Lots of cross-currents buffeting the markets right now.
The headline U.S. stock indexes are trying hard to find support around current levels. (So far, so good: The Dow broke a six-day losing streak Thursday, adding a modest 20 points, and is positioned to continue the run to the weekend).
However, business activity is cooling, even in America the Invincible, as the Citigroup Economic Surprise Index makes clear. CESI hit a seven-month low today.
Europe, of course, continues to be a mess. By effectively nationalizing Bankia, Spain’s fourth-largest bank, the new Rajoy government is admitting that previous efforts to clean up the country’s banking problems have flopped. Will this band-aid stick? Don’t bet your bottom dollar on it.
What’s more, the situation in Greece remains highly fluid. It’s still possible the Greeks will exit the eurozone soon in a blaze of defaults and recriminations.
In short, we may as well dig in for a couple of months of nervous, volatile trade in stocks, bonds, currencies and commodities (including gold). It’s going to take time to sort these issues out.
Meanwhile, in the stock market, we seem to be in a “rolling correction” that knocks down one industry after another rather than all at once. Oils, golds and other natural-resource issues have already taken it on the chin. As a result, they’re probably close to an important bottom.
Now the punches are starting to land on some of the formerly untouchable sector –technology, for example. We got out of Cisco (NASDAQ:CSCO) at $18.56 back in late October, so we avoided Thursday’s steep 10.5% drop. But the weak outlook CEO John Chambers painted on Wednesday’s conference call has already triggered selling in other tech names, too.
As prices come down, I expect some fine buying opportunities to swim our way. Even now, a stock like Oracle (NASDAQ:ORCL), roughed up in Cisco-related selling, offers exceptional value. ORCL boasts a far stronger growth platform than CSCO, with a more coherent business strategy and a more disciplined management team.
Earnings for the current fiscal year (ends May 31) will advance about 9%, to an all-time high—and another record appears in store for FY13. Yet ORCL is quoted at a mere 10X estimated year-ahead earnings.
Buy this classic growth stock. I’m projecting a total return (dividends plus capital appreciation) of 20%-25% in the next 12 months.
