Jeff Saut Still Cautious But Not Bearish; His Latest Investment Recommendations ~ market folly

Monday, May 3, 2010

Jeff Saut Still Cautious But Not Bearish; His Latest Investment Recommendations

Raymond James Chief Investment Strategist Jeff Saut is out with his latest weekly market commentary. Saut begins his weekly investment strategy by pointing out that the Dow Jones has run an impressive "44 sessions without anything more than a one-to-three-session pause/correction." He reiterates his stance that he is cautious on this market, but not bearish. In fact, he believes we are in a profit-recovery cycle that drives inventory rebuild. Stephen Mandel of hedge fund Lone Pine Capital also focused on inventory rebuilding in a previous commentary. Previously, Saut has advised to abide by the old market adage to sell in May and go away.

Shifting to portfolio allocations, Saut feels now may be the time to take some profits in distressed debt, especially if you followed his 'buy' call 18 months ago. Turning to equities, he feels a shift from small cap names into high quality large caps is advisable. We've seen this advice now from countless investment managers and strategists. It seems everyone is favoring large cap companies with solid balance sheets, lots of international exposure, and often ones that pay a sizable dividend. Many managers currently favor companies like Pfizer (PFE), Microsoft (MSFT), McDonald's (MCD), etc.

In terms of particular names, Saut recommends Noble (NE) as it is trading at 5x cash flow and has a ton of cash on its balance sheet. Shares have been negatively affected due to the oil spill. Additionally, Saut recommends Archer Daniels Midland (ADM) 7.8% yielding convertible preferred shares. Lastly, Saut and his Raymond James team anticipate an increase in volatility and have recommended buying the iPath S&P 500 VIX Short-Term Futures exchange traded fund VXX or Mid-Term futures in VXZ. As volatility rises, the value of those ETF's should appreciate. Essentially, it is a market hedge. And yes, like many other prominent hedge funds, Saut is also still bullish on gold.

Embedded below is the full weekly investment strategy from Jeff Saut:

You can download a .pdf here.

So, Saut remains cautious rather than bearish and is still expecting a market pullback of some size. Those of you interested in the latest technicals can examine a key level to watch in the markets. He is not alone in his cautious stance as we've noted hedge funds selling equities as well.

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