Market Comments And Favored Stocks Update From Lange Financial Services Going Into 2012 Stay Bullish.
LANGE FINANCIAL SERVICES DECEMBER 27, 2011 8:45AM
Since our last update in November, the market remained in an almost unpredictable, volatile, and difficult trading environment state, largely reflecting the deteriorating Euro financial crisis. Many stocks had declined noticeably in recent months due to prevailing uncertainties and are still well below earlier peaks.
During this period, as well as in prior months, we retained the view that:
1. The market was very reasonably priced historically.
2. The Eurozone crisis would not have a long lasting negative impact.
3. The country was not headed for recession.
All three parameters were challenged repeatedly by many market observers. In the week ended December 16, the Dow was down some 400 points as the uncertainties continued. Last Monday, the European Community Bank implemented a plan whereby for a Eurozone country could borrow at 1% for three years with funds employed at their discretion. This policy that effectively kicked the can forward was greeted enthusiastically by investors. The Dow rallied some 200 points to a new recovery high last week.
Further, modest economic strength seems likely as we enter the New Year. Election politics will be a dominant theme. Gains by Republicans are likely to be viewed favorably by investors regardless of oneâ€™s political views.
In our view, the market remains quite reasonably priced:
1. Relative to the $100 plus earnings projected for the S&P 500 in 2012.
2. Relative to current bond yields with the relationship being the widest in history.
We became very bullish on the marketâ€™s decline into early October. Given the probability that the Euro zoneâ€™s financial conditions will be contained at least for the time being.
Significantly higher equity prices seem likely in the period immediately ahead. The financial and fiscal and austerity measures taken by Italy may have to be watched carefully in the weeks ahead.
A target of 14-15 times forward earnings for the S&P is a realistic expectation in our analysis. New yearly highs for individual stocks reached 293 last week, the highest since earlier this year strongly supporting our positive investment views. Accumlate growing companies realistically priced to expanding earnings. We remain bullish, and would accumulate the stocks listed on our updated “Favored Stocks” list during periods of weakness.
Updated Favored Stocks List Going Into 2012 Include:
AAPL Apple Inc
AXP American Express
APC Anadarko Petroleum
IWM Russell 2000 Index ETF
SPY S&P 500 Index ETF
UTX United Technologies
WLT Walters Energy