Analyst Watch: Finding Value in Volatility
Wall Street looked set to start the day lower Thursday, with the tech-heavy Nasdaq futures particularly weak after disappointing results from Cisco Systems.
Here's what analysts and others are watching before the bell:
Maury Fertig, chief investment officer, Relative Value Partners says the firm is bullish on stocks, though "we definitely do not think buying opportunities at these levels are as attractive as they have been over the last few months.
"The market may have gotten a bit ahead of itself during the recent run up and we expect to see great opportunities to buy on pullbacks looking forward as the general trend will be higher."
For value investors, Fertig says the closed-end fund market is one of the few areas where opportunity in undervalued investments can be found.
"A smart closed-end fund investors can uncover significant value by purchasing funds at discounts greater than their historical average," he says.
Royce Value Trust
Fertig says This small- and micro-cap value investment with goal of long-term capital appreciation
- Eliminated stable distribution policy due to high rate of tax loss carry forwards
- Excellent long term record and risk adjusted returns
- Expect reinstatement of dividend as tax loss carry forwards rolls off
- Purchasing between 15-18% discount
NFJ Dividend Interest & Premium
Fertig likes NFJ because it seeks current income and gains through large cap stocks, options writing and convertibles
- Reduced its dividend in March ’09,
- Run by well regarded dividend focused equity manager
- Fund is out-earning its dividend
- Will raise its dividend as it works through tax loss carry forwards
- Purchasing between 14-16% discount
LMP Capital & Income
Fertig likes LMP because of its total return with an emphasis on income via stocks and bonds
- Balanced fund composed of dividend paying equities & high quality fixed income
- Strong YTD market price and NAV performance
- Seeing significant increase of activist investor ownership
- We expect some sort of NAV realization event within the next year
Ethan Anderson, portfolio manager, Rehmann Financial, says a pullback is in order after such a strong September and October.
"Don’t expect the pullback to be very deep, though, as investors are not going to want to fight the Fed," he says. "We may have seen our highs for the year unless we get some solid employment figures."
Anderson says value investing is very tough to do in today’s market barring opportunities created by extreme volatility. That said, his picks for investors to find value are:
The Blackstone Group
"Low interest rates and cautious lenders make this a prime environment for private equity," Anderson says. "As investors continue to get frustrated by this secular bear market the premise of diversification will generate more interest in the alternative investments that Blackstone provides. In response to low interest rates, income investors will also gravitate more to the absolute return products in Blackstone’s stable. With a forward PE of 13 and estimated 5-year earnings growth rate at 15% annualized, BX is a deal."
Navios Maritime Holdings
"This small dry bulk shipper has not benefited recently from being based in Greece but it has benefited by an increased global demand in commodities, especially in emerging markets," Anderson says. "They operate in North America, Europe, Asia, and South America. With a market cap of only $600 million and a single digit forward PE, Navios is a compelling value and a prime acquisition candidate."
"A play on the consumer going back to the store," Anderson says. "This is perhaps the broadest retail play out there on the high end consumer, a group which is still spending money. They recent localization efforts, focusing on addressing the tastes of local markets have led to them taking market share. They recently reported great numbers and raised their outlook. At 13 times forward earnings, they look appealing."
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