Amid downturn, gurus finding opportunities

While most investors keep bailing on stocks, some top strategists continue to find attractive areas of the market.

By John Reese Aug 20, 2010 4:54PM

It's been another rough week for the market, with disappointing unemployment data overshadowing some positive economic signs, like the Federal Reserve's report of a strong gain in industrial production in July.

 

But while fear continues to win out in the stock market, several of the investing world's top strategists are continuing to find opportunity.

Take newsletter guru and Forbes columnist Jim Oberweis. In his latest Forbes piece, Oberweis focuses on one area of the market that has him particularly optimistic: semiconductor capital equipment stocks. “After a tough decade for technology, I believe the time is ripe for chip-equipment companies,” he writes. Chip fabricators stopped buying equipment in 2008 when the economy tanked, crushing these stocks, Oberweis says. But while spending began to rebound in 2009 and many capital equipment stocks have more than doubled off their lows, “price/earnings ratios for many smaller equipment makers remain low by historical measures,” he says. “Bearish sentiment in this arena is as bad as I can remember, but the facts don’t seem to back it." 

Another Forbes guru finding opportunities: Kenneth Fisher. In his latest column for the magazine, Fisher says that emerging market utilities "link fundamental growth with the relative safety of low valuations." And, while he's cool on U.S. banks, he's keen on Australian banks. He offers a pick from each of those industries, as well as a few from the defense, paper, and health services industries.


Also finding values are two top-performing stock-picking newsletters. One is the Cabot Market Letter, which, MarketWatch's Peter Brimelow notes, was one of the first newsletters to recognize the post-2002 bull market, and one of the first to bail in late 2007. And, it made a big bullish call in 2009. 

 

Cabot says the market has been great for market leaders, but bad for index-based mutual funds and other stocks, Brimelow reports. "We're still more positive than negative," the letter said in its latest edition. "But -- and it's a big but -- as long as market leadership remains narrow, we'll remain apprehensive. We really can't be gung-ho about this market until we see breadth improve substantially."

 

Also sounding cautiously optimistic is Sound Advice newsletter, which also has a stellar long-term track record. "Our operating thesis for the larger market has been (and remains) that the recovery will continue, [and] we will not tumble back into recession," the letter stated last Friday, Brimelow reports. But, it says the expansion "will be fitful, which means that bad news will hit, growth will be uneven and until unemployment begins to show signs it is waning that share prices will have weeks like this."

 

One area Sound Advice is keen on: gold mining stocks. It theorizes that those who think the U.S. will sooner or later run into serious inflation "are willing to continue buying protection, even when the market is shouting precisely the opposite."

 

As for the economy, author and Wharton Professor Jeremy Siegel offered a bit of a contrarian take this week, saying the Federal Reserve still has ammunition left to combat the sluggish economy. The Fed’s plan to buy Treasuries with proceeds from its mortgage-backed security portfolio “was just a baby step," Siegel wrote on Yahoo! Finance.   "Much stronger measures can and should be taken to combat the economic slowdown.”

 

Siegel says the Fed should lower the interest rate it pays on bank reserves to zero, and says the Fed should engage in more quantitative easing. “Quantitative easing is a viable policy,” he says, “and, when combined with a reduction in the interest rates on reserves and the continued support of the asset-based securities markets, the Fed can deliver a potent combination of policies to stimulate the economy.”

 

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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