As if the S&P 500’s robust gain so far hasn't been impressive enough, Laszlo Birinyi, president of Birinyi Associates, says there’s still further room for the index to rally to 1,700 sometime this year.
That's a 24 percent rally from the current 1,374 level on the S&P.
“We are more optimistic than we were two months ago,” Biryini wrote in his latest newsletter. “We continue to be bullish and would encourage a more aggressive posture.”
According to Birinyi, the current bull-market cycle began back in 2009, and equities have been in the third quarter of a typical bull-market cycle since last summer, which traditionally sees gains of 30 percent or more.
“If you look at these five-year bull markets, this is like the bull markets of 1982 and 1990,” noted Birinyi. “This third phase should guide us into the mid-late summer and we’re encouraged by the way the economy has gotten better.”
In his note, Birinyi used market performances from 1994 and 1995 as a script for 2011 and 2012.
“While there are an abundance of similarities and parallels (and admittedly differences) there was a total fixation on higher rates and equity expectations were muted,” wrote Birinyi.
In 1994, the S&P 500 declined 1.5 percent, while the following year, it surged 34 percent.
“We are not insisting on a repeat but do believe that investors should consider the possibility,” he wrote of the parallels. “In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting—perhaps insisting—an alternative to that consensus.”
Biryini advised investors to look at sectors that can benefit from a growing economy, such as industrials, energy and materials. Still, he said picking individual stocks is his preferred method of investment, pointing to GM, BlackRock, People’s United Financial, Research In Motion and France’s Hermes as his top picks.
Research In Motion?!
Birinyi argues that while the stock is a “riskier pick,” the BlackBerry maker “still has brand and the franchise.”
His top picks in 2011 were Prudhoe Bay, Cummins, Ralph Lauren, Priceline.com and Hermes.
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