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Recession Won't Stop the Wealth Waves
02/06/2008 12:00 am EST
Tobin Smith, founder and chairman of ChangeWave Research, mentioned the “r” word, but noted that this recession will give investors new buying opportunities…
Tobin Smith abandoned his long-held bullishness in mid-January when his ChangeWave Research panel—the top 20% of super spenders in the economy—indicated that the economy was heading for trouble. These folks, who have more than $150,000 in annual income, began to change their habits last December, spending less and saving more.
The ChangeWave research showed that the US economy is in a recession. But the good news is, life is not ending, and in fact, the effect on our $14-trillion economy will ultimately be minor. In fact, it will offer opportunities, ultimately producing rapid earnings growth as a result of the interest rate cycle.
One area he said is attractive is real estate investment trusts, particularly “mortgage REITs” (which make loans on real estate), such as Annaly Capital Management (Nyse: NLY) and MFA Mortgage Investments (Nyse: MFA).
But he is still holding a healthy cash position and thinks the time to buy is when the media begins to run stories on the Great American Depression. There’s a big lag between reality and when the media catches up to it, and by that time, we will most likely be near the end of the recession.
Smith anticipates the recession will be short-lived, probably lasting another four-to-five months. Today’s economy is quite different from that of the 1980s or 1990s, helped by the growth in exports—some 16% of gross domestic product (GDP) today, versus 6% back then, as well as the reduction in union membership (from 26% to 7% of the workforce), which decreases wage inflation.
Smith noted that he sold Apple (Nasdaq: AAPL) earlier and thinks the company’s growing Mac sales make it a buy under $130, with a target of $225.
Additional names on his watch list include alternative energy plays First Solar (Nasdaq: FSLR) and LDK Solar (Nyse: LDK), LED maker Cree (Nasdaq: CREE), and biopharmas Oculus Innovative Sciences (Nasdaq: OCLS) and Cepheid (Nasdaq: CPHD), which he likes under $30.
He said we will soon see a number of alternative energy IPOs come to market, several of which look attractive, garnering additional opportunities for significant profits.
And lastly, he said he likes A-Power Energy Generation Systems (Nasdaq: APWR), a Chinese wind power company.
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