Ed Finn, editor and president of Barron's, shares his outlook for the stock market for the next two years, and you may be surprised by his predictions.
My guest today is Ed Finn. He’s the president and editor of Barron’s. Ed, welcome.
Thanks Nancy.
Tell me what you think is going to happen with the stock market in 2013. We have certainly had a great run up until now.
Well, I think it’s going to continue.
Do you?
We look very closely at the P/E of the markets—earnings and price, that’s what we care about—and traditionally, the market’s very cheap at 10, very expensive at 20.
Right now, we’re at about 14 or 15, and earnings are going to grow 10% in each of the next two years. So we think stock prices are going to go up about 10% in each of the next two years, which would be terrific.
Now, the earnings growth has actually slowed down a little bit percentage-wise, but of course when we came from nothing, it was very easy to get 200% earnings increases. So what do you think is going to happen this year with earnings?
Well, the year just finished. We’re just finishing up the earnings. That’ll be about 6%. This year about 9%, next year about 9% or 10%, something like that, so it’s a nice uptick.
I think what you’re seeing is a lot of consumers are regaining their confidence as housing prices go up and unemployment is going down. That creates more demand, that creates more profits. And also, US companies continue to do very well around the world.
Yes, they are doing so. Now, the retail investor has kind of stayed out of this market for a long time. We’re starting to see them come back in now.
Exactly, and I think that’s a good sign. I wish they stayed in three years ago.
Yes, me too.
However, you did see about $18 billion move into stock mutual funds in January, and that’s a very good sign. I think that people are saying is the election is over, that’s settled down, we sort of know what the taxes are. We can see the economy growing. It’s time to put a little more risk capital to work. And I think people need to be in the stock market to get what they want for their kids’ education and their retirement.
That’s for sure. Now, are there any particular sectors this year that you think are going to outperform?
Well, we don’t pick too many sectors, except in the magazine, because otherwise people will say did you see what the editor of Barron’s said, etc.
Traditionally, we’ve liked biotechnology. You’ve seen a lot of gains in the entertainment area and the multimedia area. Interestingly, you’ve seen a lot of the old media do well in the last year and some of the new media fall down, so I think it’s going to be kind of a mixed bag.
I think for a lot of people, they need a stock picker. It’s not going to be everything goes up equally, and whether they choose to pick them themselves, as a lot of our readers do and your investors, or they choose to pick a mutual-fund manager that matches their profile, I think that’s the good way to go.
For the individual investor, would you think that picking stocks is better? Or for someone who’s maybe a novice investor, would they be better off just going with ETFs and funds?
I think novices are much better with ETFs and funds. Some of the people love to pick stocks and they enjoy it and that’s great, because some people are really good at it, and average investors get to be really good at it. What we find with our readers is they have a mix. They have some mutual funds and they do some picking on their own.
Well, there’s a lot to choose from these days.
You bet.
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