The stock market’s current situation indicates a bear market is ending, not starting, says a top market strategist for A.G. Edwards & Sons.
Mark Keller, vice president and senior investment officer for the St. Louis-based firm, was in La Jolla this past week to speak with local clients about what his company foresees in the stock market in the near future. The company has four offices in San Diego County. He also spoke to a seminar open to the public Wednesday night at the La Valencia Hotel.
“It really is a good time to buy now,” Keller said. “We see the larger companies with high investor confidence levels, such as techs like Intel and Microsoft, have begun to finally show some fatigue.”
Generally, what happens in a bear market is that smaller companies, those under $1 billion in market capitalization, start to decline first. Small company stocks peaked in April 1998 and they are still below those highs, he said.
“Meanwhile, some other non-technology blue chips that were everybody’s favorites a year ago were hit very hard recently. Gillette is at 37 3/8ths. Just in March it was 64.”
“When the market leaders finally sell off, that is usually indicative that the sell-off is on its last legs,” he said. “There are a lot of unhappy investors out there now. That is usually characteristic of a market bottom, not a market top.”
While A.G. Edwards doesn’t have any San Diego County-based companies in its stock portfolios, telecommunications stocks such as Qualcomm, Inc. should do well in the long term, he said. The company just downgraded its rating on Qualcomm from an “accumulate” to a “hold” because it has gained so much value in the past year.
Keller likes biotechnology stocks in general right now.
“My perception is there is opportunity in the group because most venture capital is out chasing Internet stocks and telecommunications stocks,” Keller said. “Biotech is not nearly as attractive right now, but if you’re patient, I think that if you pick biotech companies that have good products that they can bring to market, you’ll make some money.”
Another group of stocks that show promise are the real estate investment trusts (REIT), mainly because most of them are small-capitalization companies that have been hurt in the general decline of small companies.
“The real estate industry nationwide is doing well, but the REIT stocks are doing poorly,” Keller said. “They are yield (high dividend) investments, and with the Fed raising rates and the bond market weak, most yield stocks have done poorly.”
“What we have with REITs is a group whose fundamentals are holding together pretty well, but because of stock market issues, primarily small caps being out of favor, the group has lagged. I think it is good opportunity to invest in REITs but people shouldn’t expect a REIT to double in price in a short time.”
His firm has not added any new names to its portfolio, but recently has started buying some old favorites.
“We think there is significant value in Disney right now,” Keller said.
Other stocks his investment team likes presently include manufacturers Ingersoll-Rand Co. and Emerson Electric Co.
“We think worldwide economic activity is beginning to pick up. There’s evidence that Japan and Asia are starting to recover , that’s good news for U.S. manufacturers.”
He said the company also likes Wells Fargo & Co., Merck & Co. Inc. as well as Federal Home Loan Mortgage Corp. and Federal National Mortgage Association.
Keller said the style of A.G. Edwards & Sons is to buy and hold stocks for three to four years.
“Anyone who buys and holds can take the long view and will do better than someone who trades in and out,” Keller said. “Generally, if a company is well-chosen simply hold it. The more patient one is and the less one worries about market gyrations, the better off they are!”
He said a 1930s-style Depression is unlikely in the near future. While economic growth may slow next year, the firm’s economists don’t see a recession.