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Whare are markets headed ?

After my trip to meet with Mr Warren Buffett, everytime I think about an investment idea, I take a pause and ask myself: What would Mr Buffett would do ? Hope I can make some wise decisions with this question.

November was an unusual month where markets went down (only 2nd time in 13 years markets have gone down in November). Is it good or bad ? After strong and volatile October, it's good for markets to get excesses out, get the correction (10% down from peak) and get ready for another high. With major banks taking big writedowns, companies like Countrywide, E*Trade and many builders trading like they are going to declare bankruptcy, finally Fed and US Gov have realized that this sub-prime issue is much larger than they originally estimated. Late last week, things have started lining up for some kind of arrangement to avoid recession due to sub-prime meltdown. With that context in mind, here are my predictions and recommendations (Disclaimer: I may have positions in some of the recommendations)

  • Dow will touch 14000 and S&P 1550 by 2007 year end. Nasdaq will continue to show weakness due to uncertain technology spending by finance companies and will close between 2750 to 2800 by 2007 year end
  • Fed will cut interest rate by at least 25 basis point and maybe upto 50 basis points
  • Emerging markets would be back on their upswing with The Bank of New York Emerging Market index crossing 3600 (currently it is at 3413)
Recommendations:
  • Some of the best buys are in financials. If you are brace enough to bug individual banking stocks, I would recommend Countrywide (CFC) between $10 to 10.50, Radian group at 10.50 and E*trade at 4.50
  • However to avoid the fate of individual companies going BK, I would recommend BKPIX (Profunds ultrasector BANKS)
  • On technology side, I would recommend Yahoo at $26 and VMware at $90
  • Among Indian stocks, my out-of-the way recommendation is Ispat Industries at Rs 50 and India Foils at Rs 15. Both are plays on materials boom and could double in 18 months
Good Luck and Good Night !

/Shyam

Comments

Anonymous said…
Shyam

What's your rationale behind "India Foils".

The company is loss making, no major news on a turnaround, does not seem to have strong fundamentals.

Is it just the possible takeover by Hindustan/Esse Dee that you are banking on?

Please copy your reply to me at findtarun@gmail.com

Thanks
TG
3:06 AM
Anonymous said…
India Foils is sterlite group company and valued at just Rs 540 million with revenues of about Rs 1400 million. It is on its way to profitable due to commodity boom.

Same is true for Ispat which is valued at Rs 7000 crores with revenues of close to Rs 8000 crores. Both companies can double just based on their current revenue base provided mgmt can turn around and make profit. Since my recommendation, both stocks are already up significantly
10:23 PM
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