The vast number of one-of-a-kind events experienced recently make the coming year for capital markets very difficult to call. Lending by central banks and the velocity of money supply, massive refinancing of U.S. government debt, inflation or deflation, the direction of the U.S. dollar, an extremely weak consumer environment and huge cash positions among investors are just a few.
Canaccord Adams has outlined four scenarios it believes are most likely to occur in 2009, their respective probabilities and related stock picks.
The first is that global economies start to gain steam and we begin to see inflation. “The stock market is bound to rebound under this scenario,” the firm said, assigning a 30% probability to this outcome. In this scenario, its picks include First Solar Inc. (FSLR), Google Inc. (GOOG), Bankrate Inc. (RATE) and Fairchild Semiconductor International Inc. (FCS).
Another possibility Canaccord gives a 40% chance is that global economies continue to suffer, but increased capital from central banks drives inflation. “Stock markets could be flat for the year under this scenario, with some volatility,” it said, noting its best ideas in this scenario include Integra LifeSciences Holdings Corp. (IART), Badger Meter Inc. (BMI), 3PAR Inc. (PAR) and shorting Intel Corp. (INTC).
If global economies continue to weaken and deflation continues, stock markets will likely fall in 2009, Canaccord said, assigning a 20% probability to this outcome. In this scenario, the firm likes names such as St. Jude Medical Inc. (STJ), Inverness Medical Innovations Inc. (IMA), IAC/InterActiveCorp (IACI) and Semtech Corp. (SMTC).
Finally, if global economies pause at their current levels, stocks will likely be in a volatile trading range, Canaccord said. It added that there is a 10% chance of this happening and likes Stryker Corp. (SYK), Intel, Avocent Corp. (AVCT), Salesforce.com Inc. (CRM) and others if it does.
So to survive the variety of scenarios it envisions for 2009, Canaccord recommends 13 stocks: Martek Biosciences Corp. (MATK), Green Mountain Coffee Roasters Inc. (GMCR), Arena Resources Inc. (ARD), BPZ Resources Inc. (BPZ) EOG Resources Inc. (EOG), Embarq Corp. (EQ), Hologic Inc. (HOLX), Orexigen Therapeutics Inc. (OREX), First Solar, Itron Inc. (ITRI), Bankrate, Intel and Concur Technologies Inc. (CNQR).