Monthly Archives: March 2011

Reese Looks at Top NatGas Stocks

In his latest article for, Validea CEO John Reese takes a look at natural gas stocks, which stand to benefit in the wake of a rise in anti-nuclear sentiment following the events in Japan.

“While numerous questions remain about the fallout — both literal and figurative — of the nuclear reactor leaks in Japan, one thing seems certain: The tragic events are increasing anti-nuclear-power sentiment across the globe,” Reese writes. “Given the renewed fears about the use and expansion of nuclear power, it’s quite possible that we’ll see many countries turn away from nuclear endeavors, increasing demand for other energy sources. And, with alternative fuels like wind and solar power still trying to build infrastructure and become more cost-effective, it’s likely that fossil fuels would be the recipient of much of the increased demand.”

Reese notes that top strategist and Forbes columnist Kenneth Fisher has been talking up natural gas for several months, because of new breakthroughs in “fracking” technology that Fisher says will keep natural gas cheap for a long time. Natural gas is also abundant in the U.S., and is cleaner than other power sources like coal, he adds.

Reese looks at five natural gas-related stocks that pass his James O’Shaughnessy-based “Guru Strategy”. (His O’Shaughnessy-based 10-stock portfolio has averaged returns of 9.9% annualized since its July 2003 inception vs. just 3.6% for the S&P 500.) Among the picks: Atmos Energy and Royal Dutch Shell. To read the full article, click here.


Yacktman: Blue Chips Still Selling Near 18-Year Lows

Even with the market up more than 90% off its 2009 lows, top fund manager Donald Yacktman says he’s still finding big values in big, blue-chip stocks.

“I don’t think the opportunities are anywhere near what they were two years ago,” Yacktman tells Barron’s. “But what is staggering to me is high-quality companies still selling at below-average prices on a [price/earnings multiple] basis, relative to the market. If you buy an above-average business with a below-average price, on average you are going to come out ahead. I have to go back a minimum of 18 years to find blue-chip or high-quality companies selling at these kinds of prices relative to other things out there. It is a very unique period.”

Yacktman also says inflation is coming, thanks to the Federal Reserve’s efforts to inflate the economy in order to stabilize real estate prices. But he says the companies he focuses on are those that have pricing power, and won’t be hit hard in an inflationary environment, “the kind of stuff that consumers buy whether the price of gasoline is $3 or $4 a gallon”. Among the holdings he discusses in the interview: News Corp., Exxon Mobil, Microsoft, and Procter & Gamble.


Guru Strategy Rating Changes: PBR Rising, KKR Falling

Each week, we take a look at which stocks John Reese’s 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.

Mobius on How to Invest in China

Templeton Asset Management’s Mark Mobius says that he’s still high on Chinese stocks, but that — as in any market — good stock-picking and a disciplined approach are key to making money in that part of the world.

“I have heard queries from baffled investors about past underperformance of the Chinese stock market despite the long-term positive outlook for China,” Mobius writes on his blog. “One key factor that I would like to stress is that, as equity investors, we look at individual stocks rather than the market as a whole. There is quite a difference between what’s happening in the domestic Chinese A share market and the H share market in Hong Kong, which is where we are buying and hold stocks.”

Mobius says that in the “A share” market, investment is generally closed to foreigners; the Chinese renminbi isn’t convertible; and capital cost structure and a systematic shortage of equity supplies exists. All of that leads to higher volatility, he says.

Read more

Buffett: Dollar Will Decline

Reiterating his belief that the U.S.’s stimulus policies will lead to inflation, Warren Buffett says investors should steer clear of long-term American fixed-income investments, because the dollar will not hold its purchasing power over the next decade or two.

“I would recommend against buying long-term fixed-dollar investments,” Buffett said at a news conference during his recent trip to India, Bloomberg reports. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not. … I would much rather own businesses. It’s very easy to take away the value of fixed-dollar investments.”

Buffett also warned against investing in social networking sites, according to Bloomberg. “Most of them will be overpriced,” he said. “It’s extremely difficult to value social-networking-site companies. Some will be huge winners, which will make up for the rest.”


Reese: Top Picks from the Rebounding Healthcare Sector

In his latest column on Seeking Alpha, Validea CEO John Reese says his Guru Strategies are finding some intriguing picks in the healthcare sector.

“For much of the two-year-plus stock market rally, the healthcare sector has been left far behind the rest of the market,” Reese writes. “That’s changed recently. While the rest of the market has stumbled amid the turmoil in the Middle East and the tragic earthquake and tsunami in Japan, many healthcare stocks have pushed higher. And long-term care facilities, medical care, and health care plans are all among the top industries in terms of year-to-date returns, according to Morningstar.”

Reese focuses on four healthcare firms, including pharmacy benefits manager Catalyst Health Solutions, which gets approval from his Martin Zweig-inspired approach and his James O’Shaughnessy-based growth stock model. Other picks include stocks that get high marks from his Warren Buffett-, Peter Lynch-, and Joel Greenblatt-based strategies.

To read the full article, click here.


Study: Why Stocks Could Do Well in Next Decade — Even If Growth Is Slow

Since the stock market crash of late 2008, investors have heard a lot about the “New Normal” — the notion that we’re now in a new era of lower-than-average economic growth, and lower-than-average stock market gains.

But a new study from the Center for Retirement Research at Boston College, a group that is affiliated with M.I.T. and The Brookings Institution, argues otherwise. “The return on stocks will depend on corporations’ profitability,” write the study’s authors, Richard W. Kopcke and Zhenya Karamcheva. “Companies’ earnings have recovered strongly since the recent recession, and the valuation of those earnings reflected in current stock prices is near its historical average. If companies maintain their profitability, stocks are likely to pay returns that match their historical averages over the coming decade, even if the recovery of the economy is weaker than average.” (A tip of the cap to CBS MoneyWatch’s Carla Fried for highlighting the study.)

Among Kopcke and Karamcheva’s main points:

  • Over the last couple decades, dividend yields of U.S. stocks have tumbled, and capital gains have made up a bigger portion of total stock returns;
  • But capital gains aren’t necessarily linked to economic growth — share repurchases have become a key driver of capital gains. Kopcke and Karamcheva say that even if economic growth is slow, companies can use share repurchases to enhance shareholder value, as they’ve done for the past quarter-century;
  • Read more

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