Gains tougher to come by in 2010, gurus say

There's still more upside to the rally -- if you know where to look

By John Reese Dec 18, 2009 4:26PM

It's a stock-picker's market -- that seems to be the general theme emerging among the market gurus I study.


In the past week, several of these gurus have talked about opportunities in equities, with a number saying that, while plenty of gains are still there for the taking, they won't come as broadly and swiftly as they have in 2009.  


Take Mark Mobius, Templeton Asset Management's executive chairman. Mobius -- whose Templeton Emerging Markets Fund is up about 116% this year, far outpacing the MSCI Emerging Markets Index -- says investors shouldn't expect the kind of percentage returns they've gotten this year during the rally. But, he says, that doesn't mean they won't be able to make hay in emerging markets in 2010.


“If you look at the average price-to-book ratio based on the stocks in the MSCI Emerging Markets Index, we are only halfway to the 1997 high,” Mobius tells BusinessWeek. “The absolute high was three times book, the low was one times book, and now we are at two times book, roughly.” Emerging markets also offer stronger growth -- and better balance sheets -- than many developed nations, he says. Mobius is high on the BRIC nations, as well as smaller emerging or frontier markets like Qatar, Lebanon, Pakistan, and Jordan.


Newsletter guru Jim Oberweis also sees opportunities for stock-pickers, particularly in small-cap growth stocks. “While the overall U.S. economy may indeed exhibit a muted recovery, plenty of companies will thrive, particularly among small-cap stocks,” he writes in his latest Forbes column. “Many niche-oriented small-cap companies that offer a new technology or medical device in high demand will deliver sustained rapid growth.” Investors will pay a premium for those firms’ stocks, he says, adding that such companies will also offer an inflation hedge, because they’ll have the most ability to raise prices in an inflationary climate.


Oberweis also is high on China, and says that Chinese stocks aren't in a bubble; the nation's strong growth merits the attention that its firms are getting, he says.


Two other top strategists are predicting gains in 2010 -- though smaller gains than we've seen in '09: Abby Joseph Cohen of Goldman Sachs and Bob Doll of Blackrock. Cohen told CNBC that she thinks the S&P 500 will get into the 1250-1300 range in 2010, with low growth and lower-than-expected corporate profits battling against the big sums of cash many firms have been building up. Doll, meanwhile, told CNBC that he thinks earnings and continued stimulus programs will be enough to push the S&P to about 1250, though in less of a straight line and with less breadth than in 2009.


Michael Cintolo of the top-performing Cabot Market Letter also sees the market trending higher, though in a jagged fashion. “Whatever the market’s exact path, our main thoughts are unchanged," he wrote in recent commentary on Cabot's site. "First, the overall trend is up, but second, the environment has become very choppy.” He recommends that investors “remain bullish, but try to buy on weakness or after a few weeks of tight action.”


Others see a more challenging 2010.


Vanguard founder John Bogle, for example, tells CNBC that we’ll be fortunate to have a flat market in 2010. But, he adds that he sees average annual returns of about 7% to 8% for stocks over next decade.


Two top asset allocation strategists -- Ben Inker of GMO and Rob Arnott of PIMCO -- say, meanwhile, that they're having trouble finding opportunities in the current market. “There isn’t that much to be excited about,” Inker tells the Associated Press. “It’s going to be tougher in 2010, because we’ve had this big flow into risky assets. They were all cheap last winter, but they’ve all gone up 60 percent-plus.”


Inker currently likes Treasury Inflation-Protected Securities in the bond market, and big blue chips like Coca-Cola, Johnson & Johnson, and Microsoft in the stock market. Such solid, well known firms “have less to worry about if the recovery sputters out,” he says, adding that he fears expectations for the recovery have gotten too high.


Arnott, meanwhile, tells AP that "this is a wonderful time to hunker down and take a very conservative investment posture.” He says the stock market is “expensive, and priced as if the recession is over." In the fixed income arena he is high only on short-term Treasury bonds. 


Finally, while many of the gurus discussed here envision a stock-picker's market, at least one top strategist sees a broader-based market rise in the future. Ken Heebner says that investors shouldn’t worry about a double-dip recession, and that they have the wind at their backs heading into 2010 as the stimulus will continue to boost the economy for some time. “What you have here is a situation where you have low inflation, and an opportunity for the global economy to grow for several years,” Heebner told CNBC. “So if you own stocks, the wind’s at your back.” He's particularly high on commodities -- especially metallurgical coal and copper.


John Reese is founder and CEO of, 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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