The market has spoiled investors over the past 7 months with one direction only: up. This Great Recession seems to turn into the Great Recovery. Are there any cheap growth stocks left for bargain-hunting investors?

I use following 8 criteria to select undervalued growth companies:

Charles Schwab, one of the world’s best known and largest asset management firms, recently took another step towards finally breaking into the rapidly-expanding ETF industry.

Earlier this month, Schwab filed paperwork with the SEC to launch nine ETFs. The proposed funds will have the benefit of the Schwab name (and the tremendous resources that come along with it), but will still face an uphill battle, given the firm’s late arrival to a now very crowded market.

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Conventional wisdom says that while growth stocks outperform their value counterparts during recessions, value stocks gain the upper hand once the economy hits bottom, leading the way during the early recovery stage of most economic cycles.

That’s according to a report by Russell Investments of Tacoma, Washington, which indicates that growth outperformance tends to reverse as soon as the economy bottoms. So what are the numbers telling us about the market’s bullish run over the past few months? Is it the beginning of a recovery or simply another glimmer of false hope?

The S&P 500 Growth index is currently up 7.01% year to date, while the S&P 500 Value index is down 3.21%. This growth outperformance is following a pattern that has been in place for some time now. The bottom chart highlights the ratio of the S&P 500 Value index to the S&P 500 Growth index. When the line is declining, Growth is outperforming Value. As shown, since October 2007 (when the last bear market began), the ratio has been in a steady downtrend. Will Growth continue to do better than Value, or is Value due for a period of outperformance?

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With the WHO's announcement that it has officially declared an H1N1 flu pandemic - the first global flu epidemic in 41 years - swine flu has Wall Street's full attention once again. Disease fears had mostly faded from the mind of many investors, despite numerous warnings that we weren't yet fully in the clear. While the WHO's announcement is, on the whole, bad news for equity markets, I wrote yesterday that pharmaceutical and healthcare ETFs may stand to benefit from prolonged fears over an outbreak. As with most major developments, there's another side to the coin. Here's a look at four ETFs that could face downward pressure in the wake of the pandemic declaration:

• iPath Dow Jones UBS Livestock ETN (COW): Since the beginning of the swine flu scare, prices for lean hogs have been tumbling as worries over import bans and consumer reactions. COW, which is invested about 35% in lean hog futures and 35% in cattle futures, is down nearly 15% on the year, although it actually rallied in Thursday trading. If we find ourselves in the middle of a global outbreak, the "swine flu stigma" will likely drive prices even lower.
• PowerShares Dynamic Leisure & Entertainment (PEJ): If swine flu illnesses and fatalities find their way back into the daily headlines, anxiety will likely cause many consumers to avoid public places where disease is most likely to spread. For a fund that holds stocks of restaurants, cruise lines, and theme parks, such a scenario could have a material adverse impact.
• U.S. Commodity Funds Oil (USO): If the pandemic intensifies in high traffic destinations (such as the U.S. or Mexico), travel restrictions could be put in place, significantly reducing air traffic and demand for oil. Although such a scenario recently seemed unrealistic, it is now a very real possibility. With the summer vacation season approaching, the timing of the pandemic announcement couldn't be worse for the travel industry.
• iShares Russell 3000 Fund (IVW): For those of you scratching your head at this one, allow me to explain. While Mexico is often thought of as the epicenter of the swine flu outbreak, recent figures from the WHO reveal that almost hald of the 29,000 reported cases originated in the U.S. Although well-equipped with resources with which to combat a potential outbreak, the U.S. economy is still reeling from the global recession. Becoming ground zero for a disease outbreak would be yet another obstacle to overcome, and would no doubt put a damper on broad U.S. equity markets over the summer months.

Time to Buy?

For those interested in a quick snapshot of how various ETFs across all asset classes have performed recently, below we highlight their 1-day, 5-day, and 1-month performance. As far as equities go, there was lots of red Thursday, but there's still lots of green over the last month.

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The Callan Periodic Table of Investment Returns from Callan Associates is widely used by investors to compare performance of various market indices. Recently I found the Callan Chart that lists the Best and Worst Performing Indices from 1985 to 2004. To access this chart click on the image below:

Callan Chart Annual Returns - The Best and Worst Performing Indices from 1985 to 2004:

By Matthew Hougan

Think building an exchange-traded funds portfolio is complicated? It turns out you could do a lot worse than just buying the 10 biggest ETFs.

This past Friday, the Dow closed at 8017, its fourth consecutive week gain. Since the Dow set a 6,447 low on March 9th, it has rallied over 24% with heavy volume. Over the last 20 trading days since March 9, average daily volume was 7.2 billion, 16% higher than the average volume from January 1, 2009 until March 8, 2009 (Source: Yahoo Finance). Life is good. The general consensus is that the worst is over and we're seeing the start of a brand new bull market. But is it really?

As Harry Dent, New York Times bestselling author of The Roaring 2000s and The Next Great Bubble Boom, pointed out in his new book The Great Depression Ahead, the year 2009 will be the beginning of the next long-term depression and the initial end of prosperity in almost every market. He forecasted that the three massive bubbles that have been booming for the last few decades – stocks, real estate, and commodities – have all reached their peak and are deflating simultaneously. It is the perfect storm: the peak of Baby Boomer spending cycle collides with the oil and commodity in last 2009 – 2010. This coming depression will come not from this crash or even from the bursting of the commodity bubble, but from natural demographic and technology cycles that occurs every 80 years. He predicted that the Dow could hit as low as 3,800 in mid-2012. In other words, it could be down more than 50% from today’s level. If you use its all time high of 14,164, set on October 9, 2007, as a base, then the number could be 73%.

Below we highlight the one-day, five-day, and one-month performance of key ETFs across all asset classes. Tuesday was a strong day across the board, with small caps and mid caps doing slightly better than large caps. Value stock ETFs actually outperformed growth stock ETFs as well. On a sector basis, the financial ETF (XLF) was up the most with a gain of 14.86%, and outperforming the second best sector (Industrials) by a wide margin.

Globally, the Russian market ETF (RSX) was up 12.93%, followed by Italy (EWI), and China (FXI). Commodity and US Treasury ETFs were the only areas of the financial world that were down today. Looking at the one-month performance of all of these ETFs, however, snaps investors back to the reality that things are still pretty bad out there.

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By Jim Wiandt

With growth stocks creaming value, one might ask the question.

I find myself agreeing with Matt Hougan on at least one thing two days in a row, which is truly astonishing. And the point of agreement? It's that nearly everyone's instinct is wrong on value in crisis. Your intuition may say to go to the "safer" value company in crisis. But the truth of the matter is that there's a reason that these companies are "value" and that is that they're subject, like small-cap, to more credit, economy, etc., risk in times of crisis. And you see it now.

Today, the Commerce Department reported the November trade deficit was $40.4 billion. This was down from $56.7 billion in October, largely because oil prices fell and the recession is curbing demand for imported consumer goods and petroleum.

To the extent stimulus packages expected to be enacted in the United States, Europe and China lift the global economy, the reduction in the trade deficit will reverse. Oil prices will rise again, and with China increasing subsidies on exports, U.S. imports of consumer goods will soar. The trade deficit will emerge as a major drag on the demand for U.S. made goods and services, and pull the U.S. economy back into recession as the effects of stimulus spending wear off.

By Elli Malki

Towards the end of the last century, academic finance economists came to take seriously the view that aggregate stock returns are predictable.

To better understand the behavior of the markets and analyst recommendations during periods of significant market corrections, we examined historic data around the last 3 major corrections (10/86 - 12/88, 7/89 - 10/91, and 9/99 - 10/03) and compared the data to the current environment. In addition, we analyzed the historical index data for the Dow Jones Industrials (from 1929) and the S&P 500 (from 1950) looking for periods when the indices declined by 25% or more from previous highs. Afterward, we gathered each index’s performance and volatility at the index’s peak, trough and 3, 6, and 12 month periods from each trough.

The graphs below contain the Percent of Analyst Revisions Up and Down (vs. the prior 4 week values), and the equal weighted cumulative return of all of the stocks followed by the analysts during the respective periods. The 1987 and 1990 downturns were relatively brief, while the 2000 – 2002 downturn was stretched over a longer period of time as it took several years before the effects from the bursting of the large cap and tech stock bubbles, 9/11, and accounting scandals worked their way to the small cap and non-tech universes.

With traditional mutual funds expected to report billions of dollars in capital gains at year's end, investors face a double whammy.

Besides being forced to pay more in taxes, stock funds are producing double-digit losses in 2008. The broad Vanguard Total Stock Market ETF (NYSE: VTI) is down more than 38% so far.

Since first jumping into the exchange-traded funds market two-plus years ago with 20 dividend-weighted portfolios, WisdomTree Investments has firmly been cast as a value-styled management shop.

That focus on weighting index-based ETF portfolios on business fundamentals—rather than traditional market-cap size figures—hasn't changed. But the New York-based firm launched Thursday an ETF focused squarely on large-cap growth stocks.

By Matthew Hougan

Jim Wiandt and I have been engaged in a debate over which matters more: style or sector.