The Best Economy I’ve Ever Seen

02/23/2007 12:00 am EST

Focus:

Elaine Garzarelli

President, Garzarelli Capital

Market seer Elaine Garzarelli's famous indicators say stocks should remain strong, even as we go into the fifth year of a bull market. She likes some technology ETFs and makes a contrarian stock pick--a homebuilder...

From the "Name That Stock" Panel at the World Money Show Orlando 2007:

I think this is the best economy I've ever seen in my career. Now we're going into the fifth year of a bull market, which is very unusual. Usually bull markets last three years, four years and then we have another bear market. But my [14 stock market] indicators at 65% are at the highest level that they've been in the last 3 ½ years.

The economic cycle portion of our indicators is bullish, the monetary part of the indicators are neutral/bullish, the valuation part of the indicators is extremely bullish, and the only negative is the sentiment portion of our indicators and that's because there are so many people out there now--investment advisors--who are bullish.

Consumer net worth is 10% higher than it was at the peak in 2000, and that's excluding housing. Including housing, consumers are 20% richer than they were at the peak in 2000 and that's really saying something.

This is the best corporate-profits environment I've ever seen in my career. Profits--that's income-tax profits--are at an all-time high relative to GDP. So, I am bullish and the market is at this point, just based on earnings for this year--and I'm below the consensus, I'm only looking for a 5% gain--the S&P is 20% undervalued.

The areas of the economy I think will be stronger than GDP growth this year [are first,] consumer services--and that is banking and brokerage and hotels and motels and those sorts of things. Number two is capital spending, which will be spending by businesses on equipment, technology and computers and infrastructure.

My picks are based on that theme. The first one is an exchange traded fund, [the Technology Sector SPDR, XLK]. You can buy the whole technology sector and you don't have to worry about individual companies as much, and 25 basis points is all you're paying. It covers software, telecommunications equipment, and computers, the whole area that is capital spending and exports. You can also buy [the iShares Goldman Sachs Semiconductor ETF, which covers] the cheapest of the industry groups, the best value out there, and the ticker symbol is IGW .

One stock I like is down 50% from July of last year. I guess you can imagine what industry it's in--it's a homebuilding stock. I think homebuilding has been in a bottoming phase for the last four months, [and] we're starting to see a lot of up trends in traffic. But this is Hovnanian, a single-family home and townhouse, condo construction company in the Northeast.

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