If you look at recent moves made by Wall Street’s biggest whales you’d think some stocks are so cheap they belong on blue light special.
On Thursday, Bill Ackman, managing principal at Pershing Square told us, “I think stocks are cheap and I think the Federal Reserve has taken some very important steps that will improve liquidity--the banking system--and that in turn will help the economy,"
And in a New York Times editorial titled Buy American. I Am, Warren Buffett revealed earlier this month that he has been moving his personal investments from safe U.S. treasury bonds into U.S. stocks.
"Frankly these markets are offering opportunities that weren't available six months or a year ago," Buffett told us, “so we're putting money to work."
So, should you rush back into stocks? Maybe for the time being. Here's why.
There are asset managers out there who run balance funds and essentially have a mandated allocation between bonds and stocks, explains Dylan Ratigan. As stocks have come down, by mathematics, the percentage of a portfolio in bonds goes up. That means these asset managers must sell bonds and buy stocks.
People like Jeffrey Saut, Raymond James chief investment strategist argue that phenomenon generates a temporary demand cycle. In fact he thinks balanced funds are about to go through their biggest rebalancing act since 1987.
But, is it tradable?
"I think it is,” replies Saut on Fast Money. “I expect to see about a 5% rotation out of bonds and into equities and I think it’s already started.”
Saut points to technical analysis to back up his theory. "I think the market made its price low on October 10th and its psychological low was last week. Now I expect markets to trade on the upside until Thanksgiving,” he says .
If he's right, how should you trade?
"The average investor can get in on a selective basis. Focus on clean balance sheets, decent fundamentals, and dividend yields,” he concludes.
Ahead of the show Saut told our producers that some of the stocks he's watching are Archer Daniels Midland, Freeport McMoRan and Chesapeake Energy .
You can see our entire interview with Jeffrey Saut at the end of the Word on the Street video.
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Trader disclosure: On Oct.30, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (MS) Calls; Pete Najarian Owns (MSFT) And Is Short (MSFT) Calls; Pete Najarian Owns (PBR); Pete Najarian Owns (TSO) Call Spread; Pete Najarian Owns (YHOO) And Is Short (YHOO) Calls; Pete Najarian Owns (BNI) Put Spread; Finerman's Firm Owns (RIG), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (IYR); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO), (COF), (BBT); Seymour Owns (AAPL), (BAC), (BX), (F), (MER), (TSO), (CHL); Seygem Asset Management Owns (PBR), (EEM)
Saut Owns (ADM) Convertible Preferred A Shares: Saut Owns (FCX) Convertible Preferred M Shares; Saut Owns (CHK) Convertible Preferred D Shares
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