Tech investors have laughed their way to the bank in 2015, but if you're one of those who primarily bet on financial stocksyour mood could understandably be a little somber.
We examine how each sector performed in 2015, and which is best positioned for growth in the new year. Many of the stocks we highlight below have been reliable sources of income and they should continue to reward income investors in 2016 and beyond.
Let's take a closer look.
The Technology Sector
The Technology Sector
AAPL data by YCharts
Shares of Apple Inc. (AAPL - Get Report) , a company known for its amazing ability to mix hardware, software, services, and third-party apps into smart devices, gained just 7.8% in 2015 (so far). That's actually under-performing the S&P 500 IT index that is up 8.43% (based on last Friday's closing).
Analysts estimate the Tim Cook-led behemoth to log in a 6.8% rise in earnings-per-share (EPS) in the current year, ending Sept. 16. The stock's fortunes, which are closely linked to the performance of its iPhone, may change for the better next year, as analysts expect nearly 10% EPS growth.
MSFT data by YCharts
Microsoft Corp. (MSFT - Get Report) , one of the most influential stocks in the S&P 500 tech index, has seen a robust 20% gain in stock price in 2015 so far. New CEO Satya Nadella seems to have changed the perception of the company as an aggressive tech firm with a clear focus -- and Wall Street loves it. With Windows 10 finding traction among consumers and its Office 365 business strategy paying off, Microsoft has found currency among investors as a quick innovator and a company that can offer stable earnings.
GOOG data by YCharts
Alphabet (GOOG - Get Report) (GOOGL) also had an excellent year, gaining 46% year-to-date. With leading Internet search product Google as its foundation, Alphabet has a remarkable portfolio that individuals use frequently, beyond Google search. Alphabet Inc Class A, the parent company of search and online advertising giant Google, has benefitted from a stellar 2015 as the growing earnings wheel and the new corporate structure got a solid thumbs-up.
ACN data by YCharts
In IT services, Accenture PLC Class A (ACN - Get Report) logged over 22% gains this year. A growing order book hashelped ease worries of meager fourth quarter sales growth. Accenture's guidance suggests that in 2016 revenues couldgrow by 5%-to-8%, which is twice the rate seen in 2015.
CSCO data by YCharts
Networking giant Cisco Systems (CSCO - Get Report) has seen a flattish 2015 with stock price dipping by 1.2%. With net income growth (three-year average) at 3.8% compared to 9.5% (for the industry), investors have ignored the higher operating margins at 23%, which is nearly the double that of the industry. Its nearly 3% dividend yield provides one of the best incomes in the large tech space.
IBM data by YCharts
IBM (IBM) posted a roughly 12% loss through this year. Its enterprise software, IT services, and hardware businesses are formidable but an estimated 9.7% EPS drop this year ending Dec. 15 is no cause for celebration. Next year could be better, as analysts expect EPS growth to accelerate to 1.2% backed by a slower pace of fall in sales. Warren Buffett'sBerkshire Hathaway has ramped up IBM holdings by about 2% during the third quarter, seeing value in IBM as the stock trades at 9.3 times forward earnings.
WDC data by YCharts
On the other hand, Western Digital Corp.'s (WDC) transformation as a major storage company with a recent $19-billion acquisition hasn't found many takers, with earnings sliding and the stock falling by 41% year to date. With first quarter earnings missing profit forecasts and investors not sure of how quickly the SanDisk deal will drive new synergies, the stock has suffered. Analysts expect Western Digital to rebound to 20% EPS growth next year, ended June 17, from the sharp 19.7% EPS drop this year.
The Financial Sector
Financial stocks have experienced a difficult year -- the S&P 500 Financials index was down 0.14% this year, which means the space hardly delivered any capital appreciation.
WFC data by YCharts
Wells Fargo (WFC) , a major deposit gatherer in several metropolitan markets across the country, has gained 1.55% this year. It has one of lowest cost structures in the banking industry, and a return on common equity at about 14% places the bank near the top quartile among all U.S. banks, with a nifty dividend yield at 2.65%.
Wells Fargo is among a select group of income-generating stocks poised to prosper in 2016 that provide investors with high, reliable yields.
V data by YCharts
Payment processor VISA (V) saw its shares jump nearly 23% in 2015, year-to-date. The massive deal to acquire VISA Europe is the key trigger that will reap future benefits, driving growth and expansion. Visa bagged key deals and continues to remain ahead of its peers in the digital payment space. This is appreciated by investors, who already put faith in Visa's solid capital return policies for shareholders.
BK data by YCharts
Shares of Bank of New York Mellon Corp. (BK) , a giant in asset custody and servicing for institutional clients, saw itsshares rise by 8.6% this year. With nearly 80% of revenues coming from fee-based activities, this is a bank unlike any other. The bank can scale up without being capped by regulatory limits on leverage -- a primary reason why it resonates with many investors who like financials but not pure-play banks. With the last five years seeing witnessing EPS growth of 5.6% per year, Bank of New York Mellon seems on a higher growth path with analysts estimating 12.88% EPS rise per annum in the next five years.
BRK.A data by YCharts
Investment legend Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B) saw a roughly 9% loss this year. With a large portfolio of businesses, Berkshire is a holding company that gives you exposure to different lines. Earnings per share growth this year ending Dec. 15 is estimated at a measly 2.8%. However, analysts project a good 20.9% jump in EPS next year and that should hold the stock steady, as it trades at less than 15-times forward earnings.
AXP data by YCharts
VISA peer American Express Co. (AXP) saw a nearly a 24% slide in its stock price this year. The stock was beset by aseries of setbacks, a fall in earnings this year, and almost no rebound forecast for next year. Moreover, the soundness of its business model (as a lender and payment processor) is regarded by analysts with caution, as global growth continues to meander. Though the stock looks cheap at 12-to-13 times forward earnings, growth in EPS performance is clearly slowing down if analysts' estimates are to be believed (8.7% per annum in the last five years to 7.7% in the next five years).
MS data by YCharts
Multiple questions surrounding Morgan Stanley's (MS) renaissance as a financial holding company regulated by the Fed and the burden of more stringent rules has meant that the stock fell about 9% this year, on course for its first annual loss in four straight years. Weak third-quarter results haven't helped a bit to lift the gloom off the stock. Trading and fixed-income businesses' growth remain worries as markets continue to remain volatile. Return on equity has dropped sharply in past decade.
The upshot: tech stocks gained the upper hand in 2015 and enter 2016 with considerably more momentum than financial stocks. This past year belonged to technology and the next year probably will, too.
By Chiradeep BasuMallick
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