March Madness, Wyatt Research Style

The stock market madness of January and February has given way to relative calm in March, with the S&P 500 index gaining 2.7% during the past week.
But for college basketball fans, the mayhem is just getting started. The NCAA March Madness men’s basketball tournament tips off on March 15, with the national champion crowned on April 4.
In honor of the hardwood hoopla, we’ve put together a bracket of 16 stocks. Call it March Madness, Wyatt Research style.
Here’s the playing field:

The “FANG” stocks – Facebook (NASDAQ: FB), Amazon.com (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Alphabet (NASDAQ: GOOGL), the company formerly known as Google – were awarded the No. 1 seeds in their respective bracket quadrants on the basis of their market dominance in 2015.
The remainder of the seeds are somewhat arbitrary. Whenever possible, companies were paired by sector or investment theme.
The format of the contest will be based strictly on share-price performance. The first round will commence on Monday. The stocks in the eight head-to-head matchups with the largest gain as of Friday’s market close will advance to the next round. The stock tournament will thus run for four weeks, with the big winner of the Big Dance determined at 4 p.m. on April 1.
Like the NCAA tournament, picking winners in this stock market exercise involves a fair amount of speculation. Like basketball teams, some stocks are long-term favorites to have winning records, but in the short term anything can happen. Great basketball teams can have bad shooting nights. Great companies can see their stocks battered by market conditions completely out of their control.
That said, if I were a short-term swing trader (which I’m not), the following are my best bets for the next four weeks:

Let’s start with the Big Oil matchup. The energy sector hasn’t inspired a lot of confidence in 2016, but to my mind Exxon Mobil (NYSE: XOM) is the best positioned of the integrated majors to weather the low-oil onslaught.
Its balance sheet is strong, it has the securest dividend in the Big Oil space, and the strength of its downstream refining segment should serve as a hedge against the pain in the upstream exploration and production space. I’m taking Exxon Mobil over Chevron (NYSE: CVX).
The big bank matchup pits JPMorgan Chase (NYSE: JPM), the largest U.S. bank by assets, versus Wells Fargo (NYSE: WFC), the largest U.S. mortgage lender. At its annual investor conference on Feb. 23, JPMorgan informed shareholders that it expects a $500 million hit due to energy exposure. That’s in addition to $815 million already earmarked for oil and gas loans. While none of the big banks are immune to the carnage in the energy sector, I’m picking Wells Fargo for the win.
The cord-cutting matchup sees The Walt Disney Co. (NYSE: DIS) facing off against its current arch rival, Netflix (NASDAQ: NFLX). Despite the significant earnings force of its recent “Star Wars” blockbuster, Disney continues to struggle on concerns over user declines at its flagship ESPN cable network. Meanwhile, Netflix continues to gain subscribers at a breakneck pace. Chalk one up for the cordless contingent.
The conglomerate clash finds old school blue chip General Electric (NYSE: GE) trying to fend off Google’s parent company, which graduated to official conglomerate status when it created its Alphabet holding structure last year. In the interest of full disclosure, I personally own shares of GE, but I’m picking Alphabet here. More on that a little later.
The classic 1990s Mac vs. PC matchup of Apple (NASDAQ: AAPL) vs. Microsoft (NASDAQ: MSFT) has changed considerably in the 21st century. Microsoft is now an unsexy income play, while Apple is subject to the slings and arrows of outrageous market swings that come from being the world’s most valuable publicly traded company.
Apple is currently preoccupied by a legal battle with a formidable opponent – the FBI – over its unwillingness to create a backdoor software program to unlock the iPhone of one of the San Bernardino terrorists. Apple is facing too many potential negative catalysts over the coming weeks, so I’m picking Microsoft to eke out a workmanlike victory.
The e-commerce vs. big-box store battle is represented in the Amazon.com (NASDAQ: AMZN) and Wal-Mart (NYSE: WMT) matchup. This was a tough one. Wal-Mart was a pleasant turnaround story the first two months of the year. Heading into its disappointing earnings report on Feb. 18, Wal-Mart was up nearly 8% for the year.
Still, even after downwardly revising its sales forecast for its current fiscal year, Wal-Mart shares have overcome an initial pullback and have now gained 1% since the issuance of that dispiriting earnings guidance. On the other hand, Amazon shares have posted year-to-date losses of 14.9%.  I’m speculating that enough fence-sitting investors who were turned off by Amazon’s lofty valuation will see the downturn as a buying opportunity and will jump in. Amazon over Wal-Mart in a barn burner.
The leftovers matchup pairs biotech powerhouse Pfizer (NYSE: PFE) with stodgy telecom stalwart Verizon Communications (NYSE: VZ). With 12.1% gains, Verizon is the best-performing Dow 30 component thus far in 2016. By comparison, Pfizer has struggled, limping to a loss of 8%. Should March see similar market volatility as the first two calendar months, Verizon could continue to be an attractive flight-to-safety play. I’m taking Verizon over Pfizer, and I’m also picking Verizon to pull off a victory over Amazon in the second round.

Finals Face-Off

You may have noticed that I saved Facebook (NASDAQ: FB) for last. It’s no coincidence, since it’s my pick to win the big enchilada.
However, I’m a bit concerned about its opening round matchup. McDonald’s (NYSE: MCD), like Wal-Mart, has enjoyed a nice turnaround story with its successful rollout of all-day breakfast. But McDonald’s stock has suffered some indigestion recently, with shares now down 0.8% for the year.
If Facebook can make it past Mickey D’s next week, I see it breezing by its energy opponent in the second round and outgaining Verizon in the semis to reach the title week.
The reason? Virtual reality.
Facebook is set to release its much-anticipated and much-hyped Oculus Rift virtual reality headset on March 28. That happens to be the Monday of finals week in our March Madness stock tournament.
There will undoubtedly be media hype surrounding virtual reality during the week heading into the Oculus Rift launch. That gives me confidence in Facebook’s semifinals matchup.
As far as finals week goes, I have Facebook facing off against Alphabet. My thought process is that Alphabet’s Google division will also cash in on the virtual reality buzz this month. On Feb. 11, The Wall Street Journal reported that Google is developing a standalone smartphone unit that doesn’t need to be tethered to a smartphone. That would be a significant advance over its current Google Cardboard offering.
The best long-term pick in the VR space is certainly up for debate, but Facebook appears to have the pole position for significant short-term gains in the virtual reality race.
If you agree with me – or if you’d like to rip my picks to shreds – please feel free to weigh in. Hit us up on our Facebook page, where we’ll be posting weekly updates. We’d love to hear your thoughts.
Until the madness begins, here are some of my favorite Wyatt Investment Research articles of the past week:
Time for Warren Buffett to Heed Benjamin Graham’s Advice – Benjamin Graham was Warren Buffett’s first mentor and set the foundation on which a multi-billion-dollar fortune was constructed. But Buffett has evolved over the years and is no Graham clone. Wyatt Research analyst Steve Mauzy argues that Buffett should revisit his Grahamsian roots, particularly in regard to one number – a per-share dividend payout for Berkshire Hathaway (NYSE: BRK-B) shareholders.
Top 5 Dividend Increases for March – Dividends are a powerful thing. But not just any old dividend will do. The best dividend-paying stocks are those that are consistently paying investors more. Wyatt Research’s Marshall Hargrave has uncovered five companies that are doing just that in March.
United Technologies Merger Bid: Why Honeywell Is Wrong – Honeywell International (NYSE: HON) insists that the only real objection to its $90.7 billion United Technologies Corp. (NYSE: UTX) merger bid stems from the egos of UTC executives. Meanwhile, United Technologies CEO Greg Hayes told CNBC that a merger “Ain’t going to happen,” due to possible objections to the deal by both regulators and customers of the two companies.
A Theme Emerges in Carl Icahn’s Stock Picks – Carl Icahn had a rough 2015. But recently he’s been following fellow billionaire Warren Buffett’s lead and seeking value in this overlooked industry.
The Building Blocks of Successful Options Trading – Options industry data shows a trend of investors typically buying options with just a 33% chance of success. That’s why Wyatt Research options expert Andy Crowder nearly always takes the other side of those trades and sells high-probability options contracts.
Maxim Integrated Stock May Be Maxed Out – Maxim Integrated Products (NASDAQ: MXIM) stock gained 13.8% in just under a month, but it’s now facing two different forms of resistance.
Oprah Winfrey’s Invaluable Investing Lesson – If you like volatility – and if you like entertainment served with volatility – Weight Watchers International (NYSE: WTW) might be a stock for you.
A Hidden Energy Gem With a 5% Dividend Yield – The energy sector has proven to be a mine field for dividend investors. Tantalizingly high yields have come and gone, as companies are taking an ax to their dividends just to stay alive. But this energy stock – a former S&P 500 Dividend Aristocrat – might return to dividend growth again this year as its capital spending comes down.
Have a great weekend!