Market Commentary 02/17/2012
We are a lot more positive on the U.S. stock market than most investment advisors, but there are several reasons for that.
- Job openings increased to 3.4 million in December 2011,
- Payroll employment rose 243,000 in January, causing the unemployment rate to drop to 8.3%.
- Productivity increased 0.7% in 4th quarter 2011. (see http://www.bls.gov)
We are seeing an economic recovery that we spotted over 6 months ago, and the stock market is just beginning to reflect it through increasing stock prices. This lag time factor we’ve proven over the years through our measure of market sentiment, called OU-P Factor, which remains in the FEAR category, but is inching up slowly (See Graph of Market Sentiment). We at HRA found that earnings can help predict market cycles – it is a leading indicator, with prices following about 6 months later, whether the move is rising or falling.
This “sin wave” phenomenon of earnings prediction v. market sentiment is illustrated below:
Our current measure of earnings rates hover just above the mean, while the OUP factor (measure of market sentiment) is way down in the Fear Category, showing an under-priced level of -30%, or just about -3 standard deviations. Note: *These graphs are provided for your use – see Page 1. With a continuation of above average earnings, there remains the expectation of increasing market sentiment, that should lead to increasing prices, if other variables hold true.
In another try at predicting future growth in market prices, let’s look at the correlation of earnings growth, as measured as variance around the mean, to the S&P 500 Index, also measured as a variance around a mean, from 1996 up through 2011. What we see here (see chart, below), is that the earnings growth rate variance appears to indicate the direction of the S&P 500 Index variance, and what we see now appears to be a bit of a plateau – not a lot of change in the variance of the Average Earnings rate (from our universe of 800 stocks), while the S&P 500 Index is also remaining within a small range.
Getting away from our historical perspective, will the stock market prices depend on political outcomes, both domestic and foreign? This has been the focus of most investors of late – does what happen in Washington, D.C. (and foreign capitals) dictate where the market will move?
In cases of major disruptions in commodity and trade movement, such as a shutdown of the Strait of Hormuz, which Iran is threatening at the moment, yes we believe that all companies will be seeing major impacts on their ability to do business. This sort of political risk is a lot different from the type of risk a business would face if tax rates are driven up, for instance. How the Congress reacts to President Obama’s request for tax rate increases will most likely be put off until after the election in November, so HRA believes that it is still a good market for investing in stocks.
We at HRA would like to say that for a long-term strategy, buying low-priced stocks that are showing good growth potential should be able to produce in any environment, other than an outright market crash, such as we saw in the second half of 2008 with all of the mortgage and banking scandals.
Should an investor stick with stocks throughout this period of uncertainty? Everything is based on the individual investor’s risk tolerance – if you want to be aggressive, and can live with volatility over the short-term, then investing in stocks over the long-term can provide increased returns along with that higher level of risk.
If you can’t sleep at night when prices are running up and down, or as they say in the business, the volatility is high, you may want to scale back your holdings of U.S. Stocks, and balance them with investments in other areas, such as bonds, international stocks, commodities, real estate, and the like. Remember, not all investments are suitable for all investors – check with a financial advisor if you plan to make major changes in your portfolio. Also, remember that historical returns are not predictors of future returns, and HRA does not believe that you can time the market. With those qualifiers, we at HRA wish you luck in your investing!
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New Services Have Arrived!
Market sentiment data for 19 individual sectors showing how under- or over-priced each one is will be available for our subscribers. The calculated theoretical price of companies in that sector will be charted against their actual pricing giving a quarterly market sentiment reading for each sector back the last 8 quarters. These will be similar in format to our current GOPF Index that shows the under- or over-pricing currently in the overall US stock market. All of these measurements are based on historic evaluation of over 30 factors and are dynamic in that results from today affect our measurements in years past.
You are also able to sort all the 800 companies in our database by up to 4 prioritized variables at a time using ascending or descending order or equal to (certain variables such as Buy/Sell/Hold, sector #, earnings trend) to identify stocks that meet YOUR criteria. These sortable factors include 1, 3 and 6 month price changes, current and future theoretical price increase/decrease potential, 4 year projected earnings growth rate, and dividend rate.
HRA focuses on buying long-term growth stocks but we have generated a host of fundamental information that may be useful in other types of investing. Welcome to HRAstockpicks.com! Whether you are a Buy-To-Hold stock investor like we are or not, our research data can be used by all types of investors. At HRA, (Halvorson Research Associates LLC), we use our massive database of information collected over 20 years to select undervalued growth stocks. The key data items we are looking for include potential price increase (PPI) and this is calculated using earnings estimates now (calculates current theoretical market price or CTMP) or projections for future earnings (used to calculate future theoretical market price or FTMP). Another key datapoint is our 4 year aggregate earnings growth rate where the most recent years carry more weight than earlier years. Each of the 800 stocks we follow can be called up by its stock symbol and all its information displayed.
The newest research we have developed is the sector indices. Here we have broken down the 800 U.S. stocks we track and have divided them into 19 main categories of industry codes that can be researched quarterly for the last 8 quarters (2 years).... Each index can be plotted by our subscribers on a line graph and compared to the other sectors or the overall U.S. market index or do them all at the same time. These sector readings can be used to give a relative indication of over or under-pricing as compared to the theoretical price values collectively in the sector.
The latest tool we have developed is a sorting page where you, as a subscriber, can select the research variables of choice (up to 4 at a time) and sort in ascending or descending order with prioritization or set the variable to be sorted to a specific value. You can sort all stocks in general, in a specific sector, or by Buy/Sell/Hold classification. Variables you can use include:
- current potential price increase %
- future potential price increase %
- HRA's 4 year aggregate earnings growth rate calculation
- stock price changes in 1 , 3, or 6 months
- dividend rate
All of our data at our website is updated regularly each month.
So that you can quickly differentiate our stock pick service, this is how we differ from the other "stock pickers":
No Penny Stocks - We only analyze and recommend stocks with at least 2.25 years of ACTUAL earnings and all are generally more than $5.
Long Term Focused - Our goal is realistic price growth, by picking low priced growth stocks. If you rotate constantly into the "hot sectors" your taxes and trading costs will be higher. The best market days are quiet, and when you least expect it, so we believe in staying invested in undervalued growth stocks as most gains come at the beginning of a bull run.
Invest in Stocks You Know - Our stock recommendations are predominantly mid to large cap U.S. stocks whose expected earnings are estimated by multiple sources.
Benefits of investing the HRA way :
Review our recommendations against your portfolio and become a long-term investor that does not panic with daily stock market fluctuations.
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We will tell you when the current market is over-priced so you can evaluate your own risk (See our Over-Under/Priced Market Chart). Since 1988, we have calculated the theoretical market price of 800 stocks (represents approx 75% of the US stock capitalization) and plotted these calculations against actual prices. You can see when the market is under or over priced and by how much. This tool we provide for your use gives all of us the confidence we need to hold stocks and an estimate of the probability of a market correction either way.
Relax, turn off the TV, and become a disciplined investor who is confident that your stock holdings are fundamentally sound, and in time, will provide you with your best chance for a market beating performance, low trade cost, and peace of mind.
IT'S TIME TO ACT - HRA does not believe in market timing, and you can't win if you aren't invested! As a serious investor, you are aware that losses as well as gains can, and do happen under any investment program, without either warning or reason. HRA believes that by concentrating on under-priced growth, this risk can be minimized. But there are no guarantees concerning future price performance of stocks. SUBSCRIBE TODAY! We are offering a monthly trial subscription for $30/month - cancel anytime, or a discounted annual subscription of $350. Your subscription will give you 24/7 access to our website for a 3 month or a 12 month period of time. Here you will find research on over 800 companies that you can search using the stock symbol. To get a better description of our research, please see our"Members Benefits" section. HRA is ready and able to help you pick your stocks with confidence.
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Halvorson Research Associates
Portfolio Management / Market Research
- Sentiment Research on 19 Different Sectors
- User Interactive Sort Capability of Research Variables
- Buy/Sell/Hold Recommendations on 800 Stocks
- Current and Future Theoretical Stock Prices