BACK TO THE FU­TURE THE BULL RUM­BLES FOR­WARD

Forbes - - Investing -

The most stun­ning un­noted mar­ket phe­nom­ena right now are the par­al­lels be­tween the past eight years and the pe­riod be­tween 1988 and 1997. History never re­peats it­self, but this rhymes. This bull cy­cle may last longer than any­one imag­ines—maybe the long­est ever.

Some 1990s par­al­lels were larger than now, some smaller and some surely co­in­ci­den­tal. That said, sub­sti­tute the 1990’s “S&L Cri­sis” for 2008’s “Home Mort­gage Cri­sis,” and “Res­o­lu­tion Trust Corp.” (“fx­ing” that mess) for “TARP” (“fx­ing” this mess). By 1991, 911 fnan­cial frms had failed, for an in­fa­tion-ad­justed $547 bil­lion. This time far fewer frms failed—for “merely” $421 bil­lion.

Bear mar­ket and re­ces­sion tim­ing par­al­lel (though big­ger now). Switch Clin­ton beat­ing Bush 41 for Obama fol­low­ing Bush 43. Then two years later the GOP gain­ing grid­lock power (1995’s strong­est GOP Congress since the ’50s; in 2015 the Repub­li­cans added the Se­nate for the strong­est GOP Congress since the ’20s).

Europe’s über-long ’90s re­ces­sion linked to fs­cal aus­ter­ity tied to “con­verg­ing” the euro. Europe saw two re­ces­sions this time—to­gether as long as the ’90s quag­mire—with aus­ter­ity tied to saving the euro. Both times the PIIGIES sufered dou­ble-digit in­ter­est rates. eu­pho­ria or a new, big bad dis­rup­tion, this grind­ing bull grinds on—likely years longer than fath­omable. Of course, that isn’t cer­tain.

Luck­ily the same types of stocks that lead late in long bull mar­kets usu­ally do best early in bear phases (be­fore they’re rec­og­nized). What are those? Per­ceived high-qual­ity stocks in­creas­ingly lead the way—of­ten big frms with fairly re­li­able growth and of­ten tech.

Noth­ing fts bet­ter than the globe’s big­gest stock, and the sec­ond big­gest. Their con­tin­ued lead­er­ship will sur­prise: Ap­ple, since it’s so big few can en­vi­sion any­thing un­ex­pect­edly good hap­pen­ing, plus it’s dis­ap­pointed all year. And Al­pha­bet, since it has done so well al­ready. But they should both lead due to the combo of size and qual­ity growth. Ap­ple is at 11 times my Septem­ber 2016 earn­ings es­ti­mate; Al­pha­bet at 22 times that of De­cem­ber 2016.

Big pharma fts, too, for sim­i­lar rea­sons. Growth rates are be­low tech’s, but ba­sic de­mand is more stable, since quit­ting your meds or sub­sti­tut­ing drugs isn’t easy. Lots of choice here, but two I like now are Switzer­land-based

the big­gest (in pure pharma, like Ap­ple is over­all), and it has dis­ap­pointed re­cently (also Ap­ple-like), and Den­mark-based

since it has done so well (like Al­pha­bet). NVO, to me, seems the most far-into-the-fu­ture pre­dictable, which 2016’s mar­ket should love. It’s at 24 times and No­var­tis at 11 times my 2016 EPS es­ti­mates.

at $4.5 tril­lion, is by far the largest as­set man­ager, my realm of en­deavor. It’s su­per­di­ver­sifed, well run, the big­gest in ETFS (ex­change-traded funds, the sec­tor’s hottest ma­jor sub­sec­tor), while still strong in ac­tive man­age­ment, ETF’S coun­ter­part. Since Black­rock bills on a per­cent­age of as­sets, a ris­ing mar­ket pleas­antly plumps sales and profts. But the stocks usu­ally move be­fore earn­ings. Hence BLK is a great op­por­tu­nity at 18 times trail­ing earn­ings, with a 2.4% div­i­dend yield.

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