Investors are facing the fourth quarter with a healthy dose of skepticism, but there are four key reasons to stick with stocks, says equity analyst John Kozey at Thomson Reuters.
John does two things very well, in my opinion. His niche is in finding cash-rich companies that are paying above-average dividend yields, but still are retaining a good amount of their free cash flow. He has consistently used that analysis to find individual stock values.
More importantly, I think that John uses a broad array of data points to gauge where the overall market is headed. He combines many fundamental company data points, as well as technical analysis and his read on sentiment. John is a student of the markets, and I always hold his opinions about where the major indexes are headed in high regard.
In his latest missive, John identifies four reasons why individual investors may want to stick with stocks in the fourth quarter despite a bevy of investor concerns, including the presidential election, the fiscal cliff and upcoming earnings reports:
1) Don’t fight the Fed:
Fed policy is encouraging risk-taking in stocks, Kozey says. So it’s simply a bad idea to “fight the Fed” while it’s instituting QE3.
2) Quality still matters:
Third-quarter earnings reports are just starting to come in. As Raymond James strategist Jeffrey Saut suggests, the market is unlikely to move higher unless those earnings exceed expectations. Kozey, though says that there are still individual stocks — he uses Tesoro (TSO) as an example — that have high earning quality and may still offer solid value.
3) Bargain hunting is still going on
Kozey contends that there are still “plenty of values still to be found” in the current market environment. His argument may make the case for allocating a portion of equity investments in actively managed models that try to find such bargains.
4) Growth is always sexy
You need to be sure you don’t overpay for growth, of course. But Kozey points to DirecTV (DTV) as an example of a company that has already run hard in 2012, but still has potential to out-earn the average S&P 500 stock in the coming years.
