This morning on “Squawk on the Street”, Abby Joseph Cohen, Goldman Sachs Chief U.S. Portfolio Strategist talked about her official 2007 year end target (In case you’re wondering she was right on for 2006).
Here’s what Abby Joseph Cohen had to say to CNBC's Mark Haines and Erin Burnett.
"We think ’07 finishes about 10% higher -- The S&P at 1550 and the Dow 13,500."
"We think the better performing stocks are those of the highest quality companies – we’re looking for above average earnings growth and above average returns on equity. We think volatility will pick up; it has been remarkably low for the past 2 years. And, as it rises, investor become risk averse. They will seek out higher quality stocks and higher quality stock markets - and in the bond markets a preference for the higher quality bonds."
"We do not advise moving into so-called defensive stocks – we think stocks that offer a high yield that don’t also have strong earnings growth are not the place to be. Instead--we are focusing on good quality growth companies because on a relative valuation basis we think that’s where the best opportunities are."
Erin Burnett asked about putting money in the tech sector, if there's a concern about risk.
Cohen replied, "In technologies it’s a mixed bag – it’s a broad escort – it’s a substantial portion of the S&P 500- and there are some industries in it where we have near-term concerns. Our analyst has been early and right about being defensive in the semi-conductors – but good we see good opportunities in software and hardware."
"As we laid out for our investors – we always have a monitoring list of things we watch carefully:
1) the pace of economic activity outside the US – keep in mind US is the world’s largest exporters.
2) foreign demand for dollar denominated assets – not so much stocks, much more so bonds …foreign investors own almost 30% of the US corporate bond market.
3) we try to factor in conservative estimates in the forecast I gave you early… our earnings estimate is one of the lowest on the street next… it assumes interest rates will be rising… that’s not our house forecast – but what I’m trying to do is give myself valuation headwinds when I do the calculation. Even if interest rates move up about 75 basis points from current levels we still conclude that the equity market are 10% under priced."