Markets

This is the key markets play in 2016: Goldman's Kostin

VIDEO4:4104:41
Inside David Kostin's 2016 playbook
VIDEO2:4702:47
Market leaders for 2016: Pros
VIDEO4:4204:42
The Fed is strangling big banks and the economy: Bove

Markets could be mostly flat next year, says David Kostin,chief U.S. equity strategist at Goldman Sachs. So he suggests fund managers look for companies with potential for margin growth.

"The margins for the market have been virtually static for the last four years," he told CNBC's "Squawk on the Street." "Finding companies with margin expansion opportunities is a key focus; one of our key strategies."

Kostin expects that rising interest rates and slightly higher earnings will lead to contracting multiples and margins next year. "In a world where economic growth is more modest, that's when you want equity growth as opposed to value and so that would be one area of focus," he added.

Charles Evans, president of Federal Reserve Bank of Chicago.
Evans favors later Fed hike, sees 2.5% 2016 growth

Some of his stock picks include Google, Starbucks and Visa. There could also be more splits and spinoffs in 2016 as companies look for margin expansion, Kostin said.

Another play is the U.S. dollar. "A stronger dollar will be consistent with more domestic revenues; you want to own that."

A stock picker's market

Geologists studying graphical display of oil and gas bearing rock on screens.
The party is over for oil

David Spika, global investment strategist at GuideStone Capital Management, said that markets in 2016 will be all about stock selection amid a slow growth environment.

"We see the global economy growing relatively slowly, so earnings will be key," he told CNBC's "Power Lunch" on Tuesday. "For investors, the best place to look are industries where companies have top-line growth and revenue growth potential."

But Jerry Castellini, president and CIO of CastleArk Management, is more optimistic about 2016.

"We're going to grow faster than people think simply because consumer spending, and cap spending are likely to be higher than expected," he said in the same interview. "There are plenty of sectors in the market that you could play broadly as well as individual stocks."

Disclaimer