College students aspiring to work on Wall Street are flocking to the Cobo Center in Detroit, Michigan, this week for the ENGAGE student-investing conference, where they will get to put their investment savvy to the test and meet some experienced Wall Streeters and other financial professionals. Before the conference, we asked them what their long-term market outlook was. Will the bull market continue or are we headed for a correction? What economic indicators did they use to formulate that opinion? And, if they were on a Wall Street job interview and asked to name one stock they would invest in to demonstrate their ability to generate big returns – what would it be? Here are some of their answers.
We’re headed for a correction
I believe that the market is headed for a correction at some point. I think that, on an overall long term basis, we will continue our upward trend, but with the issues that lie in Europe, our market will correct. I believe that foreign markets are an incredible indication of what is to come stateside. Now this is not absolutely 100 percent perfect, but it does show signs. With foreign markets weakening, we, as analysts, must realize that the United States cannot possibly live on the tip top above everyone forever. Every major civilization has had its downfall, even if it has been on the top.
Stock pick: Range Resources Corp.
There are massive opportunities in the energy sector. Range just hit its 52 week low, and has made incredible advancements in the Marcellus Shale, that have put Range into the drivers seat of North American natural gas exploration and production companies.
— Benjamin Cloutier, senior, finance major at Xavier University
Consumer spending isn’t there yet
Even though we have witnessed a tremendous rise in value of the U.S. stock market since 2009, consumer spending has not quite followed this trend, rising at a far more marginal rate. With impending raises to key interest rates, the trend of subdued consumer spending will likely continue, limiting the amount of capital flowing into the stock market from the consumer. Lower than usual consumer spending, in conjunction with significantly depressed oil and gas prices very well may lead to a hibernation period for the stock market's growth rate.
Stock pick: I'd do my research, find out what other companies the partners or executives of the interviewing company sat on the board of, and buy the hell out of them!!!
— Jeremy Hall, senior, business-administration major at Centenary College of Louisiana
A 20% to 30% decline is possible
There will always be ebbs and flows in the markets. Will we have another 2008? It's not likely anytime soon. Is it possible to see a 20-percent or 30-percent decline in the next year? It's certainly possible as the global economy is in considerable turmoil. However, the strength of the U.S. economy will be able to weather most external storms and minor internal storms. We have strong jobs growth and increasing demand for technical labor.
Stock pick: Long strangle on Cliffs Natural Resources
The company has had significant issues with high debt, poor management, and a depressed commodities-price market. The new CEO, Lourenco Goncalves, has a history of turning around failing metals companies. He has issued a laundry list of extensive cost-cutting measures and focusing the business on its profitable segments. We are finally able to see what major initiatives he has implemented, which has resulted in significant write-downs and the elimination of the company's dividend. The company's market cap is now nearly half what the revenue is from their profitable U.S. mining segment. The company is selling off unprofitable segments whose losses have already been accounted for in the write-downs. Cliffs now has a clear focus, has gotten through most of the mess of restructuring the company, and is on a path to lead the company to success.
Utilizing a long strangle allows for protection in the worst-case scenario of Cliffs going bankrupt while capitalizing on the significant room on the upside. Positions for the long strangle should account for long term movement with a minimum of 6 months and maximum of 2 years.
— Joel Florek, senior, finance major at Michigan Tech University
Naturally, we’re headed for a correction. But …
It's tough to say. Even though the Fed's interest rate increase should already be priced in, its knock-on effects are too numerous to predict. So naturally we're headed for a correction, but it's not too much of a stretch that it won't be here before we get off the zero bound.
Stock pick: I would walk out laughing. My trading record is atrocious.
— Andrew Roby, senior, economics major at Truman State University
Market will trade sideways
I expect it to head sideways, assuming the strong dollar / low oil don't drag us down. The stocks of strong / growing companies will bring positive gain, but the weaker ones will drop. Any stocks with international exposure could be in trouble if the dollar keeps strengthening.
Stock pick: IBB (iShares Nasdaq Biotech ETF) … or any of its largest holdings
— Stephen Carter, graduate student pursuing a masters in finance at Walsh College
After initial Fed scare, market will continue to grow
The main factor that is going to drive the direction of the U.S. economy in the near future is the Feds decision on interest rates. This will scare the market at first but it will continue to grow, as it always does, after the interest rate hikes become the norm again.
Stock pick: Super Micro Computer Inc.
It is a server-and-technology company that has had tremendous growth over the past two years and is projected to continue that growth. They are still a small cap and have plenty of room to grow with revenue increasing over 100 percent year-over-year. Their CEO, Charles Liang, is the new Steve Jobs. He has brought the company to what it is today and is constantly innovating the server market with new tech every quarter. SMCI has the potential to become the next IBM.
— Luke Aspell, junior, business administration at Colby-Sawyer College
History says we’re headed for a correction
History says we're headed for a correction: Every seven years or so, the market corrects and it's been just over seven since December 2007. Also, the dollar has been rapidly gaining strength, which is a correction indicator, so I think it's possible there's a correction right around the corner. However, I haven't been reading the WSJ like I used to, but I remember this time last year, although still in a bull market, we had barely caught up to post-recession market prices. Since then, I know the majority of the year, although bullish, the market has been pretty slow going up with market downs canceling market ups. I also think it's possible due to the magnitude of the last correction that the time between that correction and the next may be longer than it has been historically. All these things paired with low oil prices suggests to me we probably won't see a correction this year, but if it hasn't happened by the turn of the year it'll happen in 2016.
Stock pick: Agree Realty Corporation
I wish I had found this company before the stock pitch completion. There are big gains to be had here. I originally came across this company in an article published in Crain's Detroit Business. It's a realty company with great family-rooted management. Their strategy is to acquire properties with tenants that are "recession-proof." They also focus on diversification in terms of their locations and tenants. The best part: They have their hand in the cookie jar of Detroit; that, grouped with their solid management and strategy, is where big gains will be had. This is a company I would be comfortable letting my reputation ride on right out the gate.
— Jacob C Adams, senior, finance and accounting major at Western Michigan University
Market is ready to soar!
The decrease in the unemployment rate and strength of the U.S. dollar compared to other currencies are reasons why I believe the U.S. stock market is ready to soar in the next few years. Besides, although lower oil prices might impact badly on the energy sector, overall it boosts investors' confidence.
Stock pick: Take a look at UPL! (Ultimate Petroleum Corp)
It's a good time to catch the bottom of oil prices — this factor influences widely all other financial markets. In the short-term, it might not be as profitable as other alternative investments but in the long-term, it definitely is one of the best options.
— Duc Trinh, junior, accounting and finance major at Colby-Sawyer College