Two Good Stocks To Invest In
Two Stocks For Your Watchlist In A Wobbly Market
Thursday, June 5, 2008
The Smart Profits Report Issue #529 -
by Aaron Lehmann, Contributing Editor, Smart Profits Report
Managing Editor’s Note: I’m thrilled to introduce you to the newest member of our Smart Profits Report team: Aaron Lehmann. As a 40-year stock market veteran, Aaron brings an outstanding investment pedigree and track record. He’s worked as a senior securities analyst for Goldman Sachs, Bank of America and Steinhardt Partners, one of the most successful hedge funds of all time. He was also director of research for Westinghouse Pension Investment, where he co-managed a $3 billion portfolio. At Chase Investors Management, he was vice-president and portfolio manager, where he ran a $170 million small-cap fund and in 1987, his defensive strategy helped his clients avert the stock market crash. Between 1993 and 2000, managing a hedge fund, he notched up a 23% compound growth rate, without using leverage or IPOs.
And now, he’s is set to give you the benefit of his vast stock market knowledge and experience, showing you how to make money, too. So without further ado, I’ll hand today’s column over to Aaron…
Martin Denholm, Managing Editor, Smart Profits Report
Invest In A Different Kind Of R&D (Recession & Dollar)
Are we in a recession or going into one? The question has flooded the financial news headlines this year.
The Federal Reserve is certainly fearful - and has been extremely proactive in trying to stave off a recession over the past nine months or so. The bank has injected vast amounts of liquidity into the market in order to aid the real estate sector, prop up the sagging stock market, and rescue the financial system via JP Morgan’s acquisition of Bear Stearns.
I actually don’t think the economy slipped into recession, aside from a few industries enduring particular hardships. Corporate balance sheets are in the best position in modern history and there are trillions of dollars that could potentially be invested in the market.
Therefore, I believe the economy will escape a classical recession and begin firming up in the first half of 2009. In fact, I think the Fed is now done with its rate-cutting program and, in all likelihood, will have to increase rates again later this year to combat inflation.
This would bode well for the US dollar, which will feed off the rate increases and strengthen against the world’s other major currencies over the next 12 months.
This year’s presidential election will likely impact economic policy to a greater extent than in previous elections, since Senators McCain and Obama have limited experience in that area. This will influence the investment environment, too, so the outcome and subsequent appointments in that field will be crucial.
Two more projections and two stocks to consider…
The Market’s Potent Twin Combo In 2008
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It’s tough to fight against demand.
In the oil market, for example, even if the US manages to reduce its consumption modestly, others are likely to pick up the slack. Specifically, this includes the BRIC countries (Brazil, Russia, India, and China) and a host of smaller countries that are also major oil consumers.
Consider that China now has a larger middle-class population than the entire United States population… Russia and India may have more billionaires than the US… and with its vast natural resources, Brazil has become the powerhouse of South America and a catalyst for the rest of that continent.
Having zoomed past $100 a barrel at the start of the year on its way to a record of $135 just a couple of weeks ago, we’re now seeing a pullback in the market. As our commodities expert Lee Lowell has noted, this kind of profit-taking is common in the oil market. And after a possible decline close to the $100 level, we expect a resumption of the uptrend.
On the other hand, the US real estate market is suffering from an excess of supply. A record inventory of new and existing homes, plus the enormous number of foreclosures, will affect pricing, as well as more stringent rules on borrowing.
But the sector could be within 15% of the bottom, so if you’re a prospective homebuyer and qualify for financing, the next 12-24 months may be an opportunity of a lifetime. Speaking of opportunities…
Two For Your Watchlist
Two stocks that have caught my eye in the current market are Verizon (NYSE: VZ) and Walgreen (NYSE: WAG).
As you may know, Verizon just offered to buy wireless rival Alltel for a total value of $28.1 billion ($22.2 billion of which is Alltel’s projected debt at the time of closing later this year). This would give the firm access to Alltel’s 13 million customers and wipe out competition from the fifth-largest wireless operator in the US.
Given that #2 carrier Verizon currently has 67 million subscribers, compared with 71 million at top-ranked firm AT&T, the deal would vault Verizon to the top of the network heap.
Right now, Verizon is trading within 10% of its bottom and 20% from the top. It also pays a 4.6% dividend and should also benefit from the expansion of its FIOS network, which should generate significant cash from the increase in subscribers.
Walgreen is the largest drug chain in the US. Having slowed the pace of new store openings, the firm is now committed to boosting same-store sales. The stock is currently about 10% above its low and 25% off of its high and could benefit from an increased focus on same-store results.
I look forward to sharing many more investment ideas and strategies with you in the future, so you can invest with more knowledge and confidence - just like the pros.
Talk to you again soon.
Aaron Lehmann
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