The Credit Suisse investment committee has concluded that a recession is now priced in and that further downside should be bought. They believe volatility is likely to continue, but should ultimately provide opportunity to add to solid companies (via CS):
“The past few weeks turned out to be very difficult for equity markets overall, driven by erratic news-flow surrounding
macroeconomic data releases and the peripheral European debt situation. We think that this market regime with huge swings is likely to continue for the next couple of weeks and months.Next week, the Q3 2011 earnings reporting season starts in the US, with Alcoa set to report its Q3 2011 results on 11
October 2011 after the close of trading. Earnings momentum has decelerated sharply ahead of the upcoming earnings
releases, led by materials and financials as well as by Switzerland and Europe. We are not sure if the Q3 2011 earnings releases will provide the catalysts to turn earnings momentum around, unless companies give very good and convincing outlook statements, and we bear in mind that revisions of outlook statements are always lagging.So, valuation is indeed fairly attractive on various metrics, even if we take potentially lower earnings following
downgrades into consideration, and our analysis indicates that equity prices now discount a typical recession. However, we think sentiment needs to turn before any upside valuation can be fully realized. While we would not rush into equities right now, we think that investors that are underweight the asset class could potentially use periods of extreme weakness and risk aversion to selectively build up positions with stocks of sector/regions we like and also topics, which we like: Emerging markets and beaten-down stocks.”
They list several of the usual suspects on their overweight listing in the USA including: Chevron, Anadarko, Halliburton, Freeport-McMoran, GE, Deere, Starbucks, Coke, Kraft, Phillip Morris, Baxter, Pfizer, Microsoft, Google, Oracle and Apple.
Source: Credit Suisse
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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