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When Black Swan Is White Winter, Loeys Bets on Sweden

As hours tick off the clock on Friday afternoons, it’s natural for minds to drift from numbers on computer screens to wonderful weekend distractions like golf courses and gardens and Little League fields.

Well, snap out of it, it’s Monday now. If you were daydreaming about birdies or begonias, you missed some juicy notes from Wall Street strategists that arrived late Friday. Luckily, we paid attention so you didn’t have to.

First, JPMorgan Chase & Co.’s Jan Loeys revealed he’s like the rest of us: He can’t quite figure out if the first-quarter economic slowdown is solely due to the snowy U.S. winter, or if a “precipitous decline” in capital spending and other data are signals of something more serious. He’s willing to “split the difference” -- neither project further weakness nor expect a strong payback for what was lost in the first quarter.

Yet the conundrum hasn’t left him without ideas and before he called it a week, he highlighted an interesting recommendation from his team: Bet on stocks in Sweden to beat shares in Japan.

“Swedish equities should be helped by a stable growth environment and supportive central bank policy,” he wrote. “In contrast, we believe the lack of action by the BoJ and lack of buying by non-domestic investors represent a challenge for Japanese equities near term.”

‘Year’s Worst’

Like Loeys, Bank of America Corp.’s Savita Subramanian also had capital expenditures on her mind on Friday. In her view, spending decisions change with the business cycle and the market may be at an inflection point that could trigger a comeback in capex. Part of the reason is that companies aren’t seeing the same consistent pop in share prices they formerly saw by spending cash on buying back their own stock.

“Buying companies with the largest share buybacks was the best performing strategy from 2012 through most of 2013 but is one of this year’s worst,” she wrote. “Companies spending on capex and M&A have instead been outperforming.”

The Bloomberg Buyback Index, made up of companies with the top announced repurchases in the past 18 months, backs her up. While it’s up 55 percent since its inception in October 2007, almost triple the S&P 500’s return, it was trailing the S&P 500’s performance this year by about half as of May 5.

The biggest beneficiaries from a rebound in capital spending would be technology, industrial and energy companies, she wrote.

Capex Beneficiaries

Subramanian packed her .pdf chock full of stocks likely to perform well should companies start doing more with their cash than just buy their own stock. Kinder Morgan Inc. and Transocean Ltd. lead a field of energy companies whose sales are poised to benefit the most from investment in structures. Nasdaq OMX Group Inc. and Thermo Fisher Scientific Inc. are notable among non-energy companies on the list.

Among those most likely to get a sales boost from investment in equipment, Frontier Communications Corp. and Lam Research Corp. top her list. Akamai Technologies Inc. and Inc. stand to gain the most from investments in intellectual property, her report predicts.

So there you have it. All Friday daydreaming forgiven.

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