|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
David Dreman Talks about His Stock Picks in 'Think Stocks Not Treasurys'
Posted by: Holly LaFon (IP Logged)
Date: March 22, 2012 04:16PM
Legendary investor David Dreman explains the markets and why he is "in buying mode":
Fear ruled the markets in 2011. Investors fretted that the Great Bear Market of 2007–08 would return, accompanied by another economic downturn. By August the S&P 500 had given up all the gains made in the first half of the year and was dropping rapidly into the red. Thank you, European crisis.
Volatility has been another buzz kill. The widely followed VIX Volatility Index tripled from near 16 in July to as high as 48 by early August, while markets looked like they were free-falling into the netherworld.
Ultimately, the Chicken Little scenario did not play out. Instead we witnessed one of the sharpest recoveries in decades in January of this year, which continued through February, with the Dow Jones industrial average now at its highest point since the spring of 2008.
There are a number of good reasons for the rebound. First, we are slowly coming out of the worst Depression since the 1930s. Despite the cries from “gloom and doomers” such as Harry Dent, who has recently written that a “Great Crash” is directly ahead, stocks are at their lowest values in over 20 years.
Company balance sheets are strong, and earnings approaching record levels. A second important reason is inflation, which is coming. The budget deficit, accompanied by the Fed’s QE1 and QE2 programs, doubled the national debt held by the public since 2008, and the deficit will be up well over a trillion dollars again in fiscal 2012.
Smoldering inflationary fires will burst into an inferno once the unemployment rate falls below 7.5%, if not sooner. In this environment good stocks, not Treasurys, are the place to be. So forget the risk of flight to Treasurys trade. Rising inflation-primed interest rates will send bond prices plummeting.
Turning to 2011 calls: My stock picks lagged the S&P by more than 3% last year, although over the past three years I am still ahead by nearly 2% annually. My worst picks included Hartford Financial Services Group (HIG), down 37%; Encana (ECA), down 34%; Banco Santander (STD) down 23%; and HSBC (HBC), down 22%. The financials and oil exploration companies have already bounced back from their lows, year-to-date.
Overall I stand by my 2011 calls. I am a contrarian value investor and not a timer, and it’s not unusual for my picks to be “early.”
My outperformers in 2011 included Marathon Oil (MRO), up 37%; Pfizer (PFE), up 28%; Altria (MO), up 22%; Chubb (CB), up 19%; and Allstate (ALL) and ConocoPhillips (COP), both up 11%. I would continue to hold Chesapeake Energy (CHK), Marathon Petroleum (MPC), Petrobras (PBR), Apache (APA) and Devon Energy (DVN).
Also hold on to JPMorgan Chase (JPM), and HSBC, Hartford Financial and BHP Billiton (BHP).
Guru Discussed: David Dreman: Current Portfolio, Stock Picks
Stocks Discussed: HIG, ECA, HBC, STD, MRO, PFE, MO, CB, ALL, COP, CHK, MPC, PBR,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.