Columnist and money manager Doug Kass is standing by his earlier call that the S&P 500 has hit its high for the year, but says current conditions make for a “fertile environment” for stock-pickers and traders.
“My guess is that the risk/reward has tilted slightly more positive based upon the strength of the domestic economy coupled with the several percentage point drop in the markets over the last few weeks,” Kass writes on TheStreet.com. “The downside to stocks might be contained to the 1,140-1,150 area on the S&P, and the upside might be limited to 1,240-1,260 through the end of the first quarter of next year. While the downside and upside predictions are revisions from my previous expectations, this is still a relatively narrow projected trading range, with a downside risk of 3% to 4% and an upside reward of 5% to 6%.”
Kass says that through the first quarter of next year, he expects good news in the U.S. will put a floor under stocks, while bad news abroad will put a limit on upside gains. “While producing limitations to the breakdown risks and dampening the potential for breakout opportunities, this should be a fertile environment for stock pickers and traders,” he says.
While potential interest rate hikes in China have concerned investors, Byron Wien says he remains bullish on the country. Wien, the vice chairman of Blackstone Advisory Services, tells Yahoo! TechTicker that China has been successful in confronting every economic problem it has faced, and that its authoritarian government actually makes addressing economic problems easier than it would be in a democratic country. Wien also discusses why more stringent down payment regulations make China’s hot housing market much different than the U.S.’s housing market was before the bubble burst.
In his latest article for Seeking Alpha, Validea CEO John Reese takes a look at his David Dreman-inspired strategy, which is handily beating the market both this year and over the long haul.
“While most of the gurus upon whom my ‘Guru Strategies’ are based are contrarians, one stands out among all the others: David Dreman,” Reese writes. “Throughout his long career, Dreman has sifted through the market’s dregs in order to find hidden gems, and he has been very, very good at it.”
Reese’s Dreman-inspired portfolio has averaged annual returns of more than 8% since its July 2003 inception while the S&P 500 has returned less than 3% per year. In the article, Reese takes a look at some of the criteria that go into the strategy, which investors can access through the Guru Analysis & Guru Stock Screener App in Seeking Alpha’s Investing App Store. He also offers a handful of stock picks that currently get high scores from his Dreman-based model, including AT&T, which gets a stellar 91% score from the model.
The investment world usually waits with bated breath to see how “Black Friday” goes, assuming that the big holiday shopping kickoff will be a sign of consumers’ financial health and their willingness to spend during the biggest shopping season of the year. That often drives the market upward or downward in the day or two after Thanksgiving, MarketWatch’s Mark Hulbert writes
But, Hulbert says, those Black Friday-driven moves aren’t an indicator of how the rest of the year will turn out for the market. “It turns out, however, that the stock market consistently places too much importance on Black Friday,” Hulbert writes. “We learn next to nothing about how the holiday season is likely to turn out by focusing on how the stock market reacts to Black Friday — either on that day itself or on the following Monday, when more complete data have emerged on how retailers have fared on the busiest shopping day of the entire year.”
Examining data that goes back to 1896, Hulbert looked at the correlation between A) how the market performed on Black Friday and the following Monday, and B) how the market performed for the remainder of the year.
While many are fearful about the repercussions of the Irish debt crisis, hedge fund manager Barton Biggs says both the U.S. and global economies are improving. Biggs tells Bloomberg that he has about half his portfolio in emerging markets, mostly in Asia, and half in U.S. stocks. He also says that, “all things being equal”, he thinks the next move for stocks may well be a big one to the upside.
Dennis Delafield and Vincent Sellechia’s little-known Delafield Fund has beaten 99% of funds in its category over the past five and ten years, and the latest issue of Financial Planning magazine takes a look at how the two managers have fared so well.
The fund allows Delafield and Sellechia to roam the entire market, regardless of market cap or style distinction, Financial Planning’s Ilana Polyak reports. But most often, she says, the fund ends up investing in small- and mid-sized firms, because that is where the biggest mispricings of solid companies occur.
Delafield and Sellechia key on cheap, beaten-down stocks, and “follow up picks with old-fashioned research, which places importance on face-to-face meetings with management, and conversations with competitors and suppliers,” Polyak writes. “We want to find a company that seems to be undervalued, and then understand who they are and why they might change for the better,” Delafield says.
While they don’t make macroeconomic calls, Delafield and Sellechia often end up investing in industrial materials companies. Currently, more than half of the fund is invested in that area, according to Polyak, with Honeywell and Ingersoll-Rand among the fund’s holdings.
Vanguard founder Jack Bogle says stocks could double in the next decade, far outpacing bonds, but also says the global economy is in worse shape than many realize.
“I expect stocks will have a dividend yield of about 2 percent, with stock price appreciation of maybe 6 percent from earnings growth,” Bogle recently told CNBC when asked about his long-term forecast. “So you might see a total return of around 7 to 8 percent. For bonds, I expect around 3.5 percent. With compound interest, stocks could double in the next decade and bonds will go up about 50 percent.”
In the short term, Bogle declined to offer a prediction. ” The market is at a relatively fair value now, but may be a bit overvalued for the long-term,” he said. “But I would no more predict what will happen in 2011 than fly to the moon. Anybody who goes into the market to make money specifically in 2011 should either be spanked or have their head examined. It’s just too short of a period to predict, and it’s a crap shoot.”
Anthony Bolton, one of the U.K.’s top fund managers, says he thinks the bull market in equities has a ways to go, and says the bull is now in a phase in which growth stocks should fare well.
“I think we are in a multi-year bull market,” Bolton told InvestorDaily, an Australian subsidiary of Morningstar. “The first phase of that finished earlier this year and we then had a decent consolidation like many bull markets have.”
Bolton says the first phase saw cyclical, low-quality companies — which were hit hardest during the financial crisis — fare best. Back around the end of April, the bull entered a second phase, he says. “In this next stage and in a low-growth world I believe what investors are going to be turned on by and pay for are companies that can grow in a low-growth environment or regions or countries, so I expect them to pay up for growth and I expect that growth to get quite overvalued,” he says.
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: Microsoft and Blackrock, Inc.
Hedge fund guru David Einhorn says gold has the biggest position in his portfolio, due to concerns about the U.S.’s monetary and fiscal policies and questions about the currencies of other big nations. Einhorn tells WealthTrack’s Consuelo Mack that in the stock market, he’s finding more good opportunities on the short side than the long side, though his fund still has more invested on the long side than the short side. Apple and Pfizer are among the stocks he’s high on. Einhorn, whose Greenlight Capital has produced a greater-than 21% annualized net return for partners since its 1996 inception, also talks about lessons from the financial crisis, why he thinks credit agencies shouldn’t exist, and why he’s staying away from big money center banks.