Monday, January 23, 2012

The Seismic Shift from Value to Growth

While Wall Street is focused on the Federal Reserve and all the talking heads are debating Ben Bernanke’s next move, I have to let you in on a secret—that’s not where the real action is. No, the really big development on Wall Street is the dramatic shift out of value stocks and into growth stocks.
Write this down because it’s going to be the leading market theme for the next several months. Institutional investors have been quietly dumping value stocks and are slowly picking up shares in many major growth stocks. Not only is this a big move, but it’s happening right under the noses of individual investors. Already this year, the Russell 1000 Growth Index is up 12.35%, which is twice as much as the Russell 1000 Value Index—and the gap is about to get much wider.
My money management firm just completed a thorough analysis of the growth and value sectors, and we still see enormous opportunities in growth stocks. Here’s what my analysts and I found: The ratio of the Russell 1000 Growth Index to the Russell 100 Value Index is at its lowest point in nearly 30 years. This tells us that despite growth’s rally this year, it’s still significantly lagged the market this cycle.
Not all growth stocks are created equal. It’s a big mistake for you to put all of your eggs in one growth basket. Our research has found that large-cap stocks are outperforming all other size sectors of the market. The market-cap phenomenon has been very dramatic through the first eight months of this year
My research team and I ranked every stock by market cap, and we then examined its one-month return. We found that the largest stocks have significantly outperformed smaller stocks on a year-to-date basis.
What’s causing this to happen? Well, for one, it’s very likely that the weak dollar combined with a strong institutional bias toward mega-caps and multinationals is accelerating t! his tren d.
We also looked at each stock’s price/earnings ratio compared with its projected earnings growth rate. This is also known as the PEG ratio. We did this for the entire universe of stocks. We then divided the market into ten groups ranked by market size. We found that the stocks in the largest market cap group had the lowest PEG ratio (meaning these are the best values). So even though large-cap stocks have had a good run, they still appear cheap relative to all other market cap ranges.
I’ll give you a great example of a large-cap growth stock that’s benefiting from the current market, especially the weak dollar. That stock is Monsanto (MON). The St. Louis-based company is one of the world’s leading multinational agriculture biotech stocks, and Monsanto loves the weaker dollar. As you might imagine, the company’s business is booming. By my estimate, earnings-per-share will be up about 50% this year.
The good news is that I don’t see Monsanto slowing down anytime soon. In fact, yesterday Monsanto predicted that it could triple the amount of farming acres planted worldwide with its genetically engineered seeds. Think about that!
According to the Biotechnology Industry Organization, biotech crop acreage increased 13% between 2005 and 2006. href="" target="_blank">Business Week notes:
Begemann said Brazil will be a hot spot for sales growth after Monsanto’s purchase of the Agroeste seed company. The acquisition boosts Monsanto’s market share in Brazil to 40 percent. That will give Monsanto the outlets it needs to introduce new strains of crops like YieldGard Corn Borer, he said.
Monsanto has increasingly invested in “advanced breeding” techniques to develop new crops without genetic engineering. Instead, the company uses gene markers and advanced computers to rapidly breed plants with desirable traits.
Subscribers to my Blue Chip Growth service have nearly tripled their money in Monsanto. Don’t think you arrived too late to the party. I currently rate Monsanto a strong buy for conservative investors up to $79 a share.
Another large-cap growth stock I favor in Blue Chip Growth is McDonald’s (MCD). This one may come as a shock to you because McDonald’s business hasn’t been very strong in the United States, but that’s not where the growth is coming. Instead, McDonald’s is incredibly popular overseas. Just like Monsanto, McDonald’s thrives in a weak-dollar environment.
McDonald’s also has another company in its sights—Starbucks. Believe it or not, some folks like the taste of McDonald’s coffee better than Starbucks’! For the past few weeks, analysts have been revising MCD’s earnings estimate higher. The consensus now sees earnings coming in at $3.05 a share. Personally, I think that might be too low since the weak dollar gives such a boost to shares of MCD. I rate McDonald’s a strong buy up to $59 a share.
My advice is to take full advantage of the market’s shift to growth stocks. This will be a major theme in 2008.
Next week is the first week of the fourth quarter. Soon the market will get a chance to digest third-quarter earnings reports. We’ll also get some initial guidance on how well the fourth quarter is shaping up. Until then, take advantage of Wall Street’s seismic shift to growth stocks.
2007 has been a fantastic year for href="/order/?pc=8UX113" target="_blank">Blue Chip Growth subscribers – look at a few of the gains we’ve locked in this year: Brookfield Asset +147%; Nucor Corp +37%; BG Group +114%; Suncor Energy +195%; Celgene +39%; PetroChina +42%; Cameco +118%; Transocean +56%.  Plus, we have many more winners just like Monsanto (triplers and doublers) still on our list.  Want the names of more winning s! tocks? T ry Blue Chip Growth risk free for 6 months!

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