Spotting A Few Winners In The Current Market

by: Chris Damas

Quick, what is the definition of a Realist?

An informed Optimist.

So many stock market bulls in the media are frothing over cheap S&P 500 (NYSEARCA:SPY) stock valuations based on analyst forecast earnings. It makes me think they missed the mid-Summer 2010 bottom and are trying to redeem themselves this time around.

Here’s my track record over the past three years:

April 2008 – September 2008 Bearish on Canadian bank stocks, especially BMO Financial Group (NYSE:BMO) and CIBC .

October 2008-March 11, 2009 – Bullish (just ask John Heinzl at the Globe and Mail with whom I spent months arguing the bullish case. My only failing had to sell in late March 2009 for personal reasons (my father died, had to attend to my mother). I resumed my bullish posture in June 2009.

May-November 2010 – Bullish, in the face of the May 6 “Flash Crash,” the “Euro Credit Crisis” (my name), and the general market panic and hand wringing over earnings. But top US industrial companies were motoring along as I pointed out.
December 2010 – May 2011 – Bearish and short the overall market, but continued to have to cover due to sharp market rallies.
March 2011 – Bearish on oil (correct), Bearish on gold (wrong!). I explain the latter mistake as my hope the Obama regime could pull growth out of a hat with stimulus, but I was misinformed (refer to the above rule about misinformed optimists).
Mid-June 2011- Gave up the short case (too bad); all cash except for special situations, agriculture and telecom stocks.
August 4, 2011 – “This is a dead cat bounce” (see Seeking Alpha article). Continue to be bearish on the overall market indices, turned bullish on gold equities.
In the early afternoon today, the DJIA is down 287 points at 11,009; S&P/TSX is down 204 at 12,479. October Gold $1859.70 up $4.50.
Note I am not bearish on everything.
I like fertilizers Agrium (NYSE:AGU), CF Industries (NYSE:CF), The Mosaic Co., (NYSE:MOS) and CVR Partners (NYSE:UAN), paper/pulp/cellulose such as Domtar (NYSE:UFS) and Rayonier (NYSE:RYN), telecoms (NYSE:BCE) and TELUS (NYSE:TU) and Senior Gold producer ETF's such as XGD on Toronto and the US equivalent (NYSEARCA:GDX). I have a special situation, which is the TMX Group.
I was looking for a Greek and/or Irish default as this year started (as now most people are), and am looking for a “major credit event” such as a bank bankruptcy, in Europe, in the near term.
I like senior gold equities better than gold bullion, the latter trading in a recent range between about $1,700 and $1,900 US. But I expect the precious metal to hit $2,000/oz due to the aforementioned major credit event in Europe. It should be noted that I am trading these gold equities and just took profits as gold rose to near the upper end of the range.
Since I have converted to the yellow faith, albeit late, I am evaluating a host of intermediate gold producers for their potential upside. The first one that I like is New Gold (NYSEMKT:NGD), which can be bought in the $13.25-75 area. Its warrants aren’t as attractive as the equity, in my view.
As far as I am concerned, last night’s Obama jobs speech was high on the “pull the wool over the US population’s eyes” factor and short on substance.
S&P 500 Q3 and Q4 earnings will be good for the export-oriented and agriculture sectors I prefer, but rotten for most others, as the consumer resumes his angst and the USD strengthens, curtailing earnings growth at players such as McDonald’s (NYSE:MCD) and Coca-Cola (NYSE:KO).
Note: Monday’s USDA WASDE and Crop Production reports should show a sharp drop in their 2011 corn and bean crop production and 2012 stock numbers and therefore I continue to recommend holding the fertilizer stocks over the weekend.

Disclosure: I am long AGU, CF, NGD, RYN, UAN, BCE, TU.

Disclaimer: The information above was disseminated to clients and subscribers of The BCMI Report and/or The BCMI Flash anywhere from 12-48 hours before appearing on Seeking Alpha.