Newsletter guru and money manager Jim Oberweis writes for Forbes.com that, although the economy will continue to struggle, he’s bullish — and that profitable growth stocks will be “ideally positioned” as first-quarter earnings roll in.
“All told, we are still bullish on stocks, mostly because valuations remain significantly below historical averages, and we expect things to slowly get better,” Oberweis writes. “Even after the recent run, P/Es are very digestible.”
Oberweis says, however, that the market leaders may soon change. “Graveyard diggers for financials and industrials will likely be tempered,” he says. But “profitable smaller growth stocks, which also experienced a sharp compression in P/E multiples last year, will be ideally positioned. Many such companies have been able to continue to grow throughout this difficult period with innovative products or niche offerings.” The market is now rewarding earners and punisher losers — something it didn’t do last year, he adds.
As for the economy, Oberweis compares investors to Star Wars’ Princess Leia, who fell for the notorious smuggler Han Solo. “Despite the improbability of Han becoming a respectable beau, Leia’s love for him blinds her from his many obvious flaws,” Oberweis writes. “Leia’s passion for Han reminds us of the stock market today. Despite the market’s innumerable risks and plentiful flaws, investors are, well, suddenly smitten.”
Oberweis says he thinks the Federal Reserve’s actions have “at a minimum … virtually eliminated the potential for a deflationary spiral.” But, he adds, while consumer demand may increase, “we believe spending will remain far from stellar.” Huge deficits will essentially be a tax on future GDP, he says, and he puts “decent odds on roaring inflation a few years hence”.