Opportunities amid the turmoil

The markets have been shaken recently, but some top strategists are still finding attractive investments.

By John Reese Jun 4, 2010 7:22PM

The European debt crisis, a very disappointing jobs report, and a continuing environmental crisis off America's shores -- uncertainty has made its way back into the stock market in a big way over the past few weeks. But while that uncertainty has led to a wide array of opinions on where the market and economy are headed, many of the investment gurus I keep an eye on agree on at least one thing: If you know where to look, there are opportunities to make money.

Take Chuck Akre, who produced an exceptional 12.6% per-year return for the FBR Focus Fund from 1996-2009 before moving on to manage his own fund. Akre tells Fortune magazine that he likes convertible preferred shares of Hartford Financial Services Group, which must be converted into common stock in 2013. While hit hard by the 2008 financial crisis, Hartford is now in good shape, Akre says. “It’s an interesting, low-risk, decent turnaround play in a market with a lot of uncertainty,” he told Fortune, as part of a "25 Stock Picks from 25 Great Investors" feature that also included top stock-pickers Bruce Berkowitz, Tom Forester, and David Herro.


Another top fund manager who's seeing opportunities is Eric Schoenstein, co-manager of the Jensen Portfolio, which has beaten 95% of its peers over the past 10 years. He recently told MarketWatch that despite the major recent volatility, his fund remains fully invested in stocks. And he says companies in a number of different sectors are offering attractive “margins of safety”.


In terms of where the economy is headed, meanwhile, some very smart strategists are offering some very different viewpoints. Charles Schwab Chief Investment Strategist Liz Ann Sonders, on the one hand, says she doesn't think we'll see a "double-dip" recession. “I believe we’ll see growth estimates pared back for the second half of this year and next year,” she writes in her latest market commentary on Schwab’s site. “And the market’s correction may have legs. But the economy is now moving from recovery to expansion and they’re harder to stall. And, thanks to the correction, valuation has improved and excessively bullish sentiment is no more. The wall of worry is back -- and that’s not a bad thing.”


Sonders also offers some interesting data on why the European crisis might not have as much of an impact on the U.S. and global economies as you might expect.


On the other hand, however, Research Affiliates' Rob Arnott says we are indeed headed for a double-dip. The financial crisis of 2008 hasn’t yet run its full course, he told WealthTrack's Consuelo Mack. “The seeds that delivered that crop -- the global financial crisis -- there’s more of those seeds than ever,” he says. “They’re bigger than ever.” Among the biggest “seeds”: government deficits, which he says are bigger than many believe; high private and public debt; and changing demographics that are leading to more government spending commitments.


Arnott adds, however, that there are always interesting places to invest. He sees significant inflation on the horizon, and thus is high on inflation-fighting investments like Treasury Inflation-Protected Securities. He also recommends buying commodities when they have sizeable dips.


Finally, Nobel Prize-winning economist Paul Krugman offered another take on the economy -- and it involved a stern warning. In his New York Times column, Krugman said that the growing push for budget cutbacks or tightened interest rates is premature, and could lead the U.S. down a very dangerous path. “Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea -- not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts,” he said.


Krugman says the push to tighten budgets is “already having ugly consequences,” including Congress failing to act on a bill to extend assistance to the long-term unemployed. “As a result," he says, "many American families are about to lose unemployment benefits, health insurance, or both -- and as these families are forced to slash spending, they will endanger the jobs of many more."


John Reese is founder and CEO of Validea.com, a premium investment research site, and Validea Capital Management, a separate account advisory firm. He is author of the new investing book, "The Guru Investor: How to Beat the Market Using History's Best Investment Strategies".




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