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5 Strong Large Caps for a Bumpy Summer

07/13/2011 3:00 pm EST


Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

The dollar weakness and summer doldrums will play right into the hands of the large-cap multinationals that can maximize its profits on strengthening foreign currencies, says Louis Navellier of Blue Chip Growth in this exclusive interview with

You had a great year. But how is your emphasis changing in the market?

Well, I think the market has a flight to quality underway. That’s why our stocks have woken up, because Wall Street is obsessed with earnings and who’s winning in the economic recovery.

But as any bull market ages, it starts to chase fewer stocks, so good stock pickers, like me, start to stand out. So, that’s really all that’s happening is the crème de la crème is rallying right now, and we’re being rewarded for that. So, we really didn’t do anything different. It’s just kind of the market came our way.

There’s been a significant outperformance in the small-cap stocks. Do you expect that to continue?

It’s going to slow down for two reasons. One is between November and April you get all the pension funding, you have year-end pension funding, plus pension funding in the new year, so a lot of melt up, because of all the money coming into the market.

Now we’re in the summer months where it’s going to get bumpier. We don’t have the pension funding, and the dollar has been very weak. A weak dollar naturally creates windfall profits for large international companies. So, there seems to be a shift to that direction at this moment.

So you expect the larger-cap stocks to outperform the smaller caps.

Absolutely, because of the incredible currency tailwind that’s underway. If I’m a multinational, I get paid in Brazilian real or South Korean won, or Australian dollars, or Chilean peso.

That tends up being manna from heaven. Okay, because I’m probably making 15% to 16% more than I planned to, because all those currencies are appreciating against the US dollar dramatically.

The dollar had a brief rally after Osama bin Laden was killed, so the dollar got it’s mojo back just for a brief period, and we had a little commodity crunch. But now that things are settling down, the dollar is weakening again.

We’re the only country that won’t raise rates…So, the Fed is all by itself saying that inflation is transitory and is a fleeting thing. As everybody raises rates, those currencies strengthen.

What about the selloff in commodities, particularly oil. You’ve had a lot of great stocks in the oil and oil-services area in energy. Is this transitory?

It is transitory. Most of our oil bets are refining. They make money between the spread between heavy to sweet crude, and the spread is wide.

We do have companies that do the fracking, you know, like CARBO Ceramics (CRR); or OYO Geospace (OYOG), which figures out to where all the oil is in the seismic surveys. These are very healthy companies with big order backlogs, so they’re going to be fine regardless of the price of oil. Of course, some of them are also profiting from the fracking for natural gas.

Still like National Oilwell Varco (NOV)?

It’s okay. It’s alright. It ranks high in our system, but I don’t have it under management. It’s not in the newsletters right now.

I see. Any other energy? What about precious metals and other inflation hedges? Should we stick with those?

Well, I guess our most controversial pick is Silver Wheaton (SLW), which has had record earnings. Of course, they sell silver on long-term contracts, not the spot prices. So, I think it’s a good buy right now.

Of course, what happened to silver, they raised the margin requirements twice, and they had a mini crunch. As far as Silver Wheaton’s underlying sales earnings, they remain incredible, and these are long-term contracts. So, as they do new contracts, they sit at higher prices, but they don’t profit from the highest spot prices.

We have Allied Nevada Gold (ANV) which is a little gold company that might get acquired. I think the energy stocks are fine. Our favorite one there would be probably Marathon Oil (MRO).

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