Bernstein: Best Value In Junky Names

If you're like so many investors you're probably trying to get a sense of the market's next move from economic numbers. But where should you look?

You can all but forget the housing numbers or GDP, according to Richard Bernstein of Bernstein Capital Management, the most important leading indicator for stocks is initial jobless claims.

The former Merrill Lynch chief investment strategist tells Fast Money it’s all about jobs. “If the employment situation doesn't continue to improve, there's no way you're going to have a bull market for much longer. That's the key," he says.

Okay, so we got the Labor Department data on Thursday.

And it said workers filing for jobless claims dipped to 545,000 last week from an upwardly revised 557,000 the previous week. It was the lowest level of new claims since early July, indicating job cuts could be easing.

Is that bullish for stocks?

It would seem so! In a USA Today report Bernstein says the outlook for stocks "might be better than people think," And he tells Fast Money “if you believe in the recovery this is the prime time to be a value investor.”

What’s the trade?

Bernstein says the best value are in junky names. “The companies that you’d hate to own tend to perform the best. In almost every industry go for lower quality companies."

Huh?

"In 1991 - a time period that was similar to now - 'C' and 'D' rated stocks by S&P went up 90% that year and continued to outperform for 4 years after that," he says.

Why?

"As the economy continues to improve investors shift from focussing on the balance sheet to focussing on the income statement and cash flow. And the junkiest companies have the greatest operating leverage so their cash flow just explodes," he says.

Although Bernstein doesn't reveal names he does says "consumer cyclical stocks probably have tremendous upside potential."

But one caveat here, these trades only work as long as the economy continues to get better.

 

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Current DateTime: 01:20:04 10 Feb 2012
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Trader disclosure: On Sept. 17, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AA), (F), (BAC), (EEM), (FXI), (SBUX), (VIP); Seymour's Firm Owns (MTL); Finerman's Firm Owns (BAC) Preferred Shares, Finerman Owns (BAC) Preferred Shares And Owns (BAC); Finerman Owns (PDE); Finerman's Firm Owns (WFC) Preferred Shares And Is Short (WFC); Finerman Owns (WFC) Preferred Shares; Finerman Owns (RIG) ; Finerman's Firm Owns (WMT), (RIG), (MSFT), (NOK), (PBR), (PDE), (TGT); Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO), (IYR); Najarian Owns (AAPL) & Short (AAPL) Calls; Najarian Owns (ACI) Call Spread; Najarian Owns (BAC) & Short (BAC) Calls; Najarian OWns (C) Calls; Najarian Owns (CUX); Najarian Owns (FCX), Owns (FCX) Put, Is Short (FCX) Calls; Najarian Owns (GE) Calls; Najarian Owns (JPM) & Is Short (JPM) Calls; Najarian Owns (JOYG) & Short (JOYG) Calls; Najarian Owns (MS) And Is Short (MS) Call; Najarian Owns (MSFT) And Is Short (MSFT) Call; Najarian Owns (PALM) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Calls ; Najarian Owns (WNR) Calls; Terranova Owns Gold Futures; Terranova Owns  Dec Crude Contracts; Terranova Owns Dec 2010, Dec 2012 Crude Contracts; Terranova Owns (WNR) & (WNR) Calls; Terranova Owns (HOC)

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