SuperModels Community
Join the discussion in the MSN Money SuperModels Community.
SuperModels
Recent articles:
• 9 long-shot stocks that could double in a year, 8/10/2005
• How $200 jeans can help your bottom line, 8/9/2005
• Pinpoint profits with the latest dashboard gadgets, 8/3/2005
More...
| | SuperModels
18 stocks for the bull market's last gasp
Some prognosticators say the good times are ending and see months or even years of gloom ahead. These stocks should keep rolling until the party's over.
By Jon D. Markman
The great bear market at the start of this decade ended in October of 2002 with a sensational flourish. At its worst, in the second week of that month and amid news of a deadly al-Qaida bombing in Bali, most investors wanted nothing to do with stocks of almost any kind -- tossing babies, bathwater and the kitchen sink overboard. Apple Computer (AAPL, news, msgs), now trading at $46 per share, could have been had for $6 and change.
The mood today could hardly be more different, as mid-cap and small-cap indexes trade near all-time highs, and even the S&P 500 ($INX) and Nasdaq Composite ($COMPX) flirt with four-year highs. In response to a request in my column last week for stocks that could potentially double in a year, readers sent more than 400 e-mails documenting the reasons that many dozens of small companies shares could do the trick.
Not one reader complained that I was a complete idiot for asking the question, as many likely would have three years ago.
And yet now may indeed be the time to start wondering whether the recent bull phase of the market may be near its end. Not just for the next couple of months, but perhaps for a year or two.
Next week, I will reveal some of the more interesting names submitted by readers as potential doublers; its going to take me a while to study them all. Meanwhile, as a counterpoint to that merry exercise, we need to consider that the backdrop for that sort of success might be grim indeed.
Related news and commentary on MSN Money
An aging, thinning bull
The most compelling view of impending doom comes from Paul Desmond, editor of the influential market-timing service Lowrys Reports. Youll recall that Desmond helped me forecast a strong rebound from the spring low on April 20 (Why market skeptics see a huge opportunity), and hes offered sage guidance at every other inflection point of the decade that has passed since weve been in contact.
In a note to clients on Aug. 12, Desmond reminded investors that the current uptrend is long in the tooth. The typical bull market runs 39 months; this one has already lasted 34 months. While the final top of the major indexes could still be four to six months away, he said, in that time frame an "increasing number of stocks will begin to individually fall by the wayside and roll into their own bear markets." By the time of a final index peak, he says, history suggests that more than half of all New York Stock Exchange stocks will have already topped out.
It would not be uncommon, Desmond says, for only 10% of all NYSE stocks to be at their peak on the day of the index peak. Most issues will have begun to decline months before, with only the biggest of the big -- such as Dow Jones Industrial Average ($DJX.X, news, msgs) components -- still making highs. Already, he points out, the advance-decline lines for the Nasdaq 100 ($NDX.X), S&P 500, Russell 3000 ($RUA.X) and Nasdaq Composite are well below their December 2004 peaks, meaning that rallies have become increasingly selective. And major financial stocks, such as Citigroup (C, news, msgs), Fannie Mae (FNM, news, msgs) and Bank of America (BAC, news, msgs), which would normally be leading a market rally, are all trading near their 52-week lows.
Focusing on the winners
Desmond says that diversified portfolios tend to do poorly toward the end of bull markets. Investors can instead do best with the narrowing list of stocks that continue to defy the odds by making new highs right to the end. At present, those largely would be oil and gas exploration, marketing and transportation companies, which are under pressure this week as crude oil prices trade down. Also in the mix would be a select group of drug distributors, electric utilities, medical-services firms, foreign wireless companies, apparel makers, coal miners, defense contractors and construction-materials makers.
Sifting through candidates to ride into the end game of a bull market -- if that is whats happening -- is a good assignment for our StockScouter rating system. Ideal candidates would be stocks that have shown exceptional relative strength in the past three to 12 months; are trading within 10% of their 52-week highs; are in sectors and market cap groups that are finding favor with investors; have high StockScouter ratings; and yet are relatively cheap in comparison to their peers. One reasonable way to measure the latter: Look for stocks trading at price/sales multiples lower than their industrys average.
The last-gasp portfolio
On Monday, the top 18 candidates all hailed from the oil and gas, coal, construction, homebuilding and auto-parts industries. These are obviously not value plays; theyre the names that investors may try to squeeze into if the road toward a new peak later in the year becomes increasingly skinny.
| Last-gasp plays from StockScouter | | Company Name | Market Cap | Rating | 6 Mo. Rel. Strength | Price* | | Alliance Resource Partners (ARLP, news, msgs) | $1.7 billion | 10 | 92 | $96.22 | | Granite Construction (GVA, news, msgs) | $1.4 billion | 10 | 90 | $34.12 | | McDermott International (MDR, news, msgs) | $1.7 billion | 10 | 94 | $25.78 | | Oceaneering International (OII, news, msgs) | $1.1 billion | 10 | 73 | $44.01 | | Petroleo Brasileiro (PBR, news, msgs) | $37 billion | 10 | 92 | $59.68 | | Premcor (PCO, news, msgs) | $7.3 billion | 10 | 97 | $82.58 | | Superior Energy Services (SPN, news, msgs) | $1.6 billion | 10 | 87 | $20.73 | | W-H Energy Services (WHQ, news, msgs) | $907 million | 10 | 88 | $32.30 | | William Lyon Homes (WLS, news, msgs) | $1.1 billion | 10 | 97 | $131.34 | | CONSOL Energy (CNX, news, msgs) | $6.3 billion | 9 | 97 | $69.13 | | Headwaters Incorporated (HW, news, msgs) | $1.7 billion | 9 | 91 | $42.98 | | PetroKazakhstan (PKZ, news, msgs) | $3.2 billion | 9 | 72 | $43.53 | | Terex (TEX, news, msgs) | $2.5 billion | 9 | 85 | $51.18 | | Titanium Metals (TIE, news, msgs) | $1 billion | 9 | 100 | $64.97 | | TRW Automotive Holdings (TRW, news, msgs) | $2.8 billion | 9 | 95 | $29.10 | | Tesoro (TSO, news, msgs) | $3.8 billion | 9 | 98 | $54.98 | | Universal Forest Products (UFPI, news, msgs) | $909 million | 9 | 86 | $49.76 | | Veritas DGC (VTS, news, msgs) | $1.1 billion | 9 | 83 | $32.06 |
|
*Price on Aug. 15
Virtually all of these look too hot to handle at the moment, though I suppose that is the point. They could look overbought right into the end of the run, as fewer and fewer groups look attractive to investors that need to stay long.
|
