. The news that the Federal Reserve believes that the U.S economy is strong enough to warrant less support has sent markets up over 393 points in the last week.
If you were amongst the traders who has seen their portfolios increase tremendously in the last few trading days congratulations, now though is the time to start planning your investment strategy for next year.
In light of the Fed tapering announcement many former bears who were predicting a falling stock market in 2014 have changed their minds and instead forecast a slower but gradual increase in the stock market. The number that appears most often is an increase of between 10-15%.
In my opinion this analysis is correct, the stock market will continue to rise through 2014 but at a far slower rate. In this case many large blue chips like General Electric and Microsoft will continue to see their stock prices rise. What investors have to be wary of are the momentum stocks of this year, companies like Facebook, Tesla, Twitter, and Yahoo, companies whose stocks are overvalued and who face the possibility of becoming the laggards of 2014.
So if you plan on investing into the stock market in 2014 avoid investing into flashy tech companies like twitter who are part of a new social media bubble and instead focus on companies who are part of laggard industries who have trailed behind the rest of the market.
The industry that appears to show the most opportunity going into 2014 is energy. Energy stocks are only up around 11% this year while the broad market is up almost 30%, coupled with the fact that with shale oil the U.S is about to become the largest energy producer in the world, and like I said last week, Mexico is about to open up its oil market to outside competition. The seeds are set to launch a boom in the U.S energy market and companies like Chevron and Exxon Mobil who are trading below the market average stand to benefit the most. With this in mind I Suggest to start filling your portfolios with energy stocks.
Last week I provided a short term analysis on Chevron which recommended by call options on the stock, this short term analysis proved to be right with Chevron up 2.5% in the last week. If you bought options at the price I suggested (which was 119) you would of yielded at least a 50% return on your investment.
If you missed that remarkable opportunity here's another one. After reading an article in the Wall Street Journal (written by Mike Esterl) about how Tobacco makers Philip Morris and Altria Group have teamed up to market electronic cigarettes, I saw an opportunity in the stock of the two cigarette giants.
It's easy to dismiss an investment into tobacco companies for many reasons, amongst which are increasingly heavy taxation, increasing regulations and lower cigarette volumes. All these concerns are well founded but in the short term Philip Morris and Altria stock provide a unique opportunity to profit. The joint agreement between the two tobacco giants to market electronic cigarettes positions the two to take control of the small but growing alternate tobacco market,
Taking dominant market share in the e-cigarette market would no doubt set an upward trend in the stock of the two companies, and generate high returns to investors who buy in now.
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