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Where We Are NOW In Our Stock Market "Script"

By Dr. Steve Sjuggerud
Monday, April 29, 2013

Our stock market "script" is still on track...
 
I've been calling it the "Great Migration"... As regular readers know, it is the idea that Mom and Pop America are about to buy stocks... big time. They can't live on zero-percent interest. Out of necessity, they will migrate away from ultra-low-interest investments (like cash and bonds) and into stocks.
 
And that will kick the market into a major boom phase.
 
Our investing script is a three-act play. We've already made some pretty big gains in "Act I." And I keep looking ahead to "Act II." But we're not there yet... Let me update you on where we are today.
 
Last month, I explained what I think Mom and Pop America will do with their money in the coming years of the "Bernanke Asset Bubble."
 
The "Bernanke Asset Bubble" is shorthand for my long-term thesis that asset prices – namely U.S. stocks and U.S. housing prices – can and will soar to unimaginable heights, thanks to the Fed's commitment to printing money and keeping interest rates at zero for years.
 
The first stocks Mom and Pop America will buy when they migrate out of cash are the big dividend-paying blue chips... big-name stocks like Johnson & Johnson, Pfizer, and Merck. That's Act I.
 
Mom and Pop have stuck with this trade. And so have my True Wealth subscribers. They're up 124% on these stocks through the ProShares Ultra Health Care Fund (RXL). RXL's largest holdings are Johnson & Johnson and Pfizer, each making up over 10% of the fund.
 
We're well into Act I. But I keep looking ahead to Act II and Act III, where Mom and Pop will take on more and more risk. I keep thinking that we must be near the end of this period of "safe" stock-buying, as these stocks have run up a lot.
 
Our script says the next step for Mom and Pop – Act II – will be to take on a bit more risk and buy Big Tech stock names (like Apple). I still believe these stocks will be the next to soar. But that hasn't happened yet.
 
Big Tech stocks are dirt-cheap today. The median forward price-to-earnings (P/E) ratio of the top eight holdings of the Dow Jones Technology stock index is just 11. That's crazy-cheap! And it gives us an enormous upside opportunity when Big Tech stocks finally take off.
 
While I'm personally looking forward to Act II getting underway, we're not there yet... Safe, dividend-paying health care stocks are moving higher while technology stocks are still behind.
 
Once Act II is in full swing, and Mom and Pop see profits on both their big safe names and their Big Tech names, they'll really start to get back into the stock market. Once they start to believe that they can't lose money in stocks, we will move on to Act III in our script...
 
In Act III, Mom and Pop start buying speculative stocks, like emerging markets (such as India and Russia) and small mining companies.
 
Today, the Act III trades are incredibly cheap.
 
Take emerging markets, for example... The table below shows just how cheap the Act III emerging-markets trades are right now...
 
Country
P/E
Dividend Yield
P/Book
Russia
6.8
3.9%
0.7
India
11.2
1.6%
0.7
China
12.7
2.1%
1.9

Based on history, we have a legitimate shot at hundreds-of-percent returns, once these trades get going.
 
But we are NOT in Act III today. These trades – just like gold and commodities stocks – aren't ready for us yet.
 
Mom and Pop are not into Act III yet. They're not into Act II yet. They have not upped their risk tolerance yet. If anything, their risk tolerance has fallen lately. It will happen... But not today.
 
So for now, we need to sit tight on our Act II and Act III trades...
 
In my True Wealth newsletter, we're focusing on our Act I trades. That means safe, dividend-paying stocks, like health care.
 
I strongly believe in the Bernanke Asset Bubble. I strongly believe Mom and Pop America will keep allocating more and more money to the stock market. And I strongly believe we will see another dot-com-style boom in stocks, ending with soaring stock prices in speculative sectors like emerging markets and small mining companies.
 
We are not there yet, though. We are still in Act I.
 
Be patient. Play it smart. Make sure you have money ready for the big boom.
 
I could be wrong, of course... The script could change along the way. But this has been our script for months, and it has been right so far...
 
Good investing,
 
Steve




Further Reading:

Steve believes Mom and Pop America are about to migrate out of cash and bonds and into stocks. That will lead to a dot-com-style boom in stocks. Last month, he showed readers how it would all play out. Get the details here: Your Investing Script for the Next Two Years.
 
Last year, Steve showed DailyWealth readers how to get shares of Big Tech companies – like Cisco, Apple, Microsoft, and Google – for free. "It's absolutely crazy... but true," he writes. Get the full story here: How to Get Cisco for Free.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Eli Lilly (LLY)... Big Pharma
Johnson & Johnson (JNJ)... Big Pharma
Pfizer (PFE)... Big Pharma
Merck (MRK)... Big Pharma
Bristol-Myers Squibb (BMY)... Big Pharma
Gilead Sciences (GILD)... biotech
Walgreens (WAG)... drugstores
Rite Aid (RAD)... drugstores
CVS Caremark (CVS)... drugstores
Procter & Gamble (PG)... household goods
Wal-Mart (WMT)... retail giant
Target (TGT)... retailer
Coca-Cola (KO)... beverage giant
Pepsico (PEP)... food and beverage
Kohlberg Kravis Roberts (KKR)... private equity
Berkshire Hathaway (BRK)... Warren Buffett's holding company
American International Group (AIG)... insurance
Automatic Data Processing (ADP)... payroll processing
Discover Financial Services (DFS)... credit cards
General Motors (GM)... car manufacturer
Home Depot (HD)... home improvement
First Solar (FSLR)... solar energy
Verizon Communications (VZ)... telecom
AT&T (T)... telecom
Walt Disney (DIS)... media and entertainment
Netflix (NFLX)... movie rentals
Southwest Airlines (LUV)... airline
Yahoo (YHOO)... search engine
Microsoft (MSFT)... software giant
Texas Instruments (TXN)... semiconductors
Hershey (HSY)... chocolate bars

NEW LOWS OF NOTE LAST WEEK
 
First Majestic Silver (AG)... silver mining
Newmont Mining (NEM)... gold mining
Teck Resources (TCK)... diversified mining
Cliffs Natural Resources (CLF)... iron ore mining
Peabody Energy (BTU)... coal mining
United States Steel (X)... steel mining
Devon Energy (DVN)... oil and gas

premium teaser

Another way to play the health care megatrend...
 
Dave Eifrig is a big fan of buying into the corner drug store...
 

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