The Nifty Fifty Of 2016

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Includes: COG, CPB, D, DUK, EA, ED, EQT, EW, KHC, M, MCD, MO, NEE, NI, O, RAI, RRC, SCG, SE, SO, STZ, SWN, T, TE, VZ, WEC, WMT, XEL, XLU
by: Eric Parnell, CFA

Summary

To say that the U.S. stock market has stumbled out of the gates in 2016 is an understatement.

But not all stocks are lower year to date. In fact, fifty out of the 500 stocks in the S&P 500 Index are actually higher for the year to date.

Exploring the list of winners is instructive in determining what we might expect from different segments of the market through the rest of 2016.

To say that the U.S. stock market has stumbled out of the gates in 2016 is an understatement. By some measures, it has been the worst start to a calendar year for stocks in history. But even with the S&P 500 Index having fallen by as much as -11% and still down nearly -7% for the year to date through Tuesday, the good news is not all stocks have joined in the move to the downside. In fact, fifty out of the 500 stocks in the S&P 500 Index are actually higher for the year to date. And taking a look at the composition of this small list of winners is instructive as to what we might expect from different segments of the market if the selling continues with fits and starts through the remainder of 2016.

Breaking Down The Winners

It is notable that 10% of the stocks in the S&P 500 Index are higher for the year-to-date. But upon closer inspection, this winners list has its share of pock marks in its own right.

For example, five of the year-to-date winners hail from the energy space. These include Southwestern Energy (NYSE:SWN), Spectra Energy (NYSE:SE), EQT Corporation (NYSE:EQT), Cabot Oil & Gas (NYSE:COG) and Range Resources (NYSE:RRC). But while their recent gains are certainly welcome for shareholders, these are all names that have fallen off substantially over the past year. So, if anything, the recent bounce in these names has been nothing more than a consolation thus far.

The same can be said of most of the ten year-to-date winners in the consumer discretionary sector. For example, the resounding winner in 2016 thus far is Macy's (NYSE:M), which is up an impressive +12.4% so far in 2016. But it should be noted that the stock is still down -44% since last July with recent gains as a result of a bounce that got started literally on the very first trading day of 2016. A similar picture can be painted for mega-retailer Wal-Mart (NYSE:WMT). In fact, the only name out of the ten stocks that is higher thus far for the year that is effectively setting new all-time highs in the process is McDonald's (NYSE:MCD).

The next 17 names on the list of 2016 winners comes from a blend of sectors including technology, health care and consumer staples. And while some are up for the year as a result of a recent bounce, a solid 10 names from this group are advancing at or near their recent highs. This includes pseudo defensive telecom giants AT&T (NYSE:T) and Verizon (NYSE:VZ), tobacco firms Altria (NYSE:MO) and Reynold's American (NYSE:RAI), basic food and beverage companies Campbell Soup (NYSE:CPB), Kraft Heinz (NASDAQ:KHC) and Constellation Brands (NYSE:STZ), specialized health care firms Intuitive Surgical and Edwards Lifesciences (NYSE:EW), and tech firm Electronic Arts (NASDAQ:EA).

One and only name hails from the battered financial sector, but in truth it is not really a financial. This is Realty Income (NYSE:O), which is arguably the bluest of the blue chips from the REIT space.

As for the remaining 17 names on the winners list for 2016, they all come from the classic stock market safe haven sector in utilities (NYSEARCA:XLU). The fact that so many stocks from the utilities sector are doing well does not come as a complete surprise, for not only is the sector where investors migrate during periods of uncertainty, but utilities are the only market sector that is higher in and of itself for the year-to-date period, albeit modestly so at just over +1%.

The advance higher in utilities is being led by the largest and most well established names in the space. This includes companies such as Dominion Resources (NYSE:D), NextEra Energy (NYSE:NEE), Southern Company (NYSE:SO) and Duke Energy (NYSE:DUK). Other higher quality and larger utilities on the list include Consolidated Edison (NYSE:ED), which is the 2016 leader from the group, WEC Energy (NYSE:WEC) and Xcel Energy (NYSE:XEL). Even some of the mid sized utilities rank on the winners list for 2016 including Nisource (NYSE:NI), TECO Energy (NYSE:TE) and Scana (NYSE:SCG).

Bottom Line

Whether these year to date winners are able to maintain their gains deep into 2016 remains to be seen, particularly if the market continues in its downtrend. But the gains among this group highlights a few key points.

First, even if the broader market is sharply lower, it is still possible to find market winners at any given point in time. In fact, even during the depths of the financial crisis, a select few names were still able to hold their ground.

Second, during periods of market stress, capital still likes to flow toward quality companies from defensive sectors and industries, particularly those with more attractive valuations. And investors have good reason to believe that this historical behavior will likely continue in 2016 if the broader market continues to drift lower.

Lastly, investors likely still have not missed the chance to position in these more defensive names in the current market cycle. It appears that we may be at the very early stages of a more sustained market downturn. But unlike bull markets that often rise relentlessly, bear markets typically unfold with sharp corrections (see the S&P 500 from December 29 through last Wednesday) followed by swift rallies (see the S&P 500 over the course of October 2015). Often, these quality defensive names get sold off during these rallies. Thus, investors may be well served to use these rallies to seek particular names that they might like to snatch up in anticipation of future moves to the downside in the broader market.

Disclosure: This article is for information purposes only. There are risks involved with investing including loss of principal. Gerring Capital Partners makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Gerring Capital Partners will be met.

Disclosure: I am/we are long O, SO, WMT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.