Stocks, Bonds, & "Bottom-Fishing"

12/26/2003 12:00 am EST

Focus:

John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger is always fascinating to read. His well-known Bollinger Bands are a standard tool in every technician's arsenal. His technical expertise is equally matched by his common sense, fundamentals. Here's a sampling of his advice, and some year-end "bottom-fishing" plays.

"Inflation is a highly unpopular topic but it is an important one, perhaps even an urgent one. Inflation will be the next disaster to hit the Boomers as they lurch punch-drunk into retirement. Indeed, the Boomers face a hellacious road. The market has returned nothing since 1998, a period in which most Boomers' assumptions were that their accounts would double. Many have sought solace in real estate; often confusing their domiciles with investments. Others have sought solace in the bond market where they already received the first shot across the bow- the low in bond/note rates is six months behind us and that low may prove to be a multi-generational low. To sum up the case; the Boomers are facing a tough time.

"The most interesting thing about the bond market is how little discussion there is of the train wreck that it is likely to become. There are plenty of early warning signs of inflation; yes, there are many factors that argue against inflation, but the argument in favor is steadily building steam. Natural gas ran from $5.00 to $7.00 without so much as a hiccup. That burst of strength was accompanied by a new high in crude oil, heating oil, and unleaded gasoline. In short, energy prices are on the move. Everywhere you look there is confirmation of quickening inflation and prices are starting to poke their heads out of the bunker. Commodity prices continue to grind relentlessly higher and just about the most unpopular thing you can do on Wall Street these days is to point out that fact. It seems that no one, and I do mean no one, wants to consider the idea of inflation.

"As for stocks, we have extensively covered the transition from an expansion phase (secular bull market) to a consolidation phase (sideways market). We are now five years into that consolidation with no end in sight. Bull markets typically emerge from p/e ratios of five, six, or seven, not 25 or 30. And bull markets emerge at a time when no one cares, not at a time when everyone is engaged. To reiterate our conclusions: We are in a long-term consolidation pattern that will last for many years. Within that pattern we will see a series of cyclical bull-and-bear-markets, each of which will present opportunities for the knowledgeable speculator. We are currently in a cyclical bull market that will likely carry well into next year. Strategy and timing in this environment are of paramount importance. We are in an environment in which buy-and-hold will return little if anything.

"To bounce or not to bounce? The bottom line is that we think not. It seems better to focus on the leadership at present than to try the annual bottom fishing exercise. However, for those of you so inclined we have prepared the following list. We started with 8,088 stocks. On the first pass we selected those in the bottom 20% of their annual range, 1,250 stocks. Next we required volume to be greater than 50,000 shares a day, leaving 312 stocks. Next we wanted stocks with good prospects so we eliminated all those with less than a 20% long-term growth forecast, 35 stocks. Finally we wanted stocks that were at least breaking even, that brought us to 13 stocks:

Advisory Board (ABCO NASDAQ)
Boston Communications (BCGI NASDAQ)
Biosite (BSTE NASDAQ)
Biovail (BVF NYSE)
Curative Health (CURE NASDAQ)
Enzon Pharmaceuticals (ENZN NASDAQ)
EPIQ Systems (EPIQ NASDAQ)
Healthtronics (HTRN NASDAQ)
Whitehall Jewelers (JWL NYSE)
Kohls Corp. (KSS NYSE)
Osteotech (OSTE NASDAQ)
Pharmaceutical Product Development (PPDI NASDAQ)
Surmodics (SRDX NASDAQ)

John Bollinger will be teaching Volatility for Traders: Learn About "The Squeeze" and "Walking the Bands" with John Bollinger at The World Money Show in Orlando, Florida, February 3, 2004. Tickets are $295.00 through January 22, $395.00 afterwards. Click here   for more information or to purchase tickets.

 

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