While fears rise, values remain

A number of factors riled investors this week. But there's still plenty of money to be made in the current market, if you look in the right places.

By John Reese Jan 22, 2010 7:51PM

This week offered a mixed bag of economic data and political twists, and we saw some significant volatility return to the stock market. But I believe there's still money to be made in the current market environment, and several of the Wall Street gurus I keep an eye on gave their takes this week on where to look.

For example, David Herro -- who Morningstar recently named one of its fund managers of the decade -- told Bloomberg that he's high on some financial stocks, particularly asset management firms. Herro says they get hit hard in downturns but over the long run are good businesses. He also says Japanese markets are starting to look attractive.

 

Another guru finding values: Mario Gabelli. He told CNBC that two areas he's targeting are natural gas firms and auto parts companies.

The U.S. is “tired of depending on the Middle East” for energy needs, Gabelli says, and natural gas firms are poised to benefit from that sentiment. He also expects the auto industry in the U.S. will enjoy three or four years of increasing production, and says he's high on several auto parts makers.

 

Top fund manager Steven Leuthold, meanwhile, is trimming back some of his China investments in favor of plays in other developing nations, such as Singapore, Thailand, Korea, and Vietnam, according to Advisor Perspectives. Leuthold is bearish on bonds, and is shorting long-term Treasuries, saying that yields will rise because of inflation or fears about the dollar. He's looking to high-yield stocks as a substitute for fixed income investments. Leuthold sees stocks gaining in the first half of 2010, before a correction hits in the second half of the year. He also says that gold is undervalued and should trade between $985 and $1,600 in 2010 --  and that he expects the Euro currency will meet its demise in the next five or six years.

 

Another fund manager with a strong long-term track record, Tom Forester, is finding values in technology stocks. He told CNBC that Microsoft and HP are among the plays that look attractive to him. “We think in almost any kind of market there’s ways to make money,” Forester said. He added that he thinks financial shares should fare okay through the first few months of 2010, but will then run into trouble. “We’re concerned about home prices starting to head back down, now that a lot of the programs are off,” he said. “We also think once the Fed stops [supporting] Fannie/Freddie … you’ll see mortgage rates come back up and we think that’s going to lead to pressure on the banks and probably more losses on a lot of the real estate."

 

Whitney Tilson, one of the few to see the '08 housing bust coming, is also worried about the current state of the housing market. Tilson told CNBC he sees millions more foreclosures coming down the pipeline in the next couple years, though he doesn't think we'll see a housing "calamity". He’s shorting housing-related stocks, with homebuilders at the top of his shorts list.


Finally, a note on the broader market from newsletter-tracker Mark Hulbert. While conventional wisdom holds that the second year of a U.S. president’s term in office — which, for President Obama, began this week — tends to be a bad one for stocks, Hulbert writes in his latest MarketWatch column that that’s a misconception, and that the “presidential cycle” likely won’t have much effect on the market this year anyway.

 

Since 1940 -- when presidents really started to have a major impact on the economy, the second year of presidential terms has actually been the second-best for the markets of the four years in the presidential cycle. Moreover, Hulbert says that the massive stimulus efforts of 2009 made that year, as Jeremy Grantham has said, the "functional equivalent of a third year of a president’s term. Per Grantham’s argument, the stock market’s prospects for 2010 therefore depend on how much longer and further the government can and will extend its stimulus," Hulbert writes. "The Presidential Election Year Cycle has little to say about what 2010 has in store for the stock market.”

 

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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