U.S. commodity and industrial stocks are among those poised to benefit from the growing global economy, according to Pacific Heights Asset Management LLC’s Michael Cuggino.
“We like the U.S. stock market in general,” Cuggino, who is based in San Francisco, said in an interview. “Corporate earnings so far have justified stock valuations.” The Standard & Poor’s 500 Index has a price-to-earnings ratio of 15.1, compared with an average of 16.2 in Bloomberg data based on reported earnings going back to 1954.
Cuggino, whose $8.5 billion Permanent Portfolio fund has beaten 98 percent of its peers over the past five years, manages that fund with the goal of capital preservation in different market environments. He invests in six categories: Gold, silver, Swiss franc-denominated assets, U.S. growth stocks, Treasuries and high-grade corporate bonds, and U.S. and foreign real estate and natural resources stocks.
The global recovery is continuing, Cuggino said, particularly because of the “high rate of growth” in countries such as Brazil, Russia, India and China.
Gross domestic product growth in China was 9.6 percent in the third quarter, and India’s economy expanded 8.8 percent in the second quarter. The Standard & Poor’s 500 Index has risen 75 percent since March 2009.
Cuggino recommended investing in the stocks of FedEx Corp., which he said should benefit from worldwide economic growth and its pricing power; BHP Billiton Ltd., which is in a number of commodities markets and can benefit from currency weakness; and State Street Corp., an “efficient operator” in the “knocked-down” financial industry. He recommended companies that get “a good percentage” of their revenue from outside the U.S.
He said stocks are also attractive because of high dividend yields, which are “in excess, in some cases, of the 10-year Treasury.” The 10-year Treasury yielded 2.53 percent as of 8.19 a.m. in New York, while the projected 12-month dividend yield of the Dow Jones Industrial Average is 2.77 percent, according to data compiled by Bloomberg.
“You’re getting paid to wait for growth,” Cuggino said. “The global growth story is out there, it’s intact, and U.S. companies in many cases are poised to benefit.”