Saut: Are We Entering a New Kind of Investment Environment?

Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Indeed, there are many investment stocks that have not participated in the recent rally, yet afford investors attractive risk/reward ratios. One such name was added to our Focus List last week, that name being 6%-yielding Embarq (EQ). We think Embarq’s 30% share price decline from last September’s high of $63 has more than discounted this telecommunication company’s exposure to the housing debacle.

Likewise, we favor 7%-yielding Alaska Communications (ALSK) for its exposure to the vast Alaskan natural resource reserves that should eventually be developed. Our recommendation on Schering-Plough’s (SGP) 8%-yielding convertible preferred “B” shares remains in force; even though we lost our fundamental analyst, along with his Strong Buy rating, last Friday (the shares are still positively rated by our correspondent research affiliates). And while we have clearly been wrong on recommending scaling into 3.7%-yielding General Electric (GE), after eight years of avoiding it, we continue to think investment positions in GE will be rewarded over the next few years (GE remains positively rated by our research correspondents).

The call for this week: Last Friday we recommend scale-selling “trading positions” into strength in the 1420 – 1440 target zone (basis the SPX); and especially into our cluster of timing points between May 7^th and May 14^th. This view is driven by the fact that we have had the envisioned rally, as well as that 77% of the S&P 500 stocks are above their 50-day moving averages (DMAs) for the highest reading since last October (read: overbought). Amazingly, 85% of the S&P’s financial stocks are above their 50-DMAs, which is likely why the financials outperformed gold last week for the first time since last July.

Meanwhile, volatility is falling, bonds have broken down (read: higher interest rates), bond spreads are narrowing, the U.S. dollar has “firmed,” and commodities have “cracked,” all of which suggests risk appetites are rising. Plainly this concerns us and begs the question, “Are we entering a new kind of investment environment?” History shows that if so, it will not be without some major dislocations, which is why we are now turning cautious.

Comments

[kotika98]

is this one of those stocks will go down before they go up calls? sure sounds like it.

[Simple Simon]

re: new environment. I haven't read much on these pages about the change brought about by such easy access to the markets, vis online, worldwide. Perhaps I missed all of it some years ago. I would appreciate more analysis around this subject. I beleive the consensus is now narrowing its focus on those 'mob investors', let's call them until I hear an official designation, who tuen in to CNN and elsewhere for the latest 'hot tip'; and rush like the proverbial lemmings to, in this case commodities. It seems that all day these flames are fanned by experts claiming to have the inside track-hence the mob buying, that in turn has inflated oil from its former $20 a barrel to $120. Do these folks realize and udnerstand how they are driving inflation? Am I wrong? The more too many dollars chase after too few fast buck opps, the more these same investors push themselves and their finances to the abyss ( by drivign up the cost , nay doubling the cost, of virtually everythign they have to purchase with their "winnings".
It's my personal (simple ) opinion that this is a dangerous trend. Immediately, more reasonable securities advisors need to populate the satellite airwaves. It is kind of a panic with two faces, investor schizophrenia? -hence the volatility? I think we'd all like to see cooler heads prevail...but I'm not going to hold my breath for that day. I will hold out hope for it, albeit.

[sivere]

We are in unchartered waters, and we have a failed system in place:

TakeBackTheFed.com

[rusty66jag]

lets get rid of immelt

[rusty66jag]

ge undervalued. dump immelt

[GMiki]

Amazing. He says nothing. But it does show how the "traders" think without reference to anything fundamental, but only those touchstones within their own little havoc-producing bubble. Yikes.

[cyberman]

The synergys of continuing a concoction of diverse businesses at GE are not as apparent as their value as independent companies spun of to stockholders (not sold off). How about a chance to own the number one wind energy source producer or jet engines? As it made sense for the consolidation by Welsh and maybe Immelt, now does it make sense to engage in a new paradigm? Ten years to wait for results is too long. Like MSFT, GE is lost in a time warp. GE do not take this as an opportunity to explain yourself better, take it as an opportunity to profitably disintegrate. Saut advises caution? If you keep on doing what you have been doing you will get what you have been getting.

[august]

EQ-NYSE-$44.99 -- Does anyone know the impact of myself and many friends dropping EQ as our phone provider? Our cable company has offered a convenient (and for now cheaper) triple play service which many of us have signed up for. I truly don't know how this will effect EQ's future, but can it possibly be good?