Raymond James' Chief Investment Strategist Jeff Saut sent out his weekly market commentary and again he focuses on his desire to be cautious, but not bearish. He hints at signs of 'head fakes' in the market that seem to be so prevalent. He mainly sees his stance as a method of risk management and even quotes legendary hedge fund manager Seth Klarman who said,
Risk control to us is a careful aligning of interests, a proper balance in our investing between greed and fear, experienced and collaborative senior management and investment teams that have worked together for quite some time, a consistent and disciplined investment approach where every opportunity is individually and meticulously evaluated on its fundamentals, a strict sell discipline, a willingness to hold cash when opportunity is scarce, a complete avoidance of recourse leverage, and a healthy level of fear.
Saut points out that holding cash during the recent sell-off was obviously a prudent move. He then turns his focus to stocks that give 'tells.' In market declines, some stocks hold up better than others. He highlights that names that held up include: NCI (NCIT), O'Charleys (CHUX), Radiant Systems (RADS), Select Comfort (SCSS), Cogent (COGT), Phase Forward (PFWD), Stanley (SXE), Dine Equity (DIN), Wintrust Financial (WTFC), CVS Caremark (CVS), and Nuance (NUAN). Interestingly enough, the majority of those stocks are listed on the Nasdaq.
He also highlights a stock that did not hold up and singles out A-Power (APWR) as it declined 25%. Saut uses this as a teaching point in that he recommends never to buy an entire position all at once, but rather to scale into a position. This is certainly a philosophy we (and many hedge funds) agree with.
Ending his note, Saut feels that equity markets will "need time to convalesce after an initial recoil rally" given the recent oversold condition. Embedded below is Jeff Saut's entire weekly investment strategy:
You can download the .pdf here.
Overall, he sticks with the theme from his previous week's note where he was cautious (but not bearish) on equity markets. For more insight from strategist Jeff Saut, see his 2010 outlook and for more research out of Saut's firm, check out Raymond James' analyst best stock picks for 2010.