Stock Market Update

This week was a positive week for most momentum stocks (like Google, Apple and Research in Motion) and the market in whole. The market continues to however have a dark cloud over it from the subprime crisis. I personally feel the subprime/housing downfall will inevitably be far greater than what we are seeing now. Housing prices even after the slowdown are way too high and the loans that many homebuilders are in are still a disaster waiting to happen. Does that matter? Not really…the stock market acts on its own, it seems like logic is just as relevant as the color of the sky or the record of the Yankees when it comes to rallies and falls. I personally think the market needs a cooling off, but when private equity continue to buyout companies, that cooling off would have to wait until interest rates go up.

I reiterate my buy ratings on Google, Monsanto and Garmin. Here are 3 new recommendations…

Honda Motor – I believe this is the best run automotive company in the world. Every segment that it is in (at least the US) it has a very strong offering and is the most fuel efficient auto manufacturer. Let’s not forget that they are also one of the world’s largest producers of gasoline powered engines, motorcycles and lawn mowers. They are not suffering from overcapacity issues that Toyota has and will benefit most as Americans move from gas guzzlers to fuel efficient and smaller cars.

Starwood Resorts – I think this is only the beginning of the run for Hotel and Travel related stocks, the Blackstone buyout of Hilton only started it. As the baby boomers retire in masses they will be heading to various resorts worldwide, and this firm has they in all the exotic locations. Marriott is also a good pick, but I see better growth in Starwood.

All Momentum Stocks – I see another bubble in the market. Stocks that have rallied tremendously…continue to go up each day and will for the forseeable future. I recommend Terra Nitrogen and its parent company Terra Industries, CF Holdings, Chipotle, Deckers, Crox, First Solar, Freeport McMoRan Copper & Gold, CVRD, Mittal Arcelor and Priceline. There are so many more…just pick stocks at random out of Brazil and China. What do these companies do? It really doesn’t matter. Once a stock is “in favor” they will continue to roar until they become “out of favor”. That’s how the market works in bull markets. Once you experience a 10% drop, then dump and head for the hills. But keep enjoying this huge run while it lasts.

There are a lot of momentum plays in the oil sector…but I do not recommend them at this time.  They are a “hold” for me, not a “buy”.  Oil stocks always have their biggest run from March to July….and start going down in August.  I dollar cost average into an energy mutual fund like FSENX in the meantime.  Right now the sectors that are “in favor” are metals & minerals, agriculture chemicals, brazil/china stocks, all travel related (online travel agencies, airlines, hotels, timeshare resorts, etc), restaurant, shoes, solar companies and heavy-duty equipment manufacturers.  “Out of Favor” are homebuilders, mortgage lenders, regional banks, consumer staples and Russian stocks.

***At time of writing, John is long FSENX, HOT, TRA, DECK and FCX***

Explore posts in the same categories: Investing, mad money, mutual funds, stocks