Excerpt from Raymond James strategist Jeffrey Saut's latest essay:
As for investment positions, while some of our recommendations have been stopped-out (read: sold), due to our “sell discipline” designed to manage the downside risk, others have done just fine. One that did okay until last Friday’s earnings “hairball” is Microsoft (MSFT). We have often spoken about MSFT since hearing its story (see previous missives) from a particularly prescient portfolio manager [PM] at our March institutional conference. At the time the shares were changing hands around $28. If participants followed our strategy of scale-buying, they should have an average-weighted cost basis of around $29. Given that our fundamental research correspondents are re-thinking their ratings, we are using a $26 stop-loss point for this investment recommendation.
Clearly this year has proven to be a difficult investing environment. Still, we continue to fair pretty well with our trading recommendations, as well as our investment names like Delta Petroleum (DPTR), Schering-Plough’s (SGP) 8%-yielding convertible preferred “B” shares, Covanta (CVA); and don’t look now, but Strong Buy-rated Cogent (COGT) “gapped” above its 50-DMA last Friday on big volume.
We have liked the Cogent story for the past few months, believing this homeland security “play” should do well even if the U.S. economy slips into recession. With $5.00 per share in cash, Cogent appears “cheap,” and remains one of our individual stock recommendations. Yet while we love individual stocks, we also like ETFs, closed-end funds, closed-end notes, and particularly open-end mutual funds managed by PMs that have the skill-sets to navigate ALL investing environments.
The call for this week: For the past few months we have fallaciously suggested that interest rates were going to rise, the U.S. dollar was going to firm, crude oil was subsequently going to decline (along with most other commodities), and that the major U.S. indices, led by the financials, were going to rally; emboldened by the steepening yield curve, which implies the economy is going to recover. While we are often early, over the years we have tended to be generally correct.
Last week, that envisioned sequence materialized with the financials, and early-cycle stocks, coming to the fore. Even though we believe it is a “false move,” the difference between perception and reality is where investors’ opportunities lie! Verily, we think the real surprise, going forward, may be that inflation rears its ugly head in 2009, as seen in the nearby chart from our friends at the “must have” web site, “thechartstore.com,” of how many work-hours it takes to buy a barrel of crude oil.