Abby Cohen Says S&P 500 Undervalued
By Jim Loney
Thursday March 15 9:32 PM ET
MIAMI (Reuters) - Goldman Sachs stock market guru Abby Joseph Cohen, one of the
bulls who drove the record U.S. stock market surge during the last decade, said on
Thursday that the S&P 500 is undervalued and technology and telecoms should be
overweighted in investors' portfolios.
A week after telling clients to buy more stocks, Cohen said the U.S. economy is strong
and reiterated her belief that the S&P, which closed on Thursday at 1,174, will hit 1,650
by year-end.
She said the Dow Jones Industrial Average, now at 10,031, will likely reach 13,000 by
the end of 2001. Goldman Sachs does not forecast the tech-laden Nasdaq Composite
Index.
``We believe the worst economic news is most likely happening right now,'' she told a
group of about 400 business executives at a dinner sponsored by the Miami Bond Club
and Miami Society of Financial Analysts.
``Today the S&P 500, while it was overvalued a year ago, is now undervalued,'' she
said.
On March 7, Cohen, chief investment strategist at Goldman Sachs, raised the equity
allocation in the bank's model portfolio to 70 percent from 65 percent and reduced the
cash position from 5 percent to zero.
The fixed income component was left at 27 percent with a 3 percent allocation to
commodities.
Cohen, who is often identified with the long U.S. bull market of the 1990s, painted a
brighter picture for U.S. stocks over the next 9-12 months.
``We are in the midst of the most structurally sound economy that the United States has
ever seen and most likely the most structurally sound economy the world has ever seen,''
she said.
The current slump was caused in part by rising energy prices, miserable winter weather
that kept consumers at home and out of shopping malls, and the ``CNN effect'' of the
protracted presidential election, when buyers were glued to their television sets.
``During a newsworthy event people stay at home and consumption declines,'' she said,
citing trends seen during the Persian Gulf War (news - web sites) and the O.J. Simpson
trial.
Cohen called the U.S. downturn a ``cyclical weakness.'' She said disparities in relative
price/earnings ratios have been reduced and future problems have been priced into
technology and telecoms stocks.
``We have now returned to an overweight in tech and telecoms,'' she said.
The Goldman Sachs model portfolio currently has a 32 percent weight in the two sectors
-- 27 percent in technology and 5 percent in telecoms.
Corporate profits are likely to return to close to trend growth rates later this year, she
said, estimating sustainable S&P profit growth of 7-8 percent in the second half of 2001
and gross domestic product growth of around 2.5-3 percent for the same period.
Cohen said Goldman Sachs analysts were more worried about the global economy than
the U.S. economy, citing Japan as the most obvious concern. She said there was no
sign that capital was flowing out of the United States to other markets.
``Many other nations are facing structural difficulties that they have not yet figured out
how to handle,'' she said. |
