Bullish Bets: Acampora and Battipaglia

11/01/2002 12:00 am EST

Focus:

Ralph Acampora

Director of Technical Studies, New York Institute of Finance

Ralph Acampora, director of technical research at Prudential Securities, is one of the market's top technicians. Joe Battipaglia, chief investment officer for Ryan, Beck & Co., is among the most popular fundamental analysts. Despite their different approaches, both believe we may be entering a new bull market period. In a special panel at The New York Money Show, the two share their outlooks and top stock picks.

“Have we made a bottom?” asks Ralph Acampora. “Based on technical indicators it now appears that the S&P 500 is indeed bottoming, and I had not been able to say that for two-and-a-half years. We are starting to see a move back into large-cap stocks. I think that’s a sign of confidence. Technically, I think the luster is coming off gold a little, which suggests that perhaps people are feeling a little better about equities. Crude oil prices have been rolling over, which suggests that the geo-political problems, at least for a while, are not a concern. I also think the bond market has had its move, and some of this money is going into equities. Looking into 2003, I think we will be a lot happier. Technically, I can’t say the NASDAQ mirrors the larger cap indexes. It may play catch-up, but it will take some time to correct the damage.

“In coming years, I anticipate cyclical bull markets that will last for one to one-and-a-half years at a time, rather than secular bull markets. I don’t think we will see periods where stocks will rise for five years. In this environment, investors should not be indexing anymore. We should be looking for total rates of return, including dividends. But I think the index funds have had their day. We have been looking to buy some of the fallen angels, like American Telephone (T NYSE), Qualcomm (QCOM NASDAQ), and AOL-Time Warner (AOL NYSE). We also like the biotechnology sector, including Amgen (AMGN NASDAQ) and Chiron (CHIR NASDAQ). In addition, Genzyme (GENZ NASDAQ) looks very good to me. Finally, I’d look at the big pharmaceuticals. Abbott Labs (ABT NYSE) looks very, very interesting. Indeed, that would be my first pick.”

Joe Battipaglia adds, “During the bear market, we dealt with many things, ranging from terrorism to corporate corruption. The last shoe to drop was expectations for corporate earnings. Investors had felt that we would come flying out of this bear market with double-digit growth in earnings. And that’s why with each attempt at a big rally, we gained no traction and slipped back down. But the good news now is that expectations have been significantly reduced and eliminated in many cases. So now corporate earnings are well-aligned with expectations. I believe we have hit a bottom and can build off of this well into next year.

“The important thing here is earnings and the progression of those earnings. If you take the S&P earnings and invert it, you have the earnings yield and you can compare it to the ten-year interest rate yield. We now have one of the widest spreads between the two. You can now earn on the order of 260 basis points more on the earnings yield on the S&P 500 than on the ten-year Treasury. The last time we saw that was in 1982, which was the start of something big for the equity markets. The last time we saw it the other way was the first quarter of 2000, which suggested moving out of equities and into the bond market. So we are at that inflection point again. The fuel for the fire is that earnings expectations have to start rising as you come out of the trough in the economy. In my opinion, equities are now the place to be.

“We like some stocks in the healthcare sector, including Genentech (DNA NYSE), Millennium Pharmaceuticals (MLNM NASDAQ), and King Pharmaceuticals (KG NYSE). In the financial services area, we like North Fork Bank (NFB NYSE), Sovereign (SOV NYSE), as well as Charles Schwab (SCH NYSE), which is not suffering from the investment banking problems that are hurting many other brokerage firms. We also like Weingarten Realty (WRI NYSE), in the REIT arena. The stock has been a consistent performer with a high return to investors. Weingarten is a good substitute investment for a bond portfolio.

“In the technology area, we like Rational Software (RATL NASDAQ) and Drexler Technologies (DRXR NASDAQ). On the PC side, Microsoft (MSFT NASDAQ), Dell (DELL NASDAQ), and Intel (INTC NASDAQ) have proven that if you can manage your way through a difficult environment, pick up market share, and continue to innovate, you can be positioned for the next run in the economy. Yes, technology is cyclical, but we believe it is time to start playing this cycle. I think the PC cycle is in our favor right now.”

Related Articles on