Big Money Managers Are Cautiously Bullish - Barron's

by: SA Eli Hoffmann

Remarkably, "Big Money" managers surveyed this week by Barron's magazine are unrelentingly optimistic - with 50% saying they're bullish or very bullish about the stock market's prospects through the middle of next year.

Here are some of the survey's key datapoints:

  • 62% believe stocks are currently undervalued; 7% think they're still overvalued.
  • 70% say stocks will be the best-performing asset class in 2009; 13% favor cash; 11% prefer bonds.
  • 21% say financials will lead the way over the next 6-12 months; 17% say energy or healthcare; 1% favor consumer cyclical stocks.
  • 10% are bullish on U.S. real estate; 60% are bearish.
  • 50% call their current investment stance defensive; 20% aggressive; 30% neutral.
  • Overvalued stocks: Google (NASDAQ:GOOG), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Apple (NASDAQ:AAPL), SunTrust Banks (NYSE:STI), Wal-Mart (NYSE:WMT). Most-loved stocks: Berkshire Hathaway (NYSE:BRK.A), GE (NYSE:GE), Research In Motion (RIMM), Wells Fargo.
  • 62% of their equity portfolio is dedicated to large-cap stocks; 20% to mid-caps; 18% to small-caps.
  • An amazing 83% say they're beating the S&P 500 this year. Wow.
  • 91% expect a recession within the next year, but most think it won't last more than 12 months. 87% believe a U.S. recession will trigger a global one.
  • 62% see normalcy returning to credit markets within half a year. Only 15% think it will take more than one year.
  • GDP growth: 0.15% in 2008 and 0.49% in 2009. Inflation 3.28% in 2008 and 3.02% in 2009.
  • 17% remain bearish on stocks, but only 3 out of 70 see the Dow closing out 2008 lower than Monday's close of 8175, and only one thinks it will be trading below 8000 next June.
  • The median estimate is for a Dow close of 10,642 this year - up 14% from current levels, but down 20% on the year.

Salient sentiment:

  • "We could have a huge rally. The Fed is pumping up liquidity, and sooner or later some of this is going to find its way into the market. I feel like a kid in a candy store. My biggest problem now is in deciding what to buy." - David Corbin, chief investment officer of Corbin & Co.
  • "A lot of money is on the sidelines, but if you're a money manager, you can't afford to be out of the market, because you might miss the comeback." - David C. Hartzell, founder of Cornell Capital Management
  • "Portfolio values are declining, home values are declining, the unemployment rate is going up and consumer confidence is waning. While the market has fallen 40%, so have earnings." - Bryan Sadoff of Sadoff Investment Management
  • "After the tech bubble burst we had three down years [for stocks]. Two thirds of the economy - namely, consumer spending - is down, so it's hard to grow earnings, and that's bound to put downward pressure on share prices. It's hard to find much to be bullish about." - Jon Fisher, portfolio manager at Fifth Third Asset Management
  • "Equity investors will become more risk averse and likely focus on high quality, [buying] 'blue chip' stocks [of companies] that are able to grow their earnings regardless of the economic environment. Plus, many of these companies have and will pay a growing dividend. The new 'Nifty 50' will be back with a vengeance!" - a respondent