Wall Street’s most bullish strategist sees the oil’s plunge and the dollar’s strength as positives for stocks.
“Of the five 40% declines in oil, the stock market only fell two times — and both were a result of the US being in a recession at the time,” Fundstrat’s Tom Lee writes of the the history.
“We realise investors are a bit concerned about the negative effects from a surging currency (hurting exports) but consider that strong USD is stimulative for Europe/Asia (trade flows) and also enables US companies to acquire assets cheaply.”
Lee identified eight large-cap stocks that he believes should benefit the most in this weak-oil, strong-dollar environment. Each stock has a positive free cash flow yield, and analysts have raised 2015 earnings estimates on them within the last two calendar quarters. All the companies are in the consumer discretionary, consumer staples, healthcare or telecom sectors.
FCF Yield: 4.2%
2015 Earnings estimate raise:18.5%
2015 Expected P/E Ratio: 19.7x
Comment: 'For fiscal year 2015, we expect currency-neutral revenue growth of 4.5% to 5% based on our current view of the environment,' said CEO Vincent Forlenza during the fourth quarter earnings call. 'Of course, we have contemplated a number of factors that could bring us above or below that range including pricing, a stronger or weaker flu season than expected, product launches, emerging market growth, macroeconomic conditions and the impact of the Affordable Care Act.'
FCF Yield: 1.5%
2015 Earnings estimate raise:18.8%
2015 Expected P/E Ratio: 61.4x
Comment: Illumina signed a 15-year lease with BioMed Realty Trust for a 360,000-square-foot facility in Foster City, California in January.
FCF Yield: 3.4%
2015 Earnings estimate raise:10.7%
2015 Expected P/E Ratio: 16.3x
Comment: 'Zimmer drove solid topline growth across several key product categories and geographies in the third quarter notably, accelerating U.S. knee sales over a strong performance in the prior year,' CEO David Dvorak said during the third quarter earnings call.
FCF Yield: 2.3%
2015 Earnings estimate raise:8.7%
2015 Expected P/E Ratio: 36.2x
Comment: Shares of Monster Beverage climbed 65% in 2014 and reached a lifetime high Thursday.
FCF Yield: 0.9%
2015 Earnings estimate raise:15.2%
2015 Expected P/E Ratio: 16.0x
Comment: Adjusted net income grew 13% to $US182 million year-on-year in Q3 2014.
FCF Yield: 1.7%
2015 Earnings estimate raise:60.3%
2015 Expected P/E Ratio: 50.0x
Comment: GoPro is expanding internationally into China after the successful launch of its Hero 4 action cameras during the holidays.
Industry: Home Furnishings
FCF Yield: 5.1%
2015 Earnings estimate raise:5.9%
2015 Expected P/E Ratio: 20.7x
Comment: 'Importantly, nearly all of our key businesses are seeing positive sales momentum,' said CEO David Haffner during the third quarter earnings call. Same-location sales from continuing operations grew 9% during the third quarter with strength in all of our residential businesses, automotive and machinery, partially offset by lower volume in Commercial Vehicle Products'.
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