10 favorite stocks on Wall Street for 2016

Back in January, we listed the 10 stocks with the highest implied upside potential among S&P 500 (^GSPC) companies with majority “buy” or equivalent ratings.

Here’s how that list has performed since we pulled it on Jan. 5:

One winner in 10 picks is a terrible record. Analysts may have been slow to believe that the 47% plunge in crude prices during the second half of 2014 was more than a typical market disruption. With hindsight, it’s obvious that the increase in U.S. shale production has changed the game. The Organization of the Petroleum-Exporting Countries realized this before Wall Street did, and the cartel is clearly willing to put up with a long-term price squeeze to kill off its new competition.

Rather than the usual OPEC production cut followed by a price bounceback, Saudi Arabia and the rest of OPEC has increased its production level as it tries to wipe out the “new kids on the block.”

The global supply glut means West Texas crude has declined another 32% this year, through Friday, and the average U.S. gas price at the pump on Monday dropped below $2 for the first time since 2009. Early Monday, West Texas Crude oil for February delivery (NYMEX:CLF6), the new most-active contract, was down another 1.4% to $35.58 a barrel.

Looking ahead — A new list, still dominated by energy

For our new list of Wall Street’s favorite stocks, we toughened up the criteria. Instead of requiring a majority of analysts to rate a company the equivalent of a “buy,” we made it two-thirds. That narrowed the list to those where analysts have the strongest conviction. The favorite names continue to be centered around the beleaguered energy sector, even as the U.S. oil-drilling rig count actually increased last week.

Here are the 10 S&P 500 stocks with “buy” or “overweight” ratings among at least two-thirds of sell-side analysts, with the greatest implied upside potential over the next 12 months, based on consensus price targets:

Despite Wall Street’s optimism, your investment horizon may well need to be a lot longer than 12 months if you are looking to make huge gains on an energy rebound. So do your own research and decide for yourself whether you have confidence in companies’ strategies to thrive during this period of weak commodity prices.

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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