A Home Run Hitter's Picks For The New Seasonby
Even with the Dow teetering uneasily at 2930, the word from top-ranked market guru Elaine Garzarelli remains upbeat. "Stay fully invested in equities," advises the Shearson Lehman Brothers honcho.
Each week, Garzarelli issues a market prognosis based on 13 major indicators that track the economy, Fed policy, market valuation, and investor sentiment. Although her market indicators' bullish reading has fallen to 66% from an unprecedented 99% in January, that's partly the result of the market's sharp rise since then. For her indicators to sound a sell alarm (a 30% reading), a severe credit tightening by the Federal Reserve would have to be in the works. And just the opposite is the case: The Fed is loosening credit and cutting interest rates. To Garzarelli, that means stocks have a lot further to go. Her indicators suggest that the Standard & Poor's 500-stock index could hit 454 (it's now at 377) and the Dow could reach 3500 before a sell signal surfaces.
Garzarelli's current favorites? Generally, she avoids popular stocks or issues that have already chalked up giant gains, betting instead on beaten-down shares she believes are poised for a turnaround. In late April, for instance, she pushed clients to buy shares of the nation's major money-center banks.
READY TO ROLL. Garzarelli will soon pound the table for the badly battered auto stocks--Ford, General Motors, and Chrysler--which are on the sell lists of most auto analysts. The car-and-truck group has outperformed the market by a wide margin in past economic recoveries. So even though auto makers seem in a rut, she believes they are bound to take off swiftly when the economy starts to accelerate.
Garzarelli notes that Ford, now at 32, is down 40% from its 1987 high, and she expects it to rebound to more than 50 once investors detect early signs of an economic expansion. She also expects GM and Chrysler to snap back smartly. GM has tumbled some 25% from its 1987 high, and Chrysler, at 13, is off about 60%. Garzarelli predicts that both GM and Chrysler will advance at least 40% from their current levels.
Other issues that Garzarelli is buying for her personal portfolio: Brunswick, Chemical Bank, Cummins Engine, First Chicago, Manufacturers Hanover, Stone Container, Time Warner, VF, and Wendy's. All are down 35% to 60% from their highs, and she expects some nifty rebounds.