Tuesday, September 22, 2009

Getting back into financial stocks

With the markets on the mend, fund manager David Ellison says there are great bargains to be had.

NEW YORK (Fortune) -- Now that the housing crisis looks like it's really hit bottom, it's a good time to be a financial services investor, says David Ellison, president of FBR funds.

"When things are good or great, you don't really make any money. What's the upside?" he says. "You don't get these opportunities very often to get through these cathartic events."

Back in the first quarter of last year, Ellison says there were too many uncertainties in the fundamentals of the economy. But now that the economy has come through that period and enough healing has taken place, investors can get back in the market without having to worry about quite so many unknowns.

He points to residential real estate, where prices have fallen an average of 30% from their 2006 peak. "We haven't had a nationwide decline in residential real estate in this country in almost anyone's lifetime." Prices don't need to rise back to boom-time levels -- in fact, he would rather they stay in line with inflation or GDP growth. They just have to level out, and inventories need to come down.

0:00 /2:55Bank stocks too hot?
During the last boom, banks were over-lending and making risky bets to produce higher returns. Ellison believes the slump has forced them to return to traditional lending standards and practices, which bodes well for their profitability in years to come.

He says banks are going to spend the next five years taking down risk and complexity. And people are buying homes to live in, not to flip. "The guys that can make loans today are going to be the guys that have the profit tomorrow to pay off the bad loans they made two years ago," he says.

Ellison managed to avoid devastating losses during the meltdown. He began shifting out of stocks six or seven quarters ago, when he saw banks reporting big increases in non-performing loans. At one point he had 60% of his portfolios in cash. Currently, both funds are less than 5% in cash, he says.

As a result of his timely moves, his FBR Small Cap Financial fund (FBRSX), which has $220.7 million in assets, is up about 1% from a year ago and about 25% from the start of the year, according to Morningstar. His FBR Large Cap Financial fund (FBRFX), with $44.7 million in assets, is down less than 1% from a year ago but up almost 40% so far this year.

But since the second quarter of 2009 he's moved his money into financial stocks. "The overriding assumption is five years from now most of the banks will be better than they are today," he says.

In his large cap portfolio, Ellison concentrates on the giants; according to Morningstar, Bank of America (BAC, Fortune 500) and J.P.Morgan Chase (JPM, Fortune 500) are his two largest holdings. "This is the American banking system," he says. "It's very simple."

In his small-cap fund, Ellison divides his portfolio into thirds. One-third is companies he knows are going to make it, and another third is companies that are good but not great, perhaps trading at a 30% discount and might double or triple your money. The final third is the best of the worst. The stocks are very cheap, and if they make it, investors will do well off them.

His top holdings in his small cap fund include Webster Financial Corp (WBS), Fifth Third Bancorp (FITB, Fortune 500), Astoria Financial Corporation (AF), and TCF Financial Corporation (TCB), according to Morningstar.

Source: money.cnn.com

Tuesday, September 15, 2009

Investing in "cheap" stocks

Investing in cheap stocks, or stocks under 1 dollar per share, is indeed risky, but sometimes it is worth the risk. A few years ago I invested in Calpine Energy the symbol at the time was CPNLQ. I bought it at around .23 and sold it around .50, I made a nice little chunk of change, but I continued to keep an eye on Calpine. It went all the way up to over 4 dollars a share, I was really kicking myself for not holding on to that one. Even though the company was going through financial troubles, the stock price continued to rise. It has been a habit of mine for a while now to look for stocks priced under a dollar, and go from there. It has payed off more times than not, you just have to do a little research on the company first. If a company is down on its luck, but has great potential for rapid success in the near future, I buy, buy, buy. I still like energy stocks, most of them are companies that have been around for a while and now how to run their business. Just because a company is down, certainly isn't a reason not to buy. Look at Sirius XM Radio and Ford, they were both way down, facing financial trouble, and now they are both on the way back up. If they reach the prices they were trading at before the downfall, I for one, will have made enough to take a nice family vacation (even after taxes).

Monday, September 14, 2009

Investing in the 'new normal'

There's no question that this isn't a typical recession, and money manager Ron Muhlenkamp says it's time to reset expectations.

By Mina Kimes, writer-reporter
September 2, 2009: 4:33 AM ET

NEW YORK (Fortune) -- Money manager Ron Muhlenkamp gets a lot of credit for his bold, macro-driven investing style, and he deserves it: His namesake fund has returned 9% annually over the last 15 years, 2% better than the S&P 500.

Last year, however, his portfolio took a heavy blow: The Muhlenkamp Fund (MUHLX), which owned holdings in the insurance and mortgage sectors, lost 40% of its value, worse than the blue-chip index.

But when the market was at its nadir, Muhlenkamp hunted for values, picking up shares of beaten-down names like IBM (IBM, Fortune 500) and Legg Mason (LM, Fortune 500). Those picks have since soared, and his fund has recouped much of its losses: It's up 25% so far this year, 18 points higher than other large-value funds, according to Morningstar.

Despite his improved outlook, the manager, who lives on a farm in Western Pennsylvania and loves Harley Davidson motorcycles (he believes Harley's (HOG, Fortune 500) stock is an economic bellwether), says the days of go-go growth are over.

"We fell off a cliff last fall, and things have basically flatlined," he said in a recent conversation with Fortune. "This is not a normal cyclical recession -- this time, people have reset their expectations."

In your latest quarterly letter to shareholders, you wrote that the economy is setting a lower base for expansion. How will that affect the market?

A lot of folks talk about "the new normal." The consumer went from spending 100% to 95%. If you drop by 5%, it takes three years just to get back to where you were. During that time, margins are going to be tight. Every industry we can find has ample capacity, and profitability is going to be less than what it was.

For the market, fair value today is about 15-20% lower than what it was a year ago. We think there will be a 15% drop in return on equity, our favorite metric. Price to earnings ratios should be below what they were.

Does "the new normal" offer any opportunities for growth?

In 2001, we had a normal recession. Coming out, we owned a lot of homebuilders and discretionary stocks, but the things that lead one expansion don't lead the next. If I'm right and the consumer has really cut back this time, then you want to go where the consumer is going with his savings. So there's that extra 5% -- where does it go?

One area where I think there's going to be huge demand is financial advice. What I haven't been able to get a handle on is -- which vendors of financial advice still have a good reputation?

Right now, we own Bank of America (BAC, Fortune 500), which, along with Merrill Lynch, serves some 50% of the households in the U.S. If they can capitalize on that, there's a huge opportunity.

You wrote this spring that you were puzzled by the continued decline in share prices of "great companies." Since then, many blue-chip stocks have bounced back. Is it time to look at lesser known names?

The little stuff has come back more, and all year we've found more value in the big stuff. Size is irrelevant, though. If companies earn good money over time and don't blow it, their stocks will reflect that. Cisco (CSCO, Fortune 500) or IBM or Oracle (ORCL, Fortune 500) at 12 times earnings? That's a good bet.

They're world class companies that sell to a world market. As China and India and Brazil grow faster than the U.S., that's a way I can participate with accounting I trust.

Nearly a quarter of the stocks in your portfolio are in the health care sector, including managed care company UnitedHealth. Are you worried about headwinds from potential reform?

How can you have a health care system without UnitedHealth (UNH, Fortune 500)? The best time to buy pharmaceutical or health care stocks has always been in election years, because that's when everyone beats up on the industry. Right now, any positive news about health care would be a surprise.

In my business, you make money on the difference between perception and reality. When everyone expects the bad, that's when you get the chance to buy Pfizer (PFE, Fortune 500), which we own, for cheap.

Is there any sector you're bearish on?

We don't own any utilities -- the time to own them was last year. Of course, we didn't own them then (laughs). If we're any good at picking and choosing stocks, we should do better than utilities. They generate average returns, and I've never aspired to be average.

Source: money.cnn.com

Friday, September 11, 2009

Remebering September 11, 2001

Retail Stock Surprise: Sears Tops Poll

NEW YORK (TheStreet) -- Department stores, on the whole, rallied this week, but surprisingly Sears(SHLD Quote) ranked as the winner in sector among TheStreet readers.
Sears was favored as the hottest stock with 31.5% of the total vote, beating out Kohl's(KSS Quote), which has -- unlike Sears -- been a consistent winner in the sector.
Jim Cramer said in his State of the Market report on Wednesday that Sears is garnering too much attention.
Still, investors sent shares of the company up 3% this week to close at $64.18.

Kohl's came in a close second with 27.5% of the vote. Earlier in the month, the company reported a 0.2% jump in August same-store sales, surpassing analysts' expectations of a 1.7% decline. Kohl's has won over shoppers with its private-label and exclusive merchandise at wallet-friendly prices.
Shares of the company grew 2.5% to close at $55.18 on Friday.
J.C. Penney(JCP Quote) came in third in the survey at 17.8%.
On Friday, that company launched "she said," a contemporary career sportswear brand catering to the female professional.
Experts predicted the company would perform better in August from the back-to-school sales increase, but it fell short of expectations, with same-store sales sinking 7.9%, lower than the 6.7% drop forecast.

Dillards(DDS Quote) placed fourth in the poll with 13.8%, while shares of the company soared 11% to close at $12.84 on Friday.

Macy's(M Quote) ranked last with only 9.4% of the total vote. The department store has been struggling to rein in shoppers, and in the second quarter it was dragged down by its furniture, mattress and handbag segments.
Same-store sales in August tanked by 8.1%, more than the 7.4% decline expected by analysts. Regardless, shares of the company closed off the week up 6% to $16.09.
-- Reported by Jeanine Poggi in New York
Follow TheStreet.com on Twitter and become a fan on Facebook.

Source: thestreet.com

Wednesday, September 9, 2009

Industrials, financials pull stock market higher


NEW YORK — The stock market extended its gains to a fourth day as the Federal Reserve said the economy was stabilizing.

The Standard & Poor's 500 index, which is the basis for many mutual funds, reached an 11-month high as industrial stocks rallied. The Dow Jones industrial average rose 50 points to its second-highest close of the year.

The market stumbled briefly following the release of the Fed's report on regional economies, which also found that consumer spending would rise but only because of car purchases linked to the government's brief Cash for Clunkers program. The report also said the job market remains weak.

The prolonged slump in consumer spending has been one of the most serious points of worry for economists, and the Fed's warning about it deflated some of the market's optimism. About 70 percent of the U.S. economy depends on spending by consumers.

Matt Lloyd, chief investment strategist at Advisors Asset Management, said investors were jittery following the Fed's report because many traders are fearful of a correction following a 50 percent surge in stocks over the past six months.

"To me there is no conviction" behind the market's recent gains, Lloyd said.

The Dow rose 49.88, or 0.5 percent, to 9,547.22. The index has added 267 points, or 2.9 percent, in four days. It was the Dow's second-highest close of the year, just below its Aug. 27 close.

The broader Standard & Poor's 500 index gained 7.98, or 0.8 percent, to 1,033.37, while the Nasdaq composite rose 22.62, or 1.1 percent, to 2,060.39. It was the highest close for the S&P 500 index and the Nasdaq since October.

The Russell 2000 index of smaller companies rose 10.02, or 1.7 percent, to 586.40.

Advancing stocks outpaced those that fell by about 5-to-2 on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.3 billion Tuesday.

Jeff Kleintop, chief market strategist at LPL Financial Services, said a break in the rally could be good for the market to keep stocks from racing too high, too quickly.

"I think we're maybe due for a little bit of consolidation," he said.

Kleintop also contends that economic readings are becoming a less powerful force on the market as more investors begin to expect an improvement in the economy.

"Economic data has lost a lot of its power to really move the market around. The consensus has now become we're in a recovery."

Light, sweet crude rose 20 cents to settle at $71.31 per barrel on the New York Mercantile Exchange. Gold fell but still hovered near $1,000 after crossing that mark Tuesday for the first time since February.

Industrial shares were the biggest gainers, as investors bet that higher commodity prices will translate to increased profits if the economy strengthens. The weaker dollar also makes the goods of U.S. exporters cheaper outside the U.S.

Caterpillar Inc. was among the strongest advancers of the 30 stocks that make up the Dow industrials. Shares of the maker of construction and mining equipment rose $1.44, or 3.1 percent, to $48.41.

Boeing Co. rose $1.03, or 2.1 percent, to $50.53, while General Electric Co. rose 37 cents, or 2.6 percent, to $14.87.

Bond prices mostly rose. The yield on the 10-year Treasury note was flat at 3.48 percent.

Haag Sherman, chief investment officer at Salient Partners in Houston, said investors' demand for stronger returns is weighing on the dollar, though he notes that the 10-year Treasury note has held its ground as some investors remain skeptical about a rebound in the economy.

"The 10-year really hasn't been punished as much lately. I think there is a tug-of-war between the equity and the bond market."

Overseas, Japan's Nikkei stock average fell 0.8 percent. Britain's FTSE 100 rose 1.2 percent, Germany's DAX index rose 1.7 percent, and France's CAC-40 advanced 1.3 percent.

Copyright © 2009 The Associated Press. All rights reserved.

Source: Associated Press

Tuesday, September 8, 2009

U.S. stocks rise as investors speculate about gold, crude

Equities analysts see stronger economy and inflation ahead

By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- As the rising price of commodities helped bolster the U.S. stock market Tuesday, investors found a mixed message in surging gold and crude.

"The stock market is fine, as long as the economy and earnings hold up. The challenge will be rising inflation and interest rates," said Hugh Johnson, chairman of Johnson Illington Advisors.

"Everything we saw last week pointed to a stronger economy with higher inflation," said Johnson of recent economic data, including a survey by the Institute for Supply Management released last Thursday, which found prices paid by purchasing managers climbed to 63.1% in August from 41.3% the month before.

On Tuesday, energy and materials companies led broad market gains as the major U.S. indexes extended their advance to a third session.

The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 9,497, +56.15, +0.60%) gained 56.07 points, or 0.6%, to end at 9,497.34, while the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,025, +8.99, +0.88%) added 8.99 points, or 0.9%, to 1,025.39 and the Nasdaq Composite /quotes/comstock/10y!i:comp (COMP 2,038, +18.99, +0.94%) rose 18.99 points, or 0.9%, to 2,037.77. More data: Market Overview.

While gold bugs point to inflation as being behind the precious metal's climb, gold ETF money flows suggest otherwise, said Jack Ablin, chief investment officer at Harris Private Bank.

"The ratio of bullish ETFs to bearish ETFs in gold has explained a better part of the commodity's movement since their introduction in 2007. Inflation-protected Treasury securities, or TIPs, offer a better indication of inflation expectations. The five-year TIP security currently implies a meager 1.4% annual CPI for the next five years," wrote Ablin in a Tuesday note. "Given the disparity, I'm inclined to side with the Treasury market." See Bond Report.

Hopes for an economic recovery are supportive of both equities and the price of crude, which advanced $3.08, or 4.5%, to $71.10 a barrel. Read Futures Movers.

Should oil shoot higher for some reason other than the economy, the rise is no longer bullish for equities, said David Kelly, chief market strategist at J.P. Morgan Funds.

In the third quarter of 2008, 3.5% of GDP was devoted solely to buying foreign oil -- "a significant tax on the U.S. economy," Kelly said.

Conversely, speculation about higher inflation on the horizon fueled buying in gold as well as in shares of basic-materials companies but brought a bearish tint to the broad stock market.

On the New York Mercantile Exchange, gold futures on Tuesday climbed to an 18-month high of $1,006.90 an ounce but ended beneath the quadruple-digit threshold at $997.90. See Metals Stocks.

Dan Greenhaus, chief economic strategist at Miller Tabak & Co., called gold's spike above $1,000 an ounce and crude's surge above $71 a barrel "symptoms" of the greenback's decline to its lowest level since the fall of 2008.

"As the dollar moves lower and expectations continue to look for even further weakness, upward pressure on various commodities including gold and oil will be the order of the day," said Greenhaus.

Trading in both crude and gold futures is denominated in U.S. dollars.

"Gold is a completely speculative play. It's only worth what someone else is willing to pay for it," said Kelly.

"Oil is being used more and more as a speculative football, as there is no supply imbalance now [to drive prices up] -- part of it is people are getting in as an investment," he said.
Kate Gibson is a reporter for MarketWatch, based in New York.

Source: Marketwatch

Monday, September 7, 2009

I still like SIRI

I still like sirius xm radio (SIRI). I think it will top the dollar mark, and avoid delisting of Nasdeq. Once it tops one dollar per share and they start having positive numbers, I think this one will really take off. With all of the new car contracts that SIRI has acquired and the sales of the units in stores the revenues will continue to increase. You can even listen to sirius xm on satallite TV, it just seems to be everywhere. And being the one main provider, they have the market cornered.

Sunday, September 6, 2009

I wouldn't buy gold right now

I think gold has seen most of the good times pass already. It has been continually climbing, and my personal opinion is that it has hit the top end. With stocks in an excellent position to rise dramatically, I think investors in gold will look to a more profitable option (like mid and large cap stocks). I believe that fear in the volitility of stocks has persuaded many investors to look at gold, now that the stock market is on the rise, the demand for gold has a good chance to decline. It would still make a good choice for diversification because you never know for sure what is going to happen in the market, but I'm not buying at this point.

Friday, September 4, 2009

Mortgage giants struggle a year after takeover

WASHINGTON (AP) -- A year after the near-collapse of Fannie Mae and Freddie Mac, the mortgage giants remain dependent on the government for survival and there is no end in sight.

The companies, created by the government to ensure the availability of home loans, have tapped about $96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a mortgage.

Many questions remain about Fannie and Freddie's future, but several things are clear: The companies are unlikely to return to their former power and influence, the bailout is sure to cost taxpayers even more money and the government will have a big role in the U.S. mortgage market for years to come.

Fannie Mae was created in 1938 in the aftermath of the Great Depression. It was privatized 30 years later to limit budget deficits during the Vietnam War. In 1970, the government formed its sibling and competitor Freddie Mac.

The companies boomed over the past decade, buying mortgages from lenders, pooling them into bonds and selling them to investors. But critics called them unnecessary, arguing that Wall Street could support the mortgage market itself.

That argument has faded in the wreckage of the failed loans that led to the housing bust. Investors have fled any mortgage investment that doesn't have the government standing behind it.

"No longer is anyone arguing that the private sector can handle this on its own," said Jaret Seiberg, an analyst at Washington Research Group.

The government stepped in to take control of the two companies on the weekend of Sept. 6, after they were unable to raise money to cover soaring losses and their stock prices plunged.

A year later, the government controls nearly 80 percent of each company, and their problems are growing as defaults and foreclosures continue to skyrocket.

The percentage of homeowners who have missed at least three months of payments is normally under 1 percent for both companies. Now it's nearly 4 percent for Fannie and 3 percent for Freddie.

Fannie had nearly $171 billion in troubled loans as of June and had set aside $55 billion to cover those losses, while Freddie had nearly $78 billion in troubled loans and reserves of only $25 billion.

"It's much worse than anybody thought," said Paul Miller, an analyst with FBR Capital Markets.

It could be another year before the final taxpayer tab for Fannie and Freddie is known, and that outcome will depend on when delinquencies and foreclosures finally crest.

Barclays Capital predicts the companies will need anywhere from $160 billion to $200 billion out of a potential $400 billion lifeline, which the Obama administration expanded from the original $200 billion set last fall. Most analysts don't expect the money to be returned anytime soon, if at all.

"What will ultimately end up happening," said Barclays analyst Ajay Rajadhyaksha, "is that the U.S. taxpayer swallows the bill."

Despite federal control, Fannie and Freddie have recently surged on Wall Street. The companies said Friday that they now comply with New York Stock Exchange requirement for an average closing price of $1 a share or more. But most analysts still say the companies' stocks will be worthless in the long term.

The Obama administration doesn't expect to announce its plans for the two companies until early next year, but powerful interest groups aren't waiting until then. The Mortgage Bankers Association on Wednesday offered a detailed plan to replace Fannie and Freddie with several federally-regulated private companies.

That proposal still retained a big government role, giving those companies the ability to issue mortgage bonds formally guaranteed by the federal government.

In the meantime, both Fannie and Freddie have been drafted to implement the Obama administration's effort to attack the foreclosure crisis. Freddie Mac now has about 600 workers either modifying loans or monitoring compliance with the program's rules. Fannie Mae said it has added hundreds of employees to work on foreclosure prevention efforts.

The early results have been disappointing. For example, while Fannie or Freddie refinanced 2.9 million loans from January through July, only about 60,000 were taking advantage of an Obama administration plan to help "underwater" borrowers who owe more than their homes are worth.

At the same time, nearly 70 percent of U.S. mortgages made in the first half of this year went through Fannie or Freddie, up from 62 percent last year, according to Inside Mortgage Finance, a trade publication. That's a big change from three years ago, when the risky lending market was still alive and Fannie and Freddie's share was down to 33 percent.

"We've been the mortgage market," said John Koskinen, Freddie Mac's chairman. "Without that financing availability, people would not have been able to get a mortgage."

Fannie and Freddie don't directly make loans, but they exert enormous influence over the industry by issuing detailed standards for the loans they will purchase. Lenders must feed their borrowers into Fannie and Freddie's computer systems, which evaluate borrowers based on their credit scores and the size of their down payment.

Both companies, facing huge losses, have kept those standards tight, frustrating many. Eric Delgado, a mortgage broker in Rockville, Maryland, says there's zero flexibility with either company. Either borrowers qualify or they don't. No arguing. No excuses.

But some in the industry say the restrictions are long overdue after several years of lending excesses.

"You needed to bring some reality to the market," said Michael Moskowitz, chief executive of Equity Now, a New York-based mortgage lender, which does about 80 percent of its business with Fannie and Freddie.

Fannie Mae CEO Michael Williams declined an interview request, but said in an e-mailed statement that "it is not enough to help a borrower own a home. We must also help ensure that they will be able to stay in the home over the long term."

By Alan Zibel, AP Real Estate Writer
On Friday September 4, 2009, 6:06 pm EDT

Source: Yahoo finance

Bonds slip after jobs data

Government debt prices ease after employers cut 216,000 jobs last month, fewer than the 276,000 lost in July.

NEW YORK (Reuters) -- Treasurys slipped Friday after data showed fewer-than-expected job losses in August, dimming the allure of safe-haven government bonds.

U.S. employers cut 216,000 jobs last month, fewer than the 276,000 lost in July or the 225,000 expected by economists. The data gave some cheer to investors betting that the economy is on the road to recovery from the worst recession in decades.

Average hourly earnings also jumped, but the encouragement was tempered by the fact that the unemployment rate rose much more than expected to its highest level in 26 years, which initially caused bonds to cut their losses.

"The Treasury market may have rallied initially on this payrolls report because the unemployment rate was 0.2% higher than expected, -- a pretty big miss there," said Suvrat Prakash, U.S. interest rate strategist with BNP Paribas in New York.

But he noted that the consensus was for the unemployment rate to rise anyway, adding: "Maybe what we should take out of this is the fact that wage earnings were up and the actual level of payrolls itself was better than expected."

The 30-year bond was last down 23/32 in price, yielding 4.20%. It was briefly off more than one point in price.

The benchmark 10-year note fell 8/32, yielding 3.38% versus Thursday's close of 3.35%.

U.S. stocks posted modest gains, making riskier assets appear more attractive compared with more conservative investments such as government bonds.

Another near-term negative for Treasurys was next week's bond auction slate, which will bring $70 billion worth of debt to the market.

"The market has to take down the supply," said Prakash. "Overall demand, while it has been healthy, it's healthy at the right price, so you tend to see yields drift higher into auctions."

New life?
Ultimately, though, the mixed nature of the jobs report -- the biggest economic release of the month -- may prove supportive for bonds, which were still on track for their fourth week of gains despite Friday's mild retreat.

Treasurys have not had a winning streak like this since late last year, when credit markets melted down in the wake of the Lehman Brothers collapse.

The situation now appears less dire, but bonds are rallying on the Federal Reserve's assurances that it will not begin raising interest rates until the economy is on firmer footing.

High unemployment is likely to encourage bond investors who do not believe the Fed will raise interest rates any time soon since inflation is unlikely to take off when consumers fear for their jobs and seek economic security.

"Despite the recent improving trend in overall economic data, the high unemployment rate is still not going to sit well with most investors," said Lawrence Glazer, managing partner of Mayflower Advisors in Boston.

"These data may breathe new life into Treasurys."

Source: money.cnn.com

Thursday, September 3, 2009

Betting on a smokey recovery

Thomas Lee of J.P. Morgan says a U.S. economic rebound could get a little dirty for investors who want to make money.

NEW YORK (Fortune) -- When looking for stocks that will rise out of the current recession, Thomas Lee, J.P. Morgan's chief U.S. equities strategist and one of Wall Street's most bullish prognosticators, advises clients to buy for a "smoke stack recovery."

Lee, who in January predicted the S&P 500 index (SPX) to finish at 1,100 by year-end, says the combination of quick gross domestic product recovery and low industrial growth through the recession should lead to bigger gains in sectors like industrials, material makers and energy firms.

"This is going to be a very smoke stackey recovery," says Lee. He says investors should buy "companies that feed industrial production."

Lee's call is rooted in J.P. Morgan's bullish expectations of a strong U.S. and global recovery. The bank's economic research team expects U.S. GDP will recover to 2007 levels by the end of 2010. "[I]t now looks likely that the coming four quarters will see GDP gains that rival the strongest global performance of the past two decades," its worldwide research team recently wrote.

Companies that delayed new projects and countries that put off structural upgrades during the recession, Lee contends, will put money toward industrial production to keep up with increased spending and GDP growth.

Businesses are also better positioned to spend. As Lee points out, S&P 500 companies hoarded cash and cut expenses in the downturn. Nine out of 10 sectors in the index have lower expenses levels than they did in 2007. (The only exception is health care.)

And corporate borrowing costs have dramatically fallen. "Today, high-grade issuers are borrowing at levels even lower than they could in 2005," Lee says. "There are a lot of things that have positioned companies now in 2010 for much better earnings if the economy starts to recover."

How can investors buy into an industrial recovery? First, Lee recommends small and midcap stocks which rise fastest during a recovery. The Russell 2,000 index of smallcaps for example, has returned 63% since its March 9th low, while the Dow Jones Industrial Average has gained 42% since then.

J.P. Morgan Securities recently released its small and midcap "Money List" -- a group of recommended stocks based on risk/reward, industries, and balance sheets. Lee thinks the following shares should benefit from a smoke stack recovery:

Bway Holding Company (BWY)

The $1-billion company makes containers: metal paint cans, aerosol cans and plastic pails. Lee likes the stock because it trades at one of the group's cheapest price/earnings to growth ratios. It was 2.39 in the June quarter. Bway also raised its 2009 earnings expectations by 4% to $124 million in August as costs cuts worked amid declining sales.

Century Aluminum (CENX)

The $2-billion aluminum maker supplies four main customers for nearly 75% of its sales: Rio Tinto Alcan (the aluminum unit of Rio Tinto), Southwire, BHP Billiton, and Glencore International. The value of its stock has risen nine-fold since March. But Lee still sees opportunity as a strong U.S. recovery will hasten the need for materials.

Terex (TEX, Fortune 500)

Terex cranes and construction equipment can been seen at almost any construction site. The $9.9 billion manufacturer makes cement mixing trucks and surface mining equipment and is the world's No. 3 construction equipment maker. Terex said this summer that sales cold drop 40% to 45% this year amid the recession, but J.P. Morgan expects the stock to bounce back.

Lee cautions that every recovery slowly works its way through different economic sectors. Even so, he recommends retail investors buy strong operators before Wall Street analysts begin to turn bullish and upgrade their stocks. He notes that the number of "buy" ratings on S&P 500 companies are at their lowest level since 2003. "For a retail investor, that's important, Lee says. "They might anticipate [a recovery]."

First Published: September 3, 2009: 1:02 PM ET

Source: money.cnn.com

Wednesday, September 2, 2009

'Fast Money' Recap: Gold Fever

NEW YORK (TheStreet) -- The markets remained in the red Wednesday in a trading session that was straining for direction.

The Dow Jones Industrial Average dropped 29.93, or 0.32%, to 9280.67, and the S&P 500 fell 3.29, or 0.33%, to 994.75. The Nasdaq slipped 1.82, or 0.09%, to 1967.07.

As it did with Tuesday's favorable manufacturing report from the Institute for Supply Management, the market's reaction was muted to the Fed's Open Market Committee's comments indicating an economy on the mend.
Joe Terranova said on CNBC's "Fast Money" TV show that there were a lot of trading opportunities in the market today, especially on the resource side where several stocks had intra-day reversals . For example, he noted Potash(POT Quote) and Freeport McMoRan (FCX Quote).

For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

Guy Adami said there was nothing in today's "benign" tape that would change his opinion that the market will continue to head down.
Adami said that although he thinks highly of Goldman Sachs(GS Quote), it, too, wouldn't be spared if the market sinks.
Melissa Lee, the moderator of the show, shifted the discussion to gold, which broke out today and is only $20 below the $1,000 level. "Everybody but myself has been bullish on it. Do I look as stupid as Paris Hilton taking the SATs? Sorry Paris if you're watching," said Adami.
Adami said he was concerned with gold's "exaggerated move" today and advised investors to "remember the market we're in."

Source: thestreet.com

Tuesday, September 1, 2009

Duke Energy (DUK)

Look at Duke Energy [DUK]. This utility, which is a type of stock that works during a recession, yields about 5.9%, and Duke not only has been paying its dividend consistently for 82 years but also increased the payout this year. (Cramer recommends looking for companies with a history of raising their dividends.) Investors who buy Duke at its current yield level and reinvest the dividends will double their money after 12 years, again even if the stock stays flat.

Source: stockpickr