Analyst Watch: Market Is Undervalued, No Double Dip
U.S. stock index futures pointed to a lower open Thursday ahead of key economic data including the government's latest report on weekly unemployment claims.
Here's what analysts and others are watching before the bell:
Jim Hardesty, president, market strategist and chief economist at Hardesty Capital Management says he believes the market is undervalued right now.
"Earnings are strong — better than Wall Street expected — and the outlook is pretty good," he says. "Stocks have a lot of risk priced in."
As such, he is long-term bullish, and doesn't believe there will be a double dip.
"Earnings have been strong, economy is in recovery — it is almost like we’re in a plane climbing to 8,000 feet and the plane is taking an instrument check — we are taking a check in the markets too."
He is concerned with some of the uncertainties in Washington, however — i.e. tax policies, (next year’s income tax rates or estate tax rates), coupled with some possible legislative initiatives. "I think that tide has shifted in the sense that we are in gridlock," he says, adding that gridlock could actually be a positive for the market.
Meanwhile, Hardesty says the degree of recovery is tracking below the normal rate of recovery, but this is due to this administration’s policies.
"The country needs a rest from change," he says. "We have had changes — let’s let them work their way through the system."
So where's he putting his money?
"Our favorite sectors right now are technology, energy and industrials," he says. "They generally have low valuations and are beaten down for short term reasons."
The stocks he likes and the reasons why:
Caterpillar: "Very strong earnings, past quarter, largely outside US, outlook is very strong for foreign operations. World leader in its field. Relatively low P/E and we’re hoping for a significant increase in the dividend."
Hewlett-Packard: "A company that has experienced several management upheavals in recent years, and has always survived them and thrived. The price reaction to loss of their CEO is not reflective of bench strength. They have management depth. Dirt cheap stock — 9 times earnings."
ExxonMobil: "Part of the theme is we think big cap stocks are going to get their day, and we think it is coming soon. Under 10 times next year’s earnings by our estimate. Just completed a $35b expenditure in Qatar for liquefied natural gas. Even with after tax – big earnings. Sleeping giant. There are a lot of things that can happen positively for this company."
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Disclosure: For all stocks mentioned, Jim owns, family owns, firm owns (less than 1%).