Despite expectations by many market strategists for gains next year, the stock market may not be the best choice for investors to make money.

Morningstar reported Monday that the S&P 500, after making up most of its losses from the August correction “once again looks fully valued.” And Marty Sass, a perennial stock market bull and chairman and CEO of investment management firm M.D. Sass tells ThinkAdvisor that he is now “questioning the sustainability” of the stock market rally.

It may, in fact, have already peaked. The S&P 500 index (SPX) is poised to end the year near where it started — with a slight loss or gain or no change at all. As of midday December 28, the index was down 0.26% year-to-date. And value stocks are trailing growth stocks — the S&P 500 value index (SPYV) is down 3% while the S&P 500 growth index (SPYG) is up just over 5%.

Sass, a well-known value investor who manages more than $7 billion in assets, says key drivers of the bull market in stocks, including price/earnings (P/E) multiple expansion and monetary easing in the U.S., are over, leaving earnings as the key determinant for stock prices next year.

Analysts are projecting earnings for the S&P 500 will end 2015 down 0.7%, after falling 4.9% in the fourth quarter, while revenues decline fall 3.4%, according to FactSet. If fourth quarter earnings do in fact decline, it will mark the first year-over-year decline in three consecutive quarters since 2009, when earnings fell for the first, second and third quarters, according to FactSet.

Sass says the stock market is now bifurcated with high momentum stocks like tech stocks gaining and value stocks falling, similar to what happened in 1999. That was followed by a reversal of performance in the subsequent three years, when value stocks outperformed tech. Sass expects a less dramatic comparison now because there hasn’t been a “massive bear market” in tech like there was after the tech bubble burst in 2000. He sees “some very compelling values” in the market now — underpriced stocks of “quality companies” that can grow profits in the current slow growth economy so long as the economy doesn’t fall into recession and the yield curve remains positive with long-term rates higher than short-term rates.

Here are some of his stock picks for 2016, comprised of companies now trading at discounts to projected 2015 and 2016 earnings:

  • Shire (SHPG). A pharmaceutical company focusing on rare orphan drugs that has limited competition.
  • Allergan (AGN). A Dublin-based drug company, which makes Botox, still trading at a discount to the terms of its merger with Pfizer (PFE), which is pending U.S. government approval.
  • American Airlines (AAL). The world’s largest aircraft carrier will benefit from its merger with US Airways, which will increase efficiency, as well as from low jet fuel prices, says Sass.
  • Realogy (RLGY). The largest real estate brokerage in the world is responsible for almost 30% of all existing home sales in the U.S. and should benefit from a gradual increase in home sales, says Sass.
  • Commscope (COMM). Sass says that the communications equipment maker’s acquisition of a division of TE Connectivity’s (TEL) telecom, enterprise and wireless businesses for $3 billion cash will provide entry to r several additional markets.

Overall Sass says the stock market could end next year much like this year — up or down 1% — but provide value opportunities for investors in the meantime. In the meantime he has been raising cash in his funds in order to have the money on hand to take advantage of market dips.

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