Very good earnings continue to flow from smaller companies. This is a great sign that the economic recovery is real and not just due to growth in other regions of the globe. The stock market in my view is getting very close to being fully valued, with all the good news factored into valuations. Most companies that reported solid earnings have share prices trading right around new 52-week highs. This makes life more difficult for investors looking to take on new positions.
There isn’t a lot of value in the marketplace at this time, and we need a correction to provide a more attractive entry point for new positions. I would still be long, however, as investor sentiment seems strong enough to keep the market ticking higher.
The one group that continues to be in the doldrums consists of U.S.-listed Chinese shares. There are a lot of great values in this sector, but they remain highly speculative obviously. Institutional investors have been avoiding this sector for the most part on concerns about accounting standards. In response, a number of these Chinese companies are changing their auditors to the big, brand-name firms that global investors recognize. As I say, the lack of interest in this sector has created some excellent values for investors and I would be buying some of these stocks in this market.
The other group that’s been an excellent performer for speculators is mining stocks. But because precious metal prices are now trading close to their highs, as are most of the good stocks within this group. This means that there isn’t a lot of value for investors at this particular time.
So, other than being long the market, there isn’t a lot of action I would take right now. In equities, everything’s already gone up and the returns going forward are incremental. If there was a significant correction (which would actually be a healthy development and I do expect to happen), I would definitely be a new buyer of mining shares. The cash if flowing like mad in this industry and we’re going to see all kinds of takeovers and mergers this year. In fact, it’s already going on.
A number of professional investors like the healthcare sector and I agree with that view. There have been quite a few new listings on the stock market from biotechnology companies, and speculators can be looking here as well. Given the current state of things, however, there’s no big need to be a new buyer of stocks. Share prices now are becoming stretched.