Thoughts, ideas and insight from the top minds in the investment world
Each week, we take a look at which stocks John Reese’s Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks John’s strategies have upgraded or downgraded today. Among the big names: Exxon Mobil, Wal-Mart, and CVS.
Byron Wien of Blackstone discusses the market, economy, and some of his “Top 10 Surprises” for 2010 on CNBC. Among the topics Wien covers in the interview: unemployment, which he says will be down into the 8% range by the end of the year; inflation, which he doesn’t expect will have an impact this year; gold and oil, which he thinks will rise; and the dollar, which he thinks could strengthen.
Liz Ann Sonders, Charles Schwab’s chief investment strategist, says the recent market pullback was needed to push back excessive optimism that had developed, and moving forward her firm is high on healthcare stocks.
According to BusinessWeek, Sonders says that enormous sensitivity among investors doesn’t have to be a negative. “I don’t view that as necessarily bad,” she says. “If we were in an environment where you couldn’t do anything to pull back the optimism, that would be more troubling.”
Schwab recently raised its rating on healthcare stocks to outperform (from market perform), in part because of the results of the Massachusetts Senatorial election, believed to have dealt healthcare reform a devastating blow, Sonders says. It also downgraded its tech sector rating to perform (from outperform), as expectations for the sector’s earnings rose too high. Schwab is neutral on all other sectors aside from consumer discretionary, which it rates underperform, BusinessWeek reports.
Sonders says the money that has poured into debt markets over the past year could be a source of cash that will drive stocks higher. She says money in Treasury bonds in particular could move into equities if yields start rising.
In interviews with BusinessWeek, Howard Ward (of Mario Gabelli’s GAMCO) and Whitney Tilson offer very different takes on where the market is headed following the recent pullback.
According to Ward, the pullback isn’t a sign that the bull run is over. “There’s always going to be a reflexive action, a knee-jerk reaction, but it’s not a signal that the bull market is over,” he said. “I see rising earnings this year and next year pulling the market higher. There’s a good a chance the S&P 500 sees 1,300 before the year is out.” He’s particularly high on tech firms, including Apple and Google. “We’re getting greater evidence that the economy is beginning to kick into gear,” he said. “There’s every reason to expect a good year for stocks.
Tilson, meanwhile, says a recovery in earnings is already reflected in stock prices. His firm is about 25% net long on equities, which BusinessWeek reports is the lowest level in Tilson’s 11+ years as a fund manager. He is high on larger firms, on the theory that they should hold up better in a bad market. “We’re positioning ourselves extremely conservatively,” he said. “Given how much stocks have rallied since March, it’s hard to imagine a big bull market continuing from these levels.”
Hussman Funds’ John Hussman says he’s fully hedging his Strategic Growth Fund, seeing the recent market weakness as a “natural (though unpredictable in timing) clearing of the previously overextended market condition.”
In his latest market commentary, Hussman says it’s not impossible that this clearing phase is over, “but it would be uncharacteristic, particularly since we’ve seen a lot of technical breakdowns, and our broad measures of market internals are negative.”
Hussman has a couple main concerns, including unemployment and a second wave of credit losses, and says his economic outlook is “cautiously pessimistic.” In terms of unemployment, he says he thinks last month’s drop in the unemployment rate was an anomaly, and he expects the jobless rate to peak in the 11% to 12% range.
Every other issue of The Validea Hot List newsletter examines in detail one of John Reese’s computerized Guru Strategies. This latest issue looks at the Joseph Piotroski-inspired strategy, which has beaten the market by more than 3 percentage points per year since its inception almost six years ago. Below is an excerpt from today’s newsletter, along with several top-scoring stock ideas based on the Piotroski investment strategy.
Taken from the February 5, 2010 issue of The Validea Hot List
Guru Spotlight: Joseph Piotroski
If you haven’t heard of Joseph Piotroski, you’re not alone. He’s probably the least well-known of the investment “gurus” who inspired my strategies. Actually, he’s not even a professional investor, but instead an accountant and college professor.
In 2000, however, Piotroski showed that you don’t need to be a smooth-talking Wall Street hot-shot to make it big in the market. While teaching at the University of Chicago, he authored a research paper that showed how assessing stocks with simple accounting-based methods could produce excellent returns over the long haul. No fancy formulas, no insider knowledge — just a straightforward assessment of a company’s balance sheet.
His study turned quite a few heads on Wall Street. It focused on companies that had high book/market ratios — i.e. the type of unpopular stocks whose book values (total assets minus total liabilities) were high compared to the value investors ascribed to them (their share price multiplied by their number of shares).
Quite often, such firms have low book/market ratios because they are in financial distress, and investors wisely stay away from them. On certain occasions, however, high book/market firms may be good companies that are being overlooked by investors for one reason or another. These firms can be great investment opportunities, because their stock prices will likely jump once Wall Street realizes it’s been shunning a winner.
Through his research, Piotroski developed a methodology to separate the solid but overlooked high book/market firms from high book/market ratio firms that were in financial distress. He found that this method, which included a number of balance-sheet-based criteria, increased the return of a high book/market investor’s portfolio by at least 7.5 percent annually. In addition, he found that buying the high book/market firms that passed his strategy and shorting those that didn’t would have produced an impressive 23 percent average annual return from 1976 and 1996.
Continue reading ‘The Best Investment Guru You’ve Never Heard Of’
Newlsetter guru Jim Oberweis, whose China Opportunities fund has returned 116% over the last year (more than 95% of its peers), says China stocks face headwinds over trade disputes with the U.S. But, he tells Bloomberg, he doesn’t think we’ll see a trade war between the two international powers.
“If you look at it from a prisoners dilemma point of view, meaning what is rational for all the players in the game, the trade war, it’s not rational for us, it’s not rational for China,” Oberweis says.
Oberweis also says recent policy tightening designed to cool China’s overheating economy is wise. “I don’t think there is much to be concerned about,” he said. “The government is taking very prudent measures so you don’t have a bubble” in stocks and property. The stock price declines caused by the policy moves have made Chinese stocks cheaper and more attractive, he adds.
While the economy has shown signs of life in the past several months, PIMCO’s Mohamed El-Erian still expects a “new normal” of subpar growth in the U.S. El-Erian tells Bloomberg that, while strong bounce-backs are typical in recoveries from crises that are cyclical in nature, they are not typical in recoveries from crises that are structural — and the latter applies to the current recovery.
Burton Malkiel, the Princeton economist known for his book A Random Walk Down Wall Street and espousal of the efficient market hypothesis, hasn’t changed his beliefs after the recent financial crisis and market meltdown. In an interview with CBS MoneyWatch, Malkiel talks about why the past decade has actually reinforced his belief that a portfolio of diversified stock index funds, bonds, and cash, rebalanced periodically, is the best option for investors.
Each week, we take a look at which stocks John Reese’s Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks John’s strategies have upgraded or downgraded today, including big names like Visa and BP.
