1998 Outlook.
FWIW, here's my predictions for the new year. There's no guarantees, so don't bet the ranch or anything.
1. Electric Utilities will be hot (on a risk/reward basis), with total returns of 20-35%.
Over the next few years, industry consolidation and deregulation will unlock tremendous shareholder value and generate tangible savings to customers. The coming wave in utilities will be similar to what's happened to banking and telecommunications, but of much greater magnitude. Look for utilities with strong management, large economies of scale, aggressive strategies, strong cash flow, and minimal nuclear exposure.
2. Internet stocks will be one of the hottest sectors of 1998.
Microsoft's purchase of HotMail (and its 9 million email accounts) for a rumored $400 million in stock is a powerful sign of the value being created on the Internet. Internet ad growth should at least double (1997's ad revenue was triple 1996's), driving valuations in the search engine companies. As bandwidth inevitably increases due to 56K, xDSL, cable modems, ISDN, or whatever, Internet companies look better and better.
3. The Nikkei, surprising almost everyone, will surge to 20,000.
Japan's Nikkei is very close to the bottom now, and Goldman Sachs' recent deal to purchasing Japanese loans will prove to be extremely prescient. Reforms and increased disclosure will do much to address Japan's financial ills. Moreover, Japan's central bank will finally wise up and increase the money supply, lifting the economy out of its multi-year malaise; this would help Southeast Asia, too.
4. Secondary stocks will have a very good 1st quarter.
Year-end tax selling and window-dressing pressures are now over, and many quality NASDAQ midcaps/smallcaps are oversold. Fund managers will be looking at tantalizing bargains as we enter 1998, and strong fund inflows will provide a nice boost.
5. The Dow will reach 10,000.
Overall market reaction over the last few months to SE Asian events has demonstrated that the U.S. is relatively resilient. Low interest rates, low inflation, strong fund inflows, strength in Japan, and stabilization in SE Asia should provide a sunny market environment.
6. My favorite company for 1998 is Checkpoint Software (CHKPF).
It appears to have outstanding growth potential, dominant market share in Internet firewalls (42+ %), superb net margins (50+ %), cutting-edge technology, smart management, and a spotless balance sheet. The future of corporate intranets, Internet commerce, and corporate websites are the fundamental underpinnings for Checkpoint's outlook.
Recent earnings - checkpoint.com
Management - checkpoint.com
Sequential results - mgfs.com
Philip
Disclaimer: Invest at your own risk. Information provided for discussion purposes only and not to be construed as investment advice. Do your own research. Information not guaranteed to be accurate. |
