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Stocks Bear Market Has not Bottomed But Some Stocks Worth Buying

Stock-Markets / Stocks Bear Market Mar 17, 2009 - 10:09 AM GMT

By: MoneyWeek


Best Financial Markets Analysis ArticleThe FTSE 100 rose sharply yesterday, buoyed up by increased optimism on the banking sector.

And quite a few high profile names have been saying it's time to buy. Anthony Bolton has been calling the bottom (though not for the first time), while famously bearish US fund manager Jeremy Grantham has become increasingly upbeat on stocks in recent months.

So is it time to throw your cares aside and pile in?

High profile investors are calling the bottom

You expect City people (like any other salesperson) to talk their books. So most of the time you can take fund managers' comments on the market with a big heap of salt, particularly if they sound optimistic.

But recently, increasing numbers of very respectable people with good track records have been arguing that shares are cheap.

Anthony Bolton, arguably Britain 's answer to Warren Buffett, said last week that it's time to get back into the market. Now Bolton 's taken a bit of gentle flack in the papers because he already made that call during the previous big slump in November. But sticking your head above the parapet is never easy, and it's not as if he's been relentlessly bullish all the way down.

More to the point, Bolton 's not the only one. Jeremy Grantham, a US fund manager who was among those warning about the credit bubble well before it popped, has now turned – well, bullish is the only word to describe it. He says investors should have a game plan for getting back in the market, so that they don't become paralysed with fear. Grantham reckons the S&P 500 is worth about 900 at "fair value". And "global equities are even cheaper."

Meanwhile, James Montier at Societe Generale, another highly respected bear and value investor, says he is now seeing some "truly incredible opportunities" in the market ( read more on Montier's take here ).

Stocks are cheap, but they have further to fall

However, it's not as straightforward as simply jumping right in indiscriminately. As Grantham puts it, he reckons there's also "still a 50/50 chance of crossing 600 on the S&P 500". The reason he's turning more bullish now (and the same goes for Montier) is because he believes stocks are cheap, rather than that they won't fall any further. "Remember that you will never catch the low," he says. "Sensible value-based investors will always sell too early in bubbles and buy too early in busts."

And John Mauldin, another very sharp US investor, reckons the market has a good way further to fall (and if the US market goes lower, you can be sure we will too). "If you have a ten-year time horizon you can probably buy here and do OK. But I wouldn't." He argues that investors are still under-estimating how bad earnings will be over the next couple of quarters. "The economy is simply weak, and that weakness is hitting more and more companies… We could see a real bear market rally lure investors back in, just to crush their hopes this summer."

I'm inclined to agree - there are simply still too many things that can go wrong. And although sentiment is a very hard thing to judge, I still don't feel that we've had that cataclysmic clear-out where everyone who has any intention of selling, actually does so. I am not a technical analyst by any manner of means, but I'd be surprised if we don't at least challenge the tech bust low (around 3,280) before this is out.

There are some investment opportunities - if you choose carefully

So as we've said before, we wouldn't be keen to buy a FTSE 100 tracker here. But that's not to say that there aren't investment opportunities, so long as you're willing to pick and choose. And you don't have to take my word for it – the participants at this month's Roundtable discussion, which you can read in Friday's issue of MoneyWeek (if you're not a subscriber, were a lot more upbeat than I've seen in a while.

That's not to say that anyone was ragingly optimistic, or trying to pretend that all our problems are solved. Far from it – one compared the UK to Argentina (unfavourably) and fears over the level of government intervention in the economy are high.

But assuming that this isn't the end for capitalism (and I doubt very much that it is) then there's no doubt that some stocks – nice, safe ones with decent yields - look cheap now. I mentioned a few I like in Money Morning last week ( Investing is easy - just avoid all these sectors ) - and you can read our experts' tips in the next issue.

By John Stepek for Money Morning , the free daily investment email from MoneyWeek magazine .

© 2009 Copyright Money Week - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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