A Bull on Bear
01/13/2006 12:00 am EST
Although best known for his trading expertise, Chris Johnson is equally adept at uncovering longer-term opportunities. Here, the director of quantitative research forSchaeffer's Investment Research, banks on one investment—investment banker, Bear Stearns.
"My top pick for 2006 is Bear Stearns Co. (BSC NYSE). As 2006 opens, one of the sectors that appears to be positioned to fare well is the financials, including the Broker/Dealer companies in the group. Among this subcategory, Bear Stearns stands out as a potential leader as a result of its current technical, fundamental, and sentiment picture. From a fundamental perspective, BSC has continued to best analysts earnings expectations through 2005 by an average of 12%. Looking forward, the analyst community's expectations for the next two quarters remains very tame as estimates call for a pull back in earnings growth.
"Technically, the company has provided solid performance as it remains in a long-term technical up trend with price activity finding long-term support in place below current levels. On a relative strength basis, the stock has lagged its peers recently as the Broker/dealer has gained strength. Despite this, the company appears to be ready to play catch-up from a technical perspective as its longer-term relative strength compared to the Broker/Dealer Index has just put in a bottom similar to that placed in January 2004.
"Sentiment on the stock remains fairly pessimistic, indicating that sideline money available to move into the stock higher is present. For example, the current short interest ratio for the company is among the highest in the Broker/Dealer group. In addition, the options activity that we monitor continues to reflect bearish sentiment as put trading outpaces calls.
"Finally, the analyst community has been down on the stock as 73% of the analyst tracked have the stock at a hold or lower. This indicates that there is room for the analyst community to upgrade the stock, thus moving more buyers into the issue. Given these points, I believe that BSC is primed to perform as a strong representative in what I believe will be one of the stronger performing sectors for the year 2006."