Citigroup chief U.S. equities strategist Tobias Levkovich says investors should be dipping into the stock market right now.
For many investors that's a hard move to make, after the market has delivered such stinging losses and continues to trade volatiley "You don't' compound one bad decision with another one, which is sell at the bottom," Levkovich said in a telephone interview.
"If you're waiting for that perfect time to buy and that perfect time to sell, you're going to be waiting for Godot," he said. "Nobody rings a bell at the bottom. Nobody rings a bell at the top."
Levkovich did not say whether stocks have hit bottom, but he does say investors should nibble selectively in several key sectors. His favorites include health care, telecom, some retailers and diversified financials. "I like insurance. They are so beaten up," he said.
He also likes semiconductors, especially since they are paring back on capacity. "When you don't build new fabrication facilities, you end up having less capacity and better pricing and the stocks have been beaten up," he said.
Levkovich said he is underweight utilities, no longer favors pharmaceuticals and does not think consumer staples are a group to buy. "Consumer staples is not a place I want to hide out any more. They acted very defensively and now there's currency risk," he said.
The strengthening dollar has now made some companies with strong international profits vulnerable, he said. Levkovich also said he doesn't see global growth trades as a buy though he has become more interested in the industrial stocks.
Levkovich said the market needs to overcome several hurdles before it can start to move higher with any confidence. "What we really need to see are a few things -- credit markets stabilizing, interbank lending picking up for more than a day or two," he said. Earnings expectations also need to come down. "We need companies clearing the deck on expectations. They're still too high for 2009. You're also going to need to see more data saying inflation is not a threat, and to some degree you're going to need to see actual (bailout) activity as opposed to discussion around the activity by authorities."
He said there's an analogy between the broken credit markets and a bicycle with a broken chain. Without the chain, you can peddle furiously but ultimately you'll have to put the chain back on and get your hands covered with grease. "Right now, we have authorities standing around looking at the broken bike," he said.
Levkovich said there's still a case to be made for the market to rally into year end.
"There's a lot of cash on the sidelines. This is more than a financial crises. There has be some invigoration of confidence," he said. "I'm not saying whoever wins the election could be that factor but having uncertainty removed could help."
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