The market broke out in many respects this week on good fundamental data. This seems like a good time to be involved! This week, I share five stocks that look good to me right here right now. All of them are in long-term uptrends, with two off to a good start in 2012 but three that are lagging. Check it out here!
In case you missed it, I challenged the popular notion that only "trash" stocks are leading the market by examining all of the stocks up 20% or more YTD in the S&P 500. While this article might give you some ideas, it's really more about gaining conviction that the rally is sustainable. Check it out here!
Finally, I don't typically link here to my Invest By Model blog, but this is something I publish every single week. You can find the blog by clicking here. Below is an excerpt from this week's commentary:
Market Outlook
The market has moved very close to the post-2009 highs. While we are still below the late-April closing high for the S&P 500 of 1364, there are several signs that we will soon eclipse that level. For one, the NASDAQ did so today, and in grand fashion. Also, the Technology sector (see the XLK ETF), which is at the highest level since 2001, and the Consumer Discretionary sector (see XLY ETF), which posted an all-time high, have already cleared their previous highs. Finally, the Dow Jones Industrial Average has made a new high too.
While my 1600 target for year-end, which is less than 20% from here, may seem overly optimistic, I am sticking with it. Valuations are too low, while technicals are very encouraging. As I have said previously, the fundamentals have been the obstacle. While I am not looking for a super robust economy, it doesn't appear to be as weak as many have feared. With low valuations for stocks and terrible sentiment, there is plenty of reason for people to deploy cash. Would it be so wild if the market were to trade at 14 or 15 PE? I don't think so, and that's how I come up with 1600. The current outlook for 2012 is about $105 per share - maybe this is too high. If we assume, though, that $110 for 2013 is about right, we can get to 1540 (110 * 14). 15PE implies 1650.
After being overly optimistic last year and enduring a five-month hit to the long-term trend (from late April to early October), I am somewhat humbled and perhaps not as confident as I might ordinarily be, but this is how I see it. I am still looking for some confirmation outside of US stocks. Encouragingly, non-US stocks are flying. If the world were such a hostile place, this would not be the case. In fact, Europe is leading the way. While everyone is fearful of recession (in Germany and France, the two that matter), it's just not in the cards. Their manufacturing indices remain expansionary. One area that isn't confirming stronger growth ahead is bonds. It's a very manipulated market (Operation Twist, for one), but our rates remain so low that they signal crisis still. To the extent our 10-year Treasury rates rise towards 3%, the more optimistic I will be regarding our prospects for a recovering economy. Today, we did move in the right direction, but we are still below 2%.
As my conviction builds longer-term, I have to share some near-term caution, as the market has rallied five straight weeks and is a little overbought. This doesn't mean a big pull-back is ahead, but I wouldn't be surprised to see a small dip (similar to what we saw last week but lasting more than a day or two). With that said, this is definitely a dip-buying kind of market.
Final Thoughts
This week, Facebook filed its initial documents with the SEC to go public. Many people view this as a potential catalyst for a better market, and I have to agree, as it could attract new investors to the market. I am saddened by what has happened to the individual investor in recent years. It's no wonder, after the Dot-com Bubble and then the Great Recession, many people have just given up on the idea that they can make money in stocks. This is especially the case for younger people, who didn't get to experience the great run from 1982-2000 but had to live through two terrible bear markets in their adulthood.
Unlike the crazy IPOs in the late 90s, FB (that's the symbol) is highly profitable. It touches hundreds of millions of people around the world and is a great reminder of the power of capitalism and the ability of great ideas to enrich their creators. This deal, expected to come in May, is likely to draw tremendous attention and to be an incredible opportunity in the short-term to those who are able to get shares. I stray from hyperbole, but it could be a game-changer when it comes to attitudes about stocks for the younger generation.
As a contributor to Seeking Alpha, I am exposed to lots of different investors through their comments on my articles as well as their direct messages to me. Many of these people (who are actually in the market) think Utilities and AT&T are appropriate long-term investments, which I view as totally incorrect. Younger investors should be betting on growth stocks! But, I think that their thinking is clouded by near-term performance and too much media reference to the "lost decade" for stocks. While it is true that "stocks have gone nowhere" this century if you measure the S&P 500, it's just not the case. It's been a tale of overvalued stocks coming down but many stocks going up. For stock-pickers, the last decade has been quite fruitful. The Russell 2000 (small stocks) has increased over 65% since the turn-of-the-century.
