I spent the weekend enjoying my new nephews, the beautiful fall weather in Montreal and listening to some excellent interviews like CharlieRose's discussion with Peter Thiel, Maria Bartiromo, Michael McKee, Steven Pearlstein and Fareed Zakaria's excellent interviews with George Soros and Jeffrey Sachs.I also dusted off a copy of John Rothchild's, The Bear Book: Survive and Profit in Ferocious Bear Markets. I figured it doesn't get any more ferocious than this so why not read some words of wisdom?By pure coincidence, I opened the book on page 52, right on the section of HITTING BEAR BOTTOM:
A bear market is a bull in gestation- AnonymousAfter the final plunge in stock prices that heralds the bear's demise, you're presented with a buying opportunity, perhaps the opportunity of a lifetime.You need two things to take advantage: ready cash and a tin ear. The latter is necessary to drown out the drone of doomsaying that's sure to accompany stocks at the bottom of the Wall of Worry, where doubters are preeminent. Theyve been disappointed too often to believe the next turnaround is for real.Capitalizing on these opportunities is easier said than done. those who sold already are sitting on a pile of cash, reminding themselves never to gamble in stocks again. When the new bull market begins, they don't benefit. Those who haven't sold already are obvious candidates to sell into the next rally.An excellent example was the Great Depression bull market of 1932-1937, a happy interlude lost in the gloom of the day. People who bought stocks near the Dow's low of 41.22 in 1932 nearly quintupled their money as the Dow advanced to 194.40 in five years.They got a quicker payout in the S&P 500 - up 154 percent in three years. Such gains are always uncommon, but in the 1930s, with one out of four adults lacking a paycheck, they were nothing short of fantastic.How could you sense it was time to jump into stocks at their nadir in 1932? Not from the newspapers. They were spreading despair headline by headline: banks going bankrupt, companies closing their doors, one out of four workers out of work. None from expert commentators, none of whom was calling for a rally.Not from your broker, if you still had a broker in 1932. Brokers with clients were more fearful of stocks than clients were. Groucho Marx's broker was gloomier than Groucho, as Groucho himself reported:Groucho: Aren't you the fella that said nothing can go wrong...that we are in a world market?Broker: I guess I made a mistakeGroucho: No, I am the one who made a msitake, I listened to you.Broker: I lost all my money, too.Groucho: Well, buck up. Don't let it get you down. Just remember - twenty years from now you'll be looking back on these as the good old days.This, on the eve of the most profitable advance for stocks in any five-year period before or since! To take part in this bonanza, you had to ignore prevailing opinion and rely on the obvious fact: stocks were incredibly cheap.By the end of 1931, Dow stocks were throwing off nearly 11 percent in annual dividends. No matter what happened to the market going forward, you could be reasonably confident of collecting that huge yield, made more attractive with inflation in remission and long-term bonds paying 5-6 percent.
Mining, Steel and Aluminum Mining shares got slaughtered in the last selloff. I noticed the Soros Fund picked up Cameco (CCJ) and in steel and aluminium, keep an eye on AK Steel (AKS), Mittal (MT) and Alcoa (AA).
HealthcareThe healthcare sector is another one I like long-term based on demographics. Names like Abbott Labs (ABT), Amgen (AMGN), Novartis (NVS), Bristol Myers (BMY), GlaxoSmithKline (GSK) and Pfizer (PFE) are well known but keep other smaller ones like Forest Labs (FRX) on your radar screen.Among healthcare plan companies, I like Cigna (CI), Humana (HUM) and WellPoint (WLP) but also lesser known healthcare plan companies like Psychiatric Solutions (PSYS), a company that provides inpatient behavioral health care services in the United States.Biotech ETFs are worth investing in but institutional investors should also look at top performing healthcare funds like Montreal's Sectoral Asset Management. Among biotechs, I like Affymax (AFFY), Genentech (DNA) and Vertex (VRTX), but given the volatility in the sector, ETFs are better for most investors.Another healthcare sector I like is medical devices where I am tracking companies like Align Technology (ALGN), China Medical Technologies (CMED), Hologic (HOLX), and Syneron Medical (ELOS).InfrastructureInfrastructure stocks are also an excellent long-term play because decaying infrastructure needs to be replaced. Infrastructure ETFs already exist (IGF), but there are good companies like KBR (KBR), URS (URS), Tetra Tech (TTEK) and Canada's SNC-Lavalin (SNC.TO) that are worth tracking.Keep an eye on utilities like Duke Energy (DUK), FPL Group (FPL), and SouthWestern Energy (SWN).
Among the big conglomerates, I was told by someone I trust that 3M Co. (MMM) is a well run company. I am also keeping my eye on Dupont (DD) and Dow Chemical (DOW).Small Cap StocksSmall cap stocks got creamed in the last selloff. I am looking at the Ultra Russell 2000 (UWM), but there are plenty of names to picks from including tech stocks that are worth their weight in cash.
Technology
The technology sector was crushed last week but the tech heavy Nasdaq will snap back strongly if confidence is restored.
If you want to take a sector bet, buy the Ultra Pro Shares QQQ (QLD) or focus on individual names that were slammed like Apple (AAPL), Research in Motion (RIMM), Intel (INTC), Cisco Systems (CSCO), EMC (EMC), Qualcomm (QCOM) and Yahoo (YHOO).
In the sofware space, I like Microsoft (MSFT), Symantec (SYMC) and Citrix Systems (CTXS).
On the global level, I like Taiwan Semiconductor (TSM), China Mobile (CHL) and Nokia (NOK).
Finally, in a slowing economy, I really like Priceline (PCLN).
FinancialsI hate this sector the most because I simply do not trust bankers. If I were to buy a bank, I'd stick with Warren Buffett and buy Wells Fargo (WFC) and Goldman Sachs (GS). I am also keeping an eye on Bank of America (BAC) and HSBC (HBC), arguably one of the best banks in the world.
If you want to take a leveraged long position in the financial sector but do not want to pick specific companies, you can buy the Ultra Financials (UYG) Proshares ETF.
Insurance stocks like Allstate (ALL), AXA (AXA) and Canada's Manulife (MFC.TO) and Great West Life (GWO.TO) caught my eye. Of course, you might just want to buy Power Corp (POW.TO) and stick with the Desmarais family, the Buffetts of Canada.
On a global level, I would go Greek for value and buy the National Bank of Greece (NBG):
NBG is Greece's largest lender, with total assets of $132 billion, 579 branches and some 32% of the country's mutual fund business. While mortgages and consumer loans account for 56% of the bank's domestic lending portfolio, both continue to experience healthy growth rates. In fact, NBG profits are growing at a 30% clip and its return on equity is a healthy 28%. What really excites Christy, however, is not NBG's healthy share in Greece, but rather its position as the junction between Europe, Africa and Asia and its growth outside the relatively tiny nation. In 2006, NBG bought Turkey's Finansbank and, more recently, NBG has been gaining share in Romania, Bulgaria and Serbia. Business is booming in southeastern Europe and already accounts for 12% of NBG's earnings. Investors are worried Europe will follow the U.S. into a recession, but Christy is confident that bargain-priced NBG, bolstered by its growth in emerging Europe, will continue to prosper.
NBG is Greece's largest lender, with total assets of $132 billion, 579 branches and some 32% of the country's mutual fund business. While mortgages and consumer loans account for 56% of the bank's domestic lending portfolio, both continue to experience healthy growth rates. In fact, NBG profits are growing at a 30% clip and its return on equity is a healthy 28%.
What really excites Christy, however, is not NBG's healthy share in Greece, but rather its position as the junction between Europe, Africa and Asia and its growth outside the relatively tiny nation.
In 2006, NBG bought Turkey's Finansbank and, more recently, NBG has been gaining share in Romania, Bulgaria and Serbia. Business is booming in southeastern Europe and already accounts for 12% of NBG's earnings.
Investors are worried Europe will follow the U.S. into a recession, but Christy is confident that bargain-priced NBG, bolstered by its growth in emerging Europe, will continue to prosper.
I have to agree that NBG is one of the best run banks in Europe and with a 11% dividend yield, the stock is cheap after being crushed last week. (Another Greek stock worth looking at is DryShips (DRYS), a shipping company which also got crushed during this last selloff and it carries a 5% dividend yield).
As I end my biased commentary, I see that Asian stocks and U.S. futures advanced as governments back banks.
It looks like the worst stock selloff in history is behind us (for now), but I need to see at least two consecutive up days in the markets before I can breath easier.
Leo Kolivakis
Pension Pulse
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