The Good Times Roll?

Investors let the good times roll again yesterday, pushing the Dow Industrials up over 7,400. A surprise jump in homebuilding activity spurred continued enthusiasm yesterday.  

But underlying the recent jump in the market is the hope the economy may have actually bottomed. Unfortunately, there’s no way to know. The Obama administration has been doing its best to push that message that things are getting better. And some in the banking sector are jumping on board. Let’s not forget that these players are "talking their book." Their opinions reflect what would be the best outcome for their own business, but also the business of America. 

President Obama will look good if the economy recovers this year. And bank CEOs will get bonuses if they convince investors that business is on the rebound.  

*****The World Bank cut its estimate for China’s 2009 growth rate from 7.5% to 6.5%. Not a huge adjustment, but it emphasizes that global growth isn’t returning quickly. China’s growth is expected to remain essentially static for the rest of the year. And that is largely a function of its stimulus efforts, because the export market has dried up. 

*****TradeMaster technical analyst Jason Cimpl is finally seeing the downside he’s been expecting for the last couple of days. He had TradeMaster Daily Stock Alerts readers in position to profit from the rally. Now, he’s got them in a couple positions to profit from a decline in the market, including a short-financial ETF. A move to Jason’s target of 740 on the S$P 500 will deliver some nice gains.  

Again, Jason will be discussing recent trades and where the market goes from here in the upcoming TradeMaster video investment conference that will air on March 25. I’m sure he’ll also a couple trading ideas for you. If you’d like to sit in, here’s a registration LINK. Plus, when you register, we send you TradeMaster Daily Stock Alerts right up until video conference. That way, you’ll be able to make the most of the information and trading ideas we explore. 

*****Wednesday is Newsletter Advisor day. Please enjoy the following interview with Charles Rotblut of Zacks.com.  

Interview With Charles Rotblut  

Today’s Investment Expert Insights comes courtesy of Charles Rotblut, VP of Web Content and Senior Market Analyst for Zacks.com.

Rotblut encourages investors to take a prudent approach to investing in today’s climate by following a disciplined sell strategy and buying non-economically sensitive stocks. 

Last year was devastating for most sectors, if not most companies. Were you able to find any pockets of strength? 

Last year was a tale of two markets. During the first half of the year, commodity stocks performed extremely well, particularly the energy and agricultural sectors. Everything fell apart in the second half of the year, especially during the fourth quarter. Commodity prices plunged; the financial sector tanked and business slowed across the board. What caused the most damage was not the deterioration in the credit markets, but the rapid pace at which the economy contracted. For the Zacks Elite Focus List, we sought out less economically sensitive stocks, placing particular emphasis on consumer staples, medical/healthcare and defense.  

Unfortunately, these same sectors are now struggling with the rest of the markets. What’s notable about the markets right now is not the just the broad damage, but the combination of special circumstances that are appearing (e.g., the peanut scare, worries about defense spending, Obama’s intention to reform healthcare, etc.) 

Once some sense of normalcy resumes in the financial world, what sector(s) do you think will lead us out of the bear and why? 

I think we will see two trends coming out of the crisis. The first is an ongoing sense of frugality. This will impact consumer spending (luxury brands and stores should lag the recovery) as well as business spending. I think CEOs and employees are realizing they have to do less with more and are looking for ways to improve productivity. As a result, I like software and "cloud computing" companies.  

We’ve seen good results from several such companies. For instance, Salesforce.com (NYSE:CRM) recently reported bullish numbers. CRM is richly valued, however, so investors might want to consider another company in the software field, such as Open Text (Nasdaq:OTEX), which we hold in the Focus List portfolio. I also like Google (Nasdaq:GOOG) for the eventual rebound, and we hold GOOG in our Top 10 Stocks for 2009 portfolio. 

The second is higher commodity prices. Due to all of the government spending and worldwide economic development, inflation will come back. It’s not a matter of if, just when. We’re not adding commodity stocks to our Focus List portfolio right now, but we are watching the trends.  

Two names to keep an eye on are Potash of Saskatchewan (NYSE:POT) and Transocean

(NYSE:RIG). They both control strong market share in their respective industries. 

Name 3 stocks you would buy today and why? 

We added Omnicare (NYSE:OCR) to our Focus List portfolio last week. The company provides geriatric pharmaceutical services. It was knocked down in price over fears about Obama’s healthcare proposal, but while that was happening, nearly all of the covering brokerage analysts were raising their full-year profit forecasts.  

Shanda Interactive (Nasdaq:SNDA) is another stock we hold in our Focus List portfolio. This is a Chinese provider of online games. It is well run, has a big market share and would trade higher if it were not for turbulent market conditions.  

Google (Nasdaq:GOOG) could be a great stock to hold once the economy starts to rebound. Spending on search engine advertising will only grow and GOOG dominates this niche. The company is also expanding into the wireless arena and is targeting business with its collaboration calendar and documents (e.g., spreadsheets, etc.).  

If you were face-to-face with President Obama, what unique perspective could you give him regarding the markets and challenges facing investors? 

Investors are looking for clarity, and voters are looking for bipartisanship. I don’t think these are mutually exclusive concepts. President Obama needs to get input from both sides of the aisle and develop a long-term plan for fixing the banking crisis, helping the economy and solving the long-term issues facing this country, such as healthcare, energy and infrastructure. Even for those who don’t agree with his policies, a clear roadmap gives investors an idea of what they might expect.

I would also advise the President to place a greater emphasis filling the openings in the Treasury Department. His inability to fill key positions is delaying potential progress on resolving the banking problem. Most importantly, I would ask that he sticks to his word and changes any policy that is not proving to work as well as he thought it would.  

What areas of the market do you perceive as most safe today? 

What’s most troubling about the current market is the lack of truly safe areas. Some food stocks, like JM Smucker (NYSE:SJM), have been hurt by the peanut scare. Healthcare stocks were recently knocked down by fears over healthcare reform. Even consumer staple stocks are feeling the pinch from the economy. 

That said, I still think it’s worth looking at less economically sensitive sectors, as well as companies that can provide cost-saving solutions. However, investors need to move with caution and really do their research. 

What do you say to people who are tempted to buy technology, even financial stocks at these low, low prices? 

I like technology, particularly software companies. Businesses are looking for ways to cut costs and improve productivity. Plus, greater online collaboration and a tougher regulatory environment should also increase the need for software. Open Text (Nasdaq:OTEX) is a good example of a software company that is benefiting from these trends.

Many banks don’t have a clue what is on their balance sheets. This has made it impossible for brokerage analysts to make earnings projections with any accuracy, much less assign a valuation.

The other problem is that banks are trading in reaction to speculation, which means neither fundamental analysis nor technical analysis works. They are likely to soar on any bear market rally, but that does mean they are any more attractive. 

At some point, there will be winners in the financial sector. But I would wait for the credit and the stock markets to stabilize before tipping my toes into financial stocks.  

What investment advice would you give to someone with a 5-year horizon? 

The best thing someone can do, regardless of their time horizon, is to realize that the rules of investing have not changed: Seek out fundamentally sound companies with rising earnings estimates that are trading at attractive valuations, and sell a stock (or mutual fund) when the reasons for buying it no longer apply.

That’s it for today. Talk to you tomorrow…