Quantitative Potential

10/15/2004 12:00 am EST

Focus:

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

"This is probably the best buying opportunity in my 25 years of publishing my newsletters," says Louis Navellier, who is among the top experts in quantitative analysis. Here, he explains the reasons behind his positive outlook and offers some top stock ideas.

"The stock market is completely disconnected from reality. It’s very easy to find companies with over 100% earnings growth trading at very low p/e ratios. This what they call a GARP strategy growth at a reasonable price. The average stock in our model portfolio at our MPT Review had over 237% earnings growth in the last four quarters, while trading at only 16.3 times next year’s estimated earnings. In my Blue Chip Growth Letter, a third of my stocks are energy stocks natural gas companies, oil refiners, exploration, integrated oils, etc. Our more aggressive Quantum Stocks trading newsletter has a lot of steel companies. There is commodity inflation out there under the surface. Steel prices are very high and steel makers are reaping record profits with low p/e ratios. We also have a lot of lumber companies, which offer phenomenal growth and very low p/e ratios.

"We are literally at the best p/e ratios I expect that I will ever see again. And the reason that the market has been disconnected from reality is that in August, 53% of New Yorkers expected a terrorist attack, particularly with the Republican Convention. But we got through the convention without an attack, and we got through the anniversary of 9-11 without incident. There is a lot of money on the sidelines that will come back in as it is perceived the coast is clear. Meanwhile, we’ve entered a typical election pattern. We expect to rally right up to the election. Usually after the election we ‘stress’ over whom we elected and what could go wrong. But this time around, I think the market will be so relieved if we get through the election without a terrorist incident that I think things will be fine and we will continue to rally.

"We’ve had four quarters in a row with over 20% earnings growth. The next two quarters could see growth of close to 20%. I will admit that earnings momentum has been decelerating. But earnings are still phenomenal. And the market can’t ignore these earnings much longer. We believe the best defense is a strong offense for stocks. The dollar is very weak right now. It appears we are maintaining a weak dollar policy on purpose. This causes windfall profits, especially for the large, multi-national companies. It’s one of the most bullish things I’ve ever seen. Literally 5%-8% of the S&P’s earnings each quarter are derived solely from a weak dollar. So as far as I am concerned, we are in a great era and more people are starting to realize that.

"Here are some of our favorite stocks from our various newsletters. Cummins Engine (CMI NYSE) makes diesel engines. They are building a huge plant in China for diesel power plants. They are growing very quickly over there. The company looks great right now. We also like a lot of oilfield shipping companies. One of our favorites right now is Teekay Shipping (TK NYSE). Even if demand for oil comes under control and prices ebb a bit, there is a shortage of ships. Another one we really like is a tanker company called Knightsbridge Tankers (VLCCF NASDAQ). We love ChevronTexaco (CVX NYSE), obviously a huge refiner, headquartered here in San Francisco. It’s a big integrated oil company. We love the Canadian tar sands companies such as Suncor (SU NYSE), Canadian National Resources (CNQ NYSE), and Imperial Oil (IMO NYSE). Basically, as long as oil stays above $35 a barrel, they are going to be mining more and more of the tar sands. Canada right now produces about 800,000 barrels of oil a day from tar sands and it’s headed to about 3 million barrels a day. These companies will profit immensely. Other favorite stock is Armor Holdings (AH NYSE), which sells armor used by our military troops and for Humvees. We’ve been a net seller of technology stocks, but we love AutoDesk (ADSK NASDAQ) and we love Research in Motion (RIMM NASDAQ). These are two great tech stocks."

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