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3 Sectors to Avoid in 2017

January 20, 2017, 6:00 am

We want to thank everyone for their wonderful feedback on the profit guide series so far – we’re so glad you’re enjoying it! We’ve made it to Inauguration Day, but we’re excited to keep the fun going into next week when we’ll conclude the series with an exclusive, members-only chat. Keep an eye on your inbox for an invitation to this special event!

Today is an important day, and Wall Street will be watching along with the rest of America. That said, making the most of the year ahead is about more than just one day. It means knowing where to put your money in the current environment (which we talked about in our last bulletin), but just as important is knowing where not to put your money. The incoming administration is built on lower taxes, less regulation and increased spending on infrastructure. While these three pillars will help buoy the economy and overall market, not all sectors will perform equally. Today, let’s talk about three in particular that we believe should be avoided in 2017: utilities, REITs (real estate investment trusts) and consumer staples.

These sectors may not surprise you as all three had started to lag the market even before the presidential election and continue to underperform the major indices. A big reason we see this trend lasting in 2017 is the Federal Reserve. The central bank has already made it clear that more interest rates are ahead this year and that’s a negative for these dividend-paying sectors. Utilities, REITs and consumer staples all pay above-average dividends, so they have been sought after with rates near 0% for so long. Rising rates will make them less attractive and limit the number of buyers as other income options become more attractive.

The sectors are also trading at valuations well above their historical average, making them even more susceptible to any selling – not even value investors will be able to justify investing in them at these levels. Plus, a rotation into high-growth stocks that become more attractive will hurt these three groups, further dampening an already limited outlook.

Of course, some stocks within these groups will get hit harder than others, so we want to share one name from each sector that we most recommend avoiding:

First up is Duke Energy (DUK), one of the largest utility companies in the United States. The stock trades with a trailing P/E (price-to-earnings) ratio of 22 and earnings are expected to fall in 2017. DUK has been downgraded multiple times over the last year, most recently to a “sell” by Citigroup (C). We happen to agree.

One name in the REIT sector to avoid is Equity Residential (EQR). This is a large REIT that trades with a forward P/E ratio of 48 and has very little growth projected not just in 2017 but over the next few years. EQR’s focus on multi-family buildings will also be a detriment as a shift to single-family homes has become a better investment option.

Finally, although Colgate-Palmolive (CL) is a well-known household and personal products company, it’s one you should forget this year. The stock’s chart is already breaking down and will be further hurt by a rising dollar. Trading at a forward P/E ratio of 21.7 with very little growth expected ahead, we don’t see CL having a squeaky clean year.

Our job is to keep you in only the top opportunities that Wall Street has to offer and we take it seriously. As we discussed on Wednesday, we see a lot of attractive options ahead so we don’t want you to waste your time or money in areas of the market that just won’t cut it. We’ll be talking more about how to keep your portfolio in prime position next week, so stay tuned.

21 comments

  1. Your headline indicates sectors to avoid under Trump, yet you point to specific stocks. Am I to read between the lines and take away avoid Utilities / mREITS / Consumer Staples?

    Comment by Troy Fielding on January 20, 2017 at 8:46 am
  2. Very well written and I feel will be helpful for many.

    Comment by JP on January 20, 2017 at 8:56 am
  3. Well written and informative article.

    Comment by H. Trattner on January 20, 2017 at 9:56 am
  4. I sold my reit last week and my Clorox

    Comment by Michael Geisinger on January 20, 2017 at 10:19 am
  5. I have not been able to read your messages because my password will not be recognized. Should I cancel my subscription?

    Comment by Charles Abercrombie on January 20, 2017 at 11:19 am
  6. Good info, very cool. ALWAYS NEED TO KNOW WHERE NOT TO STEP

    R

    Comment by Richard on January 20, 2017 at 11:20 am
  7. Thank you for sharing your insight and analysis.

    Comment by Ronald Behrns on January 20, 2017 at 11:42 am
  8. If there is a corporation opportunity to reparate off shore money, and they use a major portion to repurchase stock in the company,what effect is it going to have on the available of stock regarding number of shares available to the public and the price?

    Comment by Julia Elbon on January 20, 2017 at 11:52 am
  9. Are there any inverse ETF’s available to capitalize on these lagging sectors? Or x2 or x3 even? Would love to have some ideas thrown out. Thank you for your kind attention to my question.

    Comment by Denisa on January 20, 2017 at 12:20 pm
  10. i want to be rich

    Comment by GHULAM HUSNAIN on January 20, 2017 at 12:32 pm
  11. Great Stuff, Must Know stuff and I thank you.

    Comment by Charles on January 20, 2017 at 2:38 pm
  12. Duke is in Brazil with serious problems. Might cost a lot of money. CL dominates the market here. You are right however that growth will be difficult. Do not know much about REIT-s

    Comment by john on January 20, 2017 at 6:11 pm
  13. Always enjoy reading your comments.
    There is so much talk and many start up companies regarding marijuana, can you shed some light on what ones to follow and invest in.
    Thanks
    Noel

    Comment by Noel on January 20, 2017 at 6:42 pm
  14. you fail to mention why the P/E is so high, may be growth possibility? have you noticed C stock value is low compare with GS, BoA and others, can you trust C valuation?

    Comment by Shane on January 20, 2017 at 9:05 pm
  15. growth in c stock low

    Comment by kapadia on January 20, 2017 at 11:38 pm
  16. Any stocks under $10.00 a share. Today I bought CHK and DSX.. Strictly for trading.

    I hold MO MSFt and other majors.

    Interested in ‘Trump’ ETF’s that would hold his stocks. Any suggestions?
    Own NOBL – not too great.

    Comment by Lois Feigen on January 21, 2017 at 12:22 am
  17. Do you consider likely changes to international cash value for foreign investors by any chance?

    Comment by T B Cox on January 21, 2017 at 9:30 am
  18. You have suggested that utilities will not do so well in the next few years, but in view of the statements that Trump has made that the U.S. infrastructure need massive improvement, utilities are one of the places where this is most evident besides airports, roads, etc. Since utilities will have to raise their rates to support upgrades, with their operations and their dividends continue to expand as well? Would you suggest that the area in which to invest is construction firms, and if so, which ones are most probable in support of U.S. infrastructure rebuilding?

    Comment by Gerald on January 21, 2017 at 12:06 pm
  19. Incoming tide raises all boats. If janet yellin raises 3 more times to 75 base points, c will automatically increase between 2 to 3 billion dollars on the bottom line. That makes it a strong buy to me!! John

    Comment by John on January 21, 2017 at 4:08 pm
  20. Can’t wait to get started.

    Comment by Ronald. Photo on January 24, 2017 at 12:08 am
  21. Good Info: Thanks very much.

    Comment by Peter on March 18, 2017 at 5:35 am

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