Stocks should move higher in 2011

Stocks should move higher in 2011, extending the two-year bull market, according to Bob Doll, chief equity analyst at Blackrock. This is due to gradually declining levels of uncertainty as the US and the world economy are beginning to transition from recovery to outright expansion.

Downside risks remain, however. Two of the issues that caused problems in 2010 — the sovereign debt crises and emerging-markets inflation — are likely to continue to threaten overall levels of global economic growth. Another area that bears watching is the US housing market.

Bob Doll: Stocks to move higher in 2011
Monday, 17 January 2011

© 2011 - The Edge Singapore

Why I am a bargain-hunting investor now

A chasing-momentum, chasing-price strategy in the past few years has reaped me nothing but frustration and monetary loss. Deciding that this is probably not going to work for me, I began to switch my style to one of buying the dips, and selling when everyone else is buying. I have definitely experienced much greater success. My favourite local financial editor, Goh Eng Yeow correctly wrote in the Sunday Times that "One mistake made by most investors is the urge to want to buy stocks which are on the upswing - and sell when the picture looks bleak(me in the past)." He added, "It may be better for them to look out for counters with good businesses which have been unfairly priced down by the market". This art, I am in the process of learning and perfecting. Keynes made his fortune with this art. So did Puggy Pearson, 1973 poker champion who recognised the 60-40 proposition. He makes big bucks whenever he knows he has a 60% chance. And by 60% chance, we mean when stocks are unfairly sold down. I believe Goh has made substantial amount too from this art of investing. Going forward, there will be lots of opportunities to practise this art. The ability to wait patiently for opportuntities to unfold will be the key to master the art of being a successful bargain hunter in the stock market.

US financials are turning the corner

Finally, the long awaited event has happened - US financials (and that includes BAC which just broke its 50-week resistance) are turning the corner. They are the only sector that have not moved up with the market last year. Over the past month, the sector has been demonstrating impressive relative strength against the broad market. Indeed, Jason Goldberg, who heads the bank equity research team at Barclays Capital, notes that favorable GDP growth, a rising stock market, and stable short-term interest rates in 2011 bode well for the performance of financial stocks in the New Year. Since 1949, there have only been eight years where these three factors were present; and in all eight years banks stocks finished higher. And they outperformed the broad market in six of those eight years.

Therefore, what I will do is sit back and reap my just reward on BAC.

Noble is another attractive candidate

Noble was among the laggards in the STI last year. However, all these are set to change as commodity-linked counters rally on the back of rising commodity prices and further merger and acquisition. Noble's broad bulk commodities portfolio and its upstream energy assets make it a key beneficiary of any global economic recovery.

Amtek is an attractive proposition for the coming correction

It is the worst feeling to have sold off your shares, and then see them continue to rise up in value. I have been experiencing this pain since the past few days. But, this is all part and parcel of investing/ trading. Nonetheless, I will not be going into the market any time soon, as it is already due for a correction. When the opportunity does come by again, Amtek will be one counter I will be looking at.

DBSV Research is initiating coverage on Amtek Engineering with a BUY call and target price of S$ 1.65, which offers 27% upside plus 5-6% dividend yield. Amtek is a pioneering metal stamper founded in Singapore in 1970. After a private equity
buyout in 2007, management quickly re-organised the business to move it further up the value chain and to improve the cross selling of higher value added products and services to existing and new customers. Amtek offers a faster earnings growth rate
of 59% CAGR from FY10-FY13F and is trading at only 8-9x FY11/12 PE, below the sector average of 10-11x.

Move to cash

Ben Inker, head of asset-allocation group at Boston money manager GMO, favours holding a lot of cash. He says bond yields are too low, and that equities aren't that attractively priced. Only exception is high-quality US stocks, which he feels, have more upside since they have trailed the market for the past 10 years.

He feels it is a good idea to free up some cash now, in order to exploit opportnuities later. He is currently 30% cash.

STX OSV the hidden gem

I invested in STX OSV on a hunch 2 months ago as I felt this company has a lot of potential, especially since it is in the oil and gas sector. Just that it was unlucky to be listed when the markets were weakening. I was proven right when the share price has risen by close to 50% ever since. And, finally a research report to back my decision. Definitely one candidate I will look at during this correction.

DMG's report on 10 Jan:
Undervalued, under-researched leading OSV shipbuilder. STX OSV is one of
the leading global shipbuilder of offshore support vessels (OSV) with nine
shipyards in four countries. High oil prices are driving new orders for
high end offshore support vessels and in our view, STX is in a good
position to capture the returning demand for high-end platform supply
vessels (PSV) and offshore subsea and construction vessels (OSCV) given its
leading edge technology and strong market share in the high-end segments.
The company is set to register +18% core net profit CAGR over FY09-12F,
driven by improvement in project execution and healthy new order intake. We
initiate coverage with a BUY and TP of S$1.56, +30% upside from current
levels.