Four Actionable Investment Themes
This is a challenging time for individual investors. I get emails from many who wonder what they should be doing.
While I offer weekly updates in my Weighing the Week Ahead series, the advice is general. I am going to share several specific themes that flow from my regular analysis. While I am very careful in offering specific advice to clients, the themes that I am mentioning are worth consideration by everyone.
Worry about Bond Funds
Investors have rushed into bond funds — mostly because of the perception of safety.
In this article I explained why bond funds are risky, and why those needing fixed income should instead purchase specific bonds.
Doug Kass has a record of some great calls on tops and bottoms, including stocks in early 2009. He now is calling a major top in bonds. (from Business Insider and Barron's)
"Finally, my favorite short of the next decade is the U.S. bond market, for those that possess deep enough pockets, have the fortitude and the patience. I am long ProShares UltraShort 20+ Year Treasury [TBT], which is the inverse, double-short bond ETF. Over the past 2½ years, bonds have achieved a near 60% total return. A remarkable feature is the consistency of positive returns and the absence of many drawdown years of consequence. Nevertheless, they should be viewed as a return-free asset class that is very risky. The 10-year yields under 1.5%, less than half the yield during the recessions in 2001 and 2008. That means I am paying over 65 times earnings for a 10-year-bond, a rich price even by Amazon's or LinkedIn's standards"
Find a Growth Stock
Everyone can afford to own a growth stock. Google (GOOG) is fine. If you chose Facebook (FB), you were too early, but your time might come. My favorite is Apple (AAPL).
Oppenheimer's Carter Worth, who has also been getting some well-deserved attention on CNBC's Fast Money program, had a helpful note on Apple last week. (See your OPCO rep for access). He cited a very obscure fact — the number of times that Apple has declined 4% or more in a single day. (answer to follow.
I have frequently noted the difficulty in trying to do short-term trading in Apple. Those who sell have a problem finding a re-entry point. The stock trades on news and psychology, with frequent gaps. Those who choose to sell find themselves faced with "chasing" a rebound or perhaps missing a major rally.
If you subtract the $115 billion cash hoard and look at the P/E ratio on the rest of the stock price, you see a low single-digit multiple on a 20+ growth rate. My own price target is $750, but it keeps moving higher.
(Carter Worth's answer: 92 times in 10 years). I guess these were buying opportunities, as was last week's selling.
It is notoriously difficult to time your entry in Apple.
Find a Cyclical Stock
The current market prices cyclicals as if we were at the peak of the business cycle. This means that the P/E multiple is at a low point, ignoring the strength in earnings. Contrarian investors may choose to reject this notion, respecting the earnings strength of some of the leading companies.