Market Strategist Jeff Saut: Best Stock Ideas For Next 3-5 Years

Given that markets have been ripping higher, we thought it a prudent time to check in with market strategist Jeff Saut.  His latest investment outlook is entitled "For All the Sad Words of Tongue and Pen" where he looks at how market rallies can last longer than one would think.

He highlights how at around the 18th day of a typical 17-25 day buying stampede, certain investors will start to question whether or not they've missed "the bottom."  This then leads to a new round of buying from people who don't want to miss the big move, and thus the rally extends.

So when might this rally cease?  Saut mentions rallies can typically last up to 30 sessions while today is session 18.  He points out some of the cautious signals he is seeing:

"The S&P 500 (SPX/1502.96) remains overbought with 92.6% of its stocks above their respective 50-day moving averages (DMAs), as  well the NYSE McClellan Oscillator is still overbought in the short-term.  However, the stock markets can remain overbought for longer than most think in a bull move.  Further, the Volatility Index (VIX/12.89) is not confirming the renewed stock strength and  some of the hitherto leading stocks are not acting well."


Raymond James' Best Stock Ideas For 3-5 Years

Saut recalls Ray Dalio's recent interview where the legendary manager said that "the shift of that massive amount of cash is what will be a game changer."  If it moves into stocks (from pension funds and other large institutions), he wants to be prepared.

As such, Saut has highlighted his analysts' best stock ideas for a 3-5 year holding period with the following criteria:

- Recurring revenue stream
- High barriers to entry
- Not as dependent on economy/financial markets
- Can grow EBITDA at 5-10% annually
- Competitive edge in its sector
- Strong management

His analysts recommended the following stocks: Altera (ALTR), Conceptus (CPTS), Denbury Resources (DNR), NIC Corp (EGOB), Equinix (EQIX), EV Energy Partners (EVEP), IDEXX Labs (IDXX), Iridium Communications (IRDM), LKQ (LKQ), National Oilwell Varco (NOV), Verisk Analytics (VRSK), and Wabtec (WAB).

Embedded below is Saut's weekly commentary:




For more from this strategist, we've highlighted how Saut has been short-term conflicted and long-term bullish and how he's focused on housing as the key driver.

Leon Cooperman Optimistic About Equities, Concerned About Employment

Legendary investor Leon Cooperman of Omega Advisors recently appeared on CNBC to give his take on the markets. The hedge fund manager oversees $6 billion and founded his firm after working at Goldman Sachs for 25 years.

Omega Advisors is currently optimistic and argues that the United States is not akin to Japan and won't see a lost decade. Cooperman highlights that while the consensus view is optimistic, many people aren't invested that way. He points to outflows in the equity market and inflows to the bond market as people seek stability after a tumultuous ride through the financial crisis.

Omega Advisors is currently 80% net long. This is much more long-oriented than the average hedge fund exposure levels. Cooperman is now the second subsequent major hedge fund manager to come out and say that he's optimistic on the markets. Appaloosa Management's David Tepper is also optimistic.


Cooperman Sees New Economic Expansion

Cooperman says that, "We're eighteen months into a new economic expansion. The average economic expansion has lasted five years. There's still plenty of runway." Now while he is optimistic regarding the future, he obviously acknowledges that things don't go straight up and he could see a potential market correction in February. However, after that, he is optimistic over the long haul provided we see improvement in unemployment numbers.

Hedge Fund Manager Prefers Equities Over Bonds

Cooperman says that, "stocks, at worst, are the best house in a bad neighborhood and if by some miracle this whole game works and we deal with fiscal issues long-term and stop kicking the can down the road, then I think stocks are the best house in a good neighborhood."

Below is the video of Cooperman's thoughts on equities and email readers will need to come to the site to view it:




Cooperman Likes Energy and Financials

Cooperman rattled off a few energy names he owns including Denbury Resources (DNR), Williams Companies (WMB), and McMoRan Exploration (MMR). Just last week we highlighted that Barry Rosenstein's hedge fund JANA Partners bought WMB as well.

In the financial sector, he likes Sallie Mae (SLM), JP Morgan (JPM), and singles out E*Trade Financial (ETFC) as a potential takeover target. The hedge fund manager also likes Teva Pharmaceutical (TEVA) which has a 20% return on equity and is a growth business trading at 11x earnings. Lastly, he mentions that he's long General Motors (GM) and Ford (F) too, as there's a lot of positive operating leverage there.

Embedded below is the video of Cooperman's thoughts on specific sectors:



And here is the final video with Cooperman's expanded comments:




Omega Buys Energy XXI Shares

Additionally, Omega Advisors just filed a disclosure of recent activity in UK markets regarding their purchase of shares in Energy XXI (LON: EXXS). Per the notification, Omega Advisors has disclosed a 5.9% ownership stake in Energy XXI with 4,062,380 shares. This is due to portfolio activity as of December 31st, 2010.

While Cooperman has purchased the EXXS shares traded in the UK, shares of Energy XXI are also traded on the Nasdaq under ticker symbol EXXI as well. Per Google Finance, Energy XXI "is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico."

To view Cooperman's latest investments, subscribe to our Hedge Fund Wisdom newsletter as we'll reveal his portfolio in our new issue that comes out soon.