My Best Investment Ideas for 2016: Part 2

I have already penned down my two best investment ideas for 2016 in one of my previous articles. As I said in that article, I think 2016 is not going to be a great year for the market. Consequently, I think investors should have over40% of their portfolio short with companies whose stock can fall even in the most bullish of markets. In the second part of this article series, I’ll recommend two more stocks, one long and one short, which investors should add to their portfolios for 2016. Let’s take a look at the two stocks.

Long Idea- JetBlue (JBLU)

My best long idea for 2016 was Spirit Airlines.
Following up with my previous idea, my second best pick would be JetBlue. Although investors may think that buying two airline stocks may expose their portfolios to industry-wide risks, I think the airline industry will have a very good year, which is why I think JetBlue is also a buy.

According to recent forecast, airline earnings are expected to grow by 10% next year to reach a total figure of over $36 billion. The significant growth will be fueled by cheaper crude prices and increasing demand for air travel.

Although JetBlue has appreciated considerably this year, the shares have traded sideways for the last six months. Despite the company’s strong performance, the market has been skeptic abut JetBlue’s prospects. However, I think investors should use the underperformance to initiate a position in JetBlue as I think the stock possesses about 25% upside potential.

With many revenue-boosting initiatives expected to take effect in the coming months, JetBlue’s revenue should grow to record levels in 2016. Given the market’s concerns regarding airlines’ declining unit revenue, I think JetBlue’s new initiatives will have a positive impact on the stock.

Portfolio Allocation: 5%

Mobileye (MBLY)

Mobileye remind me of 3D Systems (DDD). The stock has risen to lofty valuations due to the hype surrounding the driverless cars concept in the same way that investors bid up 3D Systems stock due the hype surrounding the 3D printing market.

And like 3D Systems, I expect shares of Mobileye to fall considerably in the coming months. Mobileye is trading at a ridiculous valuation and the overvaluation of the stock makes it my second best short idea for 2016 after Wayfair.

In addition, investors are also ignoring numerous flaws of the driverless car technology. It will take at least a decade before the technology becomes viable to use, but Mobileye’s current valuation has already priced in the fact that the technology will take off soon. Even if it does, which is extremely unlikely, Mobileye will take years to grow into its current valuation. Hence, I think the stock is a short.

Portfolio allocation: 10%
Published on Dec 31, 2015
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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