Going for the gold
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The Globe & Mail Newspaper
The markets have stumbled in 2005, paving the way for defensive strategies. While the streets may not be paved with gold, in the view of George Vasic, strategist & chief economist at UBS, the yellow metal offers better prospects, in a lower growth environment. Relative to the S&P/TSX composite index, the gold sector's "best performance is when the market is up small, or down," Mr. Vasic told Report On Business Television. From 1970 to 2004, the gold stocks have gained an additional 6.3 per cent annually compared with the S&P/TSX, when the composite has made single digit gains. Mr. Vasic also noted the price of gold has been "tracing an almost perfectly negative correlation to the U.S. dollar," with interest rates and supply and demand issues playing second fiddle. UBS also expects the U.S. dollar to continue its decline, as net private capital flows are not big enough to support the current account deficit. Add to this the recent pull back in gold stocks and there are "a number of attractive characteristics at the moment", Mr. Vasic said. Aaron Sobeski (Mr. Sobeski is an associate producer at Report on Business Television.) Whither the January effect? Market watchers usually tout the first month of the year as the big one for inflows of investor cash in the runup to registered retirement savings plan and tax time. But even Art Hogan concedes the January effect seems to be a washout so far this year. "It's off significantly from historic levels," said Mr. Hogan, chief market strategist at Jefferies & Co. in Boston. The strategist told Report On Business Television's Jim O'Connell that U.S. investors are sitting on the sidelines so far this year because of the weak greenback and continuing worries about high energy prices cutting into corporate profit margins and growth. But Mr. Hogan said an even bigger shadow lurking in investors' minds is the prospect of a slowdown in earnings growth. He said "2005 over 2004 is going to see significant earnings deceleration," noting most forecasters are pegging 2005 earnings growth at just 10 per cent, compared with the 14-to-15 per cent likely for all of 2004 once final fourth-quarter financial results trickle in soon. But Mr. Hogan is calling for stocks to bounce back in the second quarter once all the Wall Street money wags realize that U.S. equities are deeply oversold and undervalued from this January sell-off we're now experiencing. Although the chill is in for tech stocks (the Nasdaq is down 7.7 per cent so far in 2005, compared with a drop of around 3.8 per cent for the Dow and 4 per cent for the S&P 500) Mr. Hogan's firm has just slapped a "buy" rating on eBay (EBAY-Nasdaq). They've upgraded it from "hold" because the trouncing it's just suffered after missing forecasts makes it attractively cheap. Plus, Mr. Hogan personally sees a good long-term outlook in the fact that the on-line auctioneer is upping its research and development spending in a big way. The stock fell $3.68 (U.S.) to $82.37 Monday on the Nasdaq Stock Market. Turns out Mr. Hogan is also a bit of a gambling man: his hot pick is Las Vegas Sands (LVS-NYSE), one of only four gaming firms operating in the Chinese territory of Macau. The stock has tanked since its Dec. 22 IPO, but Jefferies & Co. sees only dollar signs in the world's fastest-growing population of gamblers. It just initiated coverage of the stock with a "buy" rating and a $51 12-month price target. Las Vegas Sands fell closed at $42.25 on the New York Stock Exchange Tuesday. - Christine Wong (Christine Wong is associate producer at Report on Business Television.)
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