Putting The Market's Economic Noise On Mute
Peter Kang
Merger deals and continuing recovery in the overseas markets are giving U.S. stocks a good start to the week, but before getting distracted in this newfound volatility, where should investors keep their focus?
"The last couple of weeks we've had the issues with China and also subprime lending. We might just call this economic noise," said Nick Massey, vice president at Householder Group. "We suggest people focus on what's really driving the economy and we think that is consumer spending."
"Consumer spending, if you really look at it, is 70% of the U.S. economy," Massey added. "I don't think it slows down any time soon."
Craig Hodges, co-portfolio manager of The Hodges Fund, said his fund is focusing on pricing power, the ability to maintain or increase consumer prices.
"When you get pricing power, you get margin expansion, and when you get margin expansion you get multiple expansion and stocks go up."
"The number one area we like in terms of pricing power is the deepwater drillers. There is tremendous demand for rigs worldwide, day rates are doubling and tripling, and the earnings at those companies are doubling and tripling."
Hodges says with shares of most of the deepwater drillers trading at 10-times earnings, "those look real attractive to us."
Hodges says he also likes the hotel industry. "The average hotel room will go up anywhere from 4% to 8% next year with not a lot of additional costs in that, so a lot of the money will go to the bottom line."
