Ron Muhlenkamp, whose fund has bounced back strong this year after a rough stretch and has now beaten 90% of funds in its class in the past decade, is high on high-quality technology and healthcare stocks.
According to Kiplinger’s, Muhlenkamp is high on tech firms like Hewlett-Packard and Cisco. He’s also made a bundle on IBM in recent months, and is now scaling back on that position, Kiplinger’s says.
In the healthcare sector, Muhlenkamp likes Pfizer and UnitedHealth Group. Despite fears of government intervention in the sector, Muhlenkamp says that the firms are key parts of the healthcare industry, and good buys, according to Kiplinger’s. “The last time you had the chance to buy drug companies this cheap was during HillaryCare” in the early 1990s, he said.
Diversification is a topic we often discuss on this blog, and in the video below Jason Zweig of The Wall Street Journal offers some very interesting thoughts on the topic. According to Zweig, many studies have shown that holding 20 to 30 stocks can diversify away much of the risk you’d get by picking just one stock. But, he notes, the problem is that those studies are based on computers randomly generating portfolios — not human beings assembling their portfolios. And, he says, humans “are terrible at doing things that have a quality of randomness”, which can sometimes lead them to create larger portfolios that are actually riskier than those that hold just a few stocks.
Wharton Professor and author Jeremy Siegel says he thinks the U.S. economic recovery will surprise to the upside, with 3.5% GDP growth in the fourth quarter and 4% to 5% growth in the first half of 2010.
Siegel tells Bloomberg that he believes that by December or January the U.S. will see its first positive payroll reading. “Once that turns positive, I think that’s going to remove an element of fear” that has plagued Americans, he says, triggering spending and growth.
Fidelity’s Anthony Bolton, one of the U.K.’s most successful fund managers before retiring in early 2008, is putting retirement on hold as he tries to take advantage of what he says is the “opportunity of a generation” in China.
Bolton is starting a new fund focused on companies exposed to Chinese consumer growth, The Wall Street Journal reports. “He points to studies that show consumers in emerging economies launch into a new phase of purchasing when per-capita gross domestic product hits $4,000 to $5,000,” a level China is expected to hit in 2011, the Journal reports.
“As average incomes pass this key threshold,” Bolton says, “you get a big growth in the group that can afford to make the purchases of cars, apartments, etc., and that is where China is today. He also said that China’s government gives it an advantage over more democratic countries. “It’s happening with a centrally run economy at the same time where things get done where often in other economies they get bogged down in politics,” he said.
Templeton Asset Management’s Mark Mobius says investors should be ready for a 20% correction in emerging market stocks, triggered by Dubai’s attempt to delay its debt payments and compounded by the devaluation of the Vietnamese currency.
“This may be the trigger to allow for the market to take a rest and pull back,” Mobius told Bloomberg. “A 20 percent correction is not unusual in such a bull market, so that’s quite possible and we should be ready for that. There’s no way that anyone can specifically predict exactly when and to what extent, but certainly there will be corrections along the way.”
Mobius said he remains bullish on Vietnam, but added that “over the short and medium term we have to look very carefully at what’s happening.”
Kenneth Fisher thinks that a strong internal demand for materials and commodities in emerging market countries is part of what will continue to drive materials stocks higher. Fisher also tells Bloomberg that areas that do okay in the first part of bear markets but badly on the back half of bears — like materials in the recent bear — tend to lead in the first part of the next bull market.
Barry Ritholtz of The Big Picture blog and Fusion IQ says that, while the economic recovery is anemic, a number of other factors are making stocks continue to look attractive.
Ritholtz, who called both the market crash and the recovery, tells Yahoo! TechTicker that as long as the economy remains weak, the Federal Reserve will likely keep interest rates at historically low levels, which is a bullish sign for stocks. Those low rates and the government stimulus efforts — not profits — are what is driving the market, making it so “cash is trash”, he says. Disconnects between the economy and the stock market like the one we’re seeing can go on for years, he adds.