Volatility is ticking up in the U.S. stock market — no surprise, after the tragic terrorist attack in Paris last week, the political debate that followed, continued mixed signals on the economic front and the upcoming climate change talks in Paris

Big moves in the market can cause anxiety, but they can also represent an opportunity for savvy investors. In this case they could be a chance to add shares of stocks most likely to overperform in 2016. Several signs point to a shift in market leadership from growth stocks — the darlings of recent years — to value stocks, making now a great time to buy.

Most important, recent strong job growth figures indicate that the Federal Reserve is very likely to raise short-term interest rates in December, the first of what could be a multi-step process of rate hikes as the Fed moves modestly away from the emergency zero-interest-rate policy of the post-financial crisis period to a more traditional low-rate stance.

The November jobs report showed the U.S. unemployment rate at only 5%. Below that level, economists tend to predict that inflation will rise. That’s because higher employment levels correlate with rising consumer spending, which can push prices higher. So the Fed seems well justified in raising short-term rates a tick or two to stave off inflation.

Now, in real life the picture is much more complex. The U.S. labor participation rate remains relatively low, indicating that potential workers are waiting on the sidelines and could re-enter the labor market as more jobs are available — keeping unemployment at 5% or higher. Also, low commodity prices — especially for oil and natural gas — and China’s relatively weak economic growth forecasts will pull the reins on the economy. The Fed knows all of this, so it’s doubtful that we’ll see aggressive interest-rate increases over the next 12 months. That’s especially true in an election year, because the Fed doesn’t want to be seen as influencing the political climate one way or another.

All that said, the consensus opinion among Fed observers is that it’s more likely that rates are headed higher than lower. And that’s good news for value stocks.

Growth stocks perform best when interest rates are falling or low and stable. That’s because investors buy them for their future growth prospects, which are discounted to a greater degree when inflation and/or interest rates are high. If you’re buying a technology stock for the earnings you expect in 2025, those earnings are worth less today if you expect inflation to be high over the next decade. Conversely, if inflation seems low, those 2025 earnings are more valuable today. That’s been the case in recent years, which is part of the reason that classic growth stocks like Apple (Nasdaq: AAPL) and Alphabet (Nasdaq: GOOG) have performed so well.

Value stocks tend to outperform growth stocks during periods of rising interest rates, when the economy is strong enough to sustain the prospects of cyclical companies and investors start worrying about how inflation will erode the far-off earnings of growth stocks. Also, value stocks are undervalued for a reason — and much of the time, a strong economy can help overcome the doubts that sent those stocks lower. Finally, an important category of the value-stock universe is inherently helped by rising interest rates — namely financial stocks, because higher interest rates allow them to increase profits on loans.

Here are a couple of stocks to keep an eye on if value overtakes growth in 2016:

Citigroup (NYSE: C) was hard-hit by the financial crisis, had to be bailed out by the U.S. government, and has taken years to recover from the wreckage. But the company has restructured its asset base to reduce dependence on overseas loans, lowered leverage by more than half, placed its mortgage loan assets in another corporate entity for sale, and increased its capitalization to levels well above minimum requirements. Citi has exited the insurance, hedge fund, private equity and retail brokerage businesses to focus on banking.

As short-term interest rates rise, banks like Citi benefit because their net interest margin — the difference between what they charge on loans and what they pay to depositors — tends to widen even as they attract more deposits with higher rates on savings accounts and CDs. That could lead to analysts raising their earnings estimates for Citigroup, boosting a share price that now represents only 9.6 times the current consensus analyst estimate for 2016 earnings. 

Pfizer (NYSE: PFE) is the world’s largest pharmaceutical company, with revenue of more than $49 billion last year and a long list of blockbuster drugs. These include Lyrica (pain and seizures), Prevnar and Prevnar 13 (pneumococcal vaccines), Enbrel (psoriasis and rheumatoid arthritis), Viagra (erectile dysfunction) and Enbrel (hypertension). The company also markets Celebrex (anti-inflammation) and Lipitor (cholesterol), but these drugs have lost patent protection and their revenue will decrease sharply as generic versions of the drugs come to market. Pfizer has one of the industry’s best product pipelines, with at least 90 compounds in the testing process. Its strong cash flow helps fund several billion a year in research & development. 

Pfizer has grown through acquisitions of smaller rivals — most notably, Warner Lambert (2000), Pharmacia (2003) and Wyeth (2009) — and it’s not done yet. The company reportedly is in talks to acquire Allergan (NYSE: AGN), the Ireland-based maker of Botox and Namenda (Alzheimer’s). This blockbuster deal would further diversify Pfizer’s product portfolio.

Despite its many strengths, Pfizer trades at a reasonable price relative to earnings and book value. A shift in emphasis to value stocks could boost its share price considerably. The stock’s current dividend yield of 3.4% ain’t too shabby, either.

Risks To Consider: Citigroup and Pfizer are both subject to negative news from regulatory decisions, and both could be hurt by worse-than-expected economic news from China and emerging economies. If Pfizer attempts a major acquisition, the vagaries of the merger process could also weigh on the stock.
    
Action To Take: Buy Citigroup at $55 or below and Pfizer at $35 or below.

P.S. Have you seen our list of the Top 10 Stocks For 2016 yet? We’ve been publishing this list annually since 2003, and in the past our picks have averaged returns as high as 37% in a year! Click here to get access to this brand new report.