HUDSON: A year ago I described tonight’s “Market Monitor” as quote, a bull, plain and simple. And even as the stock market trades near five-year highs tonight, she is even more optimistic about higher stock prices today. Elaine Garzarelli back with us, president of Garzarelli Capital. Elaine, always great to see you and happy New Year.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to see you.
HUDSON: A bull plain and simple a year ago, more optimistic today. Are you more optimistic than a year ago and why?
GARZARELLI: Well, I have 13 indicators in the stock market and they’re at 82 percent. Anything below 30 percent would be a major sell signal or a bear market signal and below 42 percent would be a correction of 10 to 15 percent. So that’s a very, very high level and the indicators include monetary policy, economic cycles, sentiment and valuation. The valuation indicator is very bullish, suggesting a 10 to 15 percent gain in the market over the next year.
HUDSON: Let’s talk about that valuation part of the market here, because we’re seeing the valuation with a background of really kind of tepid economic growth. How do you square those two?
GARZARELLI: Well, we see economic growth of 2 percent this year. The earnings gain will be modest. It will only be 5 to 6 percent per the S&P 500 operating earnings. That’s a level of about 105. So give that a conservative P/E ratio of 15 to 16 times and that gives us our 10 to 15 percent gain for the overall market. But if you get in the right sectors, your gain could be twice that much.
HUDSON: And you brought those along as fate may have it, consumer discretionary being one of those sectors as illustrated by XLY ticker symbol exchange-traded fund. It’s up near a 52-week high tonight, but you see more gains.
GARZARELLI: I do. The reason is because consumer confidence has turned up and we have lower oil prices and housing is doing very, very well. So this should bode well for this particular ETF and some of the stock markets in there would be Home Depot (NYSE:HD), related to housing, Disney (NYSE:DIS) and Ford.
HUDSON: All certainly household names. You like semiconductors in the technology space, SOXX. We’ve had a tough time over the past 12 months as folks have looked at the traditional computer market thinking that it is going lower while the big movement towards smart phones and tablets continue.
GARZARELLI: Well, we think there’s a turnaround in technology this year. As a matter of fact, we have technology growing three times more than real GDP this year. So with the uncertainty of the fiscal cliff over, we see a real turnaround there and semiconductors are the most leveraged high data area of technology group. There we like Broadcom (NASDAQ:BRCM), Taiwan Semiconductor, Texas Instruments (NYSE:TXN) and Intel (NASDAQ:INTC). And that group is down 10 percent from its peak last year. It’s very, very good value.
HUDSON: A bit of Valuation. You also like telecommunications equipment and the telecom sector has gotten off to a pretty rough start here at the beginning of the year. What do you anticipate in the year ahead?
GARZARELLI:That’s why we love it. Underperformed last year, down from its peak last year, extremely cheap and there we like the IGN Ishares and there we have Qualcomm (NASDAQ:QCOM), Cisco (NASDAQ:CSCO) and Juniper Networks (NYSE:JNPR).
HUDSON: Finally believe it or not, it has been a year ago since we spoke. You were a bull then; you’re a bull now. You liked three sectors of the market, small caps, the Russell 2000, up 14 percent, technology up 13.5 and industrials up 10 percent. You still like these sectors at all?
GARZARELLI: Yes, I do.
HUDSON: Would you put new money to work even though we’ve seen those double digit gains from a year ago?
GARZARELLI: I would, especially in the IWM, which is a small cap composite, reached an all-time high actually a couple weeks ago and still love that sector.
HUDSON: Are you a hundred percent invested in stocks at this point?
GARZARELLI: For my sector analysis fund, I am a hundred percent invested in stocks.
HUDSON: The funds we mentioned tonight, do you have positions in those?
GARZARELLI: I have positions in all—everything I mentioned tonight in the sector analysis fund, yes, I do.
HUDSON: Eating your own cooking here, the brand new year ahead of us, Elaine Garzarelli back with us, president of Garzarelli Capital.
GARZARELLI: Thank you Tom.