Saut: Sell Financials, Gold; Some Buy Ideas

Excerpt from Raymond James strategist Jeffrey Saut's latest essay, published Monday (September 22):

...So what should we do from here? If the typical pattern continues to play, traders should look for a 2½-5 session rally off of the recent lows, and we’ve already had two of them, so traders should look to sell rather than buy. Following the envisioned 2½ -5 session “lift,” there should be an attempt to sell stocks back down and potentially retest last week’s lows. Historically, 70% of such downside retests are successful. In this case, however, we think the odds are near 100% that the trading lows are “in” for the year. Short-termers, then, should scale-sell strength in the aforementioned ETFs and wait to see how the market’s “internals” look during any subsequent pullback attempt.

As for the financials, we think they should be SOLD, except for some very select special situations, on the premise that their fundamentals are not all that better even following the proposed bailout. Moreover, our sense is there will be a huge number of lawsuits regarding the potentially illegal maneuvers employed by the government to “save” select financial institutions.

Ditto, we think gold is a “sell” in the short term since after last week’s geometric rally, history suggests taking some profits is in order, as well as the fact that investors’ attentions should now turn back from gold to more conventional equities. Longer term, however, we continue to think the yellow metal is in a secular bull market...

...Consequently, while traders may trade the wiggles, investors should stick with those sectors where the fundaments look decent whether the economy slides into recession or not, preferably situations with dividend yields. As stated last week, the healthcare and food sectors (including agriculture investments) look better than most in this regards. Similarly, defense and homeland defense’s prospects appear favorable, as do our themes of water, electricity, infrastructure, select special situations; and now that the Olympics and Paralympics are over (Paralympics ended 9-17-08), China’s factories should crank back up implying “stuff stocks” (energy, timber, base metals, etc.) should fare better going forward.

And don’t look now, but after the drubbing many of the emerging markets have taken, year-to-date, scale buying of them seems appropriate (we use mutual funds for this allocation and overlay them with select country ETFs). Some individual names for your consideration that are rated favorably by our fundamental analysts include: Johnson & Johnson (JNJ), Alaska Communications (ALSK), Harris Corporation (HRS), EMBARQ (EQ), Cogent (COGT), Covanta (CVA), Linn Energy (LINE), and perhaps the best business model there is, Automatic Data (ADP).

Comments

[Peter Cooper:]

Dropping out of gold with the dollar in free-fall and oil on the up looks a bit foolhardy - especially as the writer agrees with the long term secular bull market argument. Try telling those who missed last week's sudden surge in gold because they had dropped out that this is a solid strategy.
The thing to do is to stock up on the terribly bombed-out gold junior explorers like LNXGF on the NYSE - the latter jumped 40% last week and these stocks are heavily geared to gold price upside - just as they were on the way down over the summer.

2008 Sep 23 08:20 AM

[Mr.G:]

good call on the food and agric stocks /healthcare in the long term is a bad buy you cant draw blood from a stone and profits are going to shrink in that sector when it is apparent that people cant afford ins and more uninsured are likely to be added in coming months (they will have huge problems collecting debt just as everyone else is and by law must provide care ) I'd give it a risky short term buy.-why sell gold when longterm its a win ? buy more on down days and hold on to previous bought -support on prices will be moving up to 1000 so anything you hold now , consider it a bargain (silver is bargain basement right now and is still oversold ).

2008 Sep 23 08:28 AM

[beabaggage:]

There is no investing anymore Jeff, just speculating. Harry Dent is being borne out by this market, last commodity spike before the depression coming is now here. Bubble money will flow back into commodities where they can short/speculate etc. without fear of gov't restriction.
JNJ? any stock sitting in near-high range with ONE little disappointment is going to be slammed. One bad thing comes up, this stock gets hit back to 62 fast. I would rather own PFE with all it's cash. Cash is king. Cisco, Exxon, PFE etc. co's with Cash and no or little debt will clean up soon leaving others in the dust.
Manulife, MET, PRU, they would love to lend a few billion at 5-6% now to a AAA company like PFE buying out say SNY or someone.
Long gold, silver, Canroys, PAL, SWC, ZINC( a baby cash hoard) QID and MZZ, working for me! looking to sell down QID and MZZ profits then will add to strong blue chip players for long term holdings.

2008 Sep 23 09:09 AM

[whidbey:]

This guy is a dummy. Selling gold at this point of the legislative process is like going like sticking your head out of the train window to see if there is anything coming. It is dangerous and likely to make you a foot shorter.

He had noting to say, so he said the markets bottomed last Thursday. Will ignore this dummy and watch the market work lower.

2008 Sep 23 09:54 AM

[CLH:]

I think gold is a flash in the pan and has much more downside. Dollar is not done and inflation is not possible. Can anyone raise prices today? Of course not.

Dont tell me about the 1930s when gold went up because the president raised the price of gold. That is not possible now.

2008 Sep 23 10:58 AM

[Emerald:]

Asset deflation in housing and stocks coupled with growing inflation as the government prints money. Earnings of the S&P 500 will dive as credit is squeezed out. Please play defense and ignore these short sighted trading comments. Buy gold on any pullback. Long GLD, GG, AUY

2008 Sep 23 12:40 PM

[xsuddensam:]

You gotta be kidding!

In light of our bankrupt government printing trillions of dollars to bailout the criminals, you advise selling gold and buying equities?

Whatever you and Larry Kudlow are smoking, I'd sure like to get some.

2008 Sep 23 12:41 PM

[The World's...:]

I agree. Buy gold on dips. I also think that the Raymond James analyst is a genius! I quote: Excerpt from Raymond James strategist Jeffrey Saut's latest essay, published Monday (September 22):

"As for the financials, we think they should be SOLD, except for some very select special situations, on the premise that their fundamentals are not all that better even following the proposed bailout. Moreover, our sense is there will be a huge number of lawsuits regarding the potentially illegal maneuvers employed by the government to “save” select financial institutions."

Thanks genius from Raymond James. Next time please can you give us this advice before the financials dropping more than 50%. Thanks a lot!

2008 Sep 23 01:15 PM

[daytrader:]

you think the trading lows are in for the year?your in the wrong business,pal.maybe you should be selling swampland in florida.no?put up your documented track record over the last five or ten years.i bet a kid's piggy bank had a better rate of return.

SWAMPLAND!!!

2008 Sep 23 01:24 PM

[granger:]

Careful all,take a look at Saut's long term record over the last decade. I may question his thoughts and disgree, but would never go directly against them.

Sharp man, just my opinion. I own Paychex over ADP.

2008 Sep 23 02:20 PM

[daytrader:]

ok,what is his track record?i thought so.

2008 Sep 23 03:00 PM

[Leif Peterson:]

The ultimate oscillator for GLD is again approaching 70, and just like in March (08), there will be a drop -- so play it safe and get out. Also, look at the 1 year EMA chart for DBA and GLD on the same plot. GLD usually follows DBA's by about a week or two, and with DBA going down, what do think GLD will do next? Kitco.com also showed gold down today, so if everything is so bad right now, why is gold down? These are signals of deflation, when money is pulled back resulting in trading days when everything is down (shorting ETFs, gold, equities). Indeed the definition of deflation is when everyone is pulling out and the money is circulation slows significantly -- most likely due to people cutting back on consumption. Drug companies are now hurting because a large percentage of prescription drug patients are stopping out of pocket co-payments. Look at the medical and equipment and supply sector, which was up earlier in the year but correcting down as we speak.

Recommendation is to go with good asset allocation based on e.g. 50% low risk funds, 40% (foreign) growth and income stocks, and 10% risky explosive equities -- all of which have consistent high yield (dividends) and consistent revenue growth. These are the only things that attract money from a fundamental perspective.

Last, there will be no bell sounded for when to get back into the market. Buy low and sell high, and don't by and sell, go in, go out, since you'll never get ahead. I was a gold bug, and am doing my part for goldville by having 10% in gold mining stocks, and may by a small amount of GLD and SLV this week. However, if you ask smart investors about gold (the rich guys, -->not me), the response is typically: "I wouldn't touch it."

2008 Sep 23 09:38 PM