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Designing a Winner Portfolio for 2020




The year 2020 begins and investors and traders are designing the best asset allocation for their portfolios. And they ask ourselves the usual questions: how will this year comes and what surprises will it bring? What will be the performance of the global economy, today in deceleration with central banks resorting to declines in i-rate and debt issuance? Will the anticipated recession, due to inversion of the yield curve since 2018, finally will occur or seems the US its avoiding it? Will its manufacturing indices fall further and will consumption continue to be the mainstay of its economy? Will the impressive growth of the US exchanges continue or the correction finally come after 10 years of an incredible bullish rally? Will there really be a "Phase 2" in the Trade War? And the Brexit? Many questions and the experts are divided. Whatever the new year has in store, you've got options for investing in 2020 that promise a positive return.

This 2020 I will look for defensive or safer investments, especially in the second half of the year when US elections come giving much volatility in the markets. As usual, I prepare my long-term asset allocation diversifying through ETFs, the easy and cheapest way to create a portfolio. It isn't a completely passive investment: each month I review and filter each asset through basic fundamental and technical analysis, and hold or sell any of them, to avoid drawdowns. That´s a "dynamic asset allocation", in which rebalancing the portfolio monthly is the key. Let show my ten favorite investments for this year:


1. SP500 and Nasdaq


As being the best way to invest in the market top companies of every industry and biggest tech stocks, these ETFs are mandatory in every long-term portfolio. Both, SPY and QQQ, are the less-risky way to diversify in the stock market, and never lose a bullish rally as the current, that seems to never end.

2. Defensive Sectors


I'm looking this year to defensive sectors, mainly Healthcare XLV and Consumer Staples XLP. Both gain in 2019 (as all the GICS sectors), 18% and 24% respectively.  The advantage of an industry fund as these is that it allows the investor to select an industry to invest in, rather than a specific company. However, this kind of narrow exposure to one industry means that a negative development may hurt all the companies in the industry, lessening the benefits of diversification.

Into Healthcare review the Biotech sector XBI, as M&A (merger & acquisitions) in this subsector increases in 2019.  In Staples, I bet in Food and Beverages PBJ as a winner for 2020.

3. Corporate Bonds 


As a rule of thumb, investors design their investment portfolios with stocks and bonds in a traditional 60/40 model. With the stock market now overvalued (a current SP500 PE ratio of 24.64, one of the higher of the decade), it is a good idea to put some money on corporate bonds in 2020, which also works as a hedge if stock market corrects. Like 2019, my favorites are the high-yield or junk bonds, followed by the ETF HYG and the safer investment-grade bonds followed by the ETF LQD. Both did well last year, and a good idea for investors is to shift between the two of them depending on market behavior: optimistic (HYG) or pessimistic (LQD) sentiment.

4. Dividend Stocks


Are less-risk than growth stocks or non-dividend stocks. As usual, better choose companies with a dividend solid-history instead of those who bring higher yields. The Dividend Aristocrats NOBL is a good option: are SP500 index constituents that have increased their dividend payouts for 25 consecutive years or more. A good practice is to reinvest your dividends for better returns.

5. REITs


The Real Estate Investment Trust is a good passive income (or cash flow) for investors who are looking for an easy way to own real estate without managing it. The REIT companies do that job, and generally don’t pay taxes as long as they pass along most of their income as dividends to their shareholders.  Best look for traded REITs, as the popular Vanguard REIT Index VNQ, with great returns in 2018 and 2019, and good perspective this year due to low interests in the sector and acceptable Sharpe Ratio of 0.59.





6. Gold


A dovish Fed, as the current with Powell as chief, means that we should not expect i-rate hikes, and even more with recent CPI data showing declining inflation. So, it's very likely that the dollar will weaken or keep flat during the year. Given its inverse relationship with the dollar, gold, followed by the ETF GLD, could have a good 2020. It seems very basic, but that relation always works. Another reason is the US elections: investors usually take refugee in this commodity. Gold has currently reached a maximum of 7 years due to tensions in the Middle East, which says of its current strength.

7. China


The Large-Cap Chinese stocks, followed by the ETF FXI, are still near 18% from 2018 highs, due to the slowest pace in its economy, for the first time in three decades. Its shares have a 2-year gap that can fill, as the outlook is gradually improving between the US and Chinese governments with the sign of a "Phase One" that could launch fresh stimulus plans. And if China's economy moves up, emerging markets do the same.


8. Emerging Markets


While the SP500 (through its ETF SPY) has run over 182% in the last ten years, the Emerging Markets ETF EEM only climbed 4%. in the same timeframe. It's clearly cheap and a great room for growth. Factors like the probable Trade War end will generate that China again strengthen its economy due to injecting a lot of liquidity into the system, that's will be crucial. Investors are flowing more money now in emerging markets since 4Q 2019, a good signal.


9. Value Stocks


Another good opportunity for investors in 2020 seems is in value stocks. Over the last five years, growth stocks, follow by IVW the SP500 growth ETF, have gained more than 70%, while IVE, the SP500 value ETF increased by 41%. Value stocks lagged growth stocks throughout almost the entirety of the 2010s, but that dynamic started to shift a bit in the second half of 2019, as I post in this September article. Usual ignore by fund managers, now value stocks are cheap as the gap between value and growth stocks is large in the last 15 years and could take advantage of the next value cycle in the U.S.(see chart below). 


10. Banks


Probably the peak sub-sector for 2020. Financial stocks and especially banks, followed by the ETF KBE, have been historically winners during periods of market rotation from growth to value. and, as financial sector XLF represents near 25% of the Russell 1000 Value Benchmark, it seems a good play for this year. Banks did great in 2019 (near 27% gain), despite three Fed' rate cuts, and I believe this good performance could continue this year. With yields rising on later-dated debt, banks could take advantage of the core of its business, the spread between loans and deposits, generating great profits.
With the yield curve is finally seems normalizing again, the US economy is looking like it might be able to avoid a recession. All of these are very bullish signs for bank stocks.


Is the US approaching a value cycle? According to Bank Of America says the US economy has been in "phase four" (downturn/recession) of its macroeconomic cycle for about eight months, and it is typically good for high-quality, low-risk and large-sized stocks. Phase one of the cycle is the “recovery/early cycle,” which is typically good for value, small-sized and high-risk stocks.
Thanks to koyfin.com for the chart.

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Stock Watchlist: January-February 2020



New Year, New Stocks



Happy New Year, traders!

The 2019 trading year finished with a great performance for Wall Street, and also for some followers of this blog (thanks for the private messages!). Hopefully, the recommendations from the "Watchlist Update" posts and my daily tweets did it well. If you follow and trade them, good for you. It's your own responsibility.

For this 2020, I reduced to 15 the stocks of my Watchlist. I'm holding some stocks from my last Watchlist November-December, due to its good performance in these two months and an interesting forecast for next quarter:

- Disney DIS: my favorite stock for 2019 and a candidate to repeat this year.
- Fiserv FISV: now consolidating, ready for its next breakout.
- Kroger KR: we all need a defensive stock in our watchlist, and Kroger did well that "mission", rising when the market corrects. The recent alliance with Walgreens is another hit.
- Lennar LEN: its recent brilliant Q4 earnings report could send its shares up the $60 level.
- PayPal PYPL: in slow recovery since three months ago when it touches the $100 level. Next earnings on January 22th is a great chance to confirm its bullish bias.
- Ross Stores ROST: another 2019 gainer. Many sentiment trading here: I love this stock.
- Twitter TWTR: like PayPal, the next earnings on January 23th could reinforce its recent slow recovery.
- VMWare VMW: a classic from all my watchlists, despite a flat 2019,  I still trust in the products of this innovative cloud company.

I also keep my short position in Beyond Meat BYND. Its earnings report on January 27th. could send this overvalued stock during the first half of 2019, to its real value, I presume in order of $60-70.





New entries in my watchlist include "surprises", as is the first time here for some of them:

- Ambarella AMBA: in a strong bullish rally since my post when I advise that good earnings report didn't reflect in its share price. Stock rides from to $55.205 to $62.42 today.
- Boeing BA: every day a piece of breaking news... great stock for scalping trading, due to its increased volatility.
- Newmont NEM: another defensive stock, now at 5-year highs, can take advantage of recent increasing demand in gold.
- Netflix NFLX: returned to my watchlists, by demonstrating that is still strong in the streaming war despite new giants like Disney+. Golden Globes and Oscar weeks are usually favorable to this stock.
- Raytheon RTN: also a reenter to my watchlists, after a brilliant 2019. Aerospace-Defense stocks saw strong performance due to recent Iraq conflict, not yet finished.
- Shopify SHOP: popular online store, also called, exaggeratedly, the "new Amazon". Its great 2019 performance needs a correction to send its shares to its "real" value, definitely below $400.

I was tempted to include the VXX in this January watchlist. This ETF that follows the VIX, as a contrarian indicator, is an incredible weapon for technical traders to determine extreme conditions of bullish or bearishness of the market, using its inverse relationship: when the market is rallying, the VIX tends to drop; when the market is tanking the VIX tends to rise. Smart and serious investors use it to bet against the crowd when its greed level is extremely high, as nowjust review this accurate indicator. And mainly, they use it as protection or hedge for their investments. 

As you notice, it's a watchlist (include longs and shorts), not a "Buy" List. My suggestions, charts, and ideas regarding these stocks, in which I'm long, short or neutral, I do in the "Watchlist Update" posts. And more fresh data and ideas in my daily tweets through Twitter or StockTwits, which are much more friendly and dynamic platforms for a chat and get feedback from traders.


The image is taken on January 10th, 19:22 EST.
Favorite 15 stocks that I'm following during January-February 2019.

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