Inside Wall Street: Some Calm Investing Advice for Turbulent Times

Gene Marcial's Inside Wall Street
Gene Marcial's Inside Wall Street

These are times that test an investor's mettle. After stocks' calamitous performance in May, no wonder disparate forecasts and commentaries have mushroomed, probably further confusing matters. After all, investors naturally become hungry for guidance whenever the market pulls a nasty surprise and goes into wild and frenzied gyrations.

So it's encouraging to see that some big Wall Street firms have come out with clear and straightforward advice on strategies for dealing with the markets now.

Upbeat About the Depressed Market

One of them is Goldman Sachs, a Wall Street name that isn't exactly known so much these days as an investor-friendly stockbroker. But since the giant investment bank has historically been very secretive, it's refreshing for their portfolio strategists to provide their views and recommendations about the markets now under siege.

The strategists at Goldman are upbeat and view the depressed market as an opportunity to jump in and take advantage of reasonable bargains. Despite the market's worst performance in May in almost 50 years, the Goldman team dared to raise its earnings-per-share estimate for the Standard & Poor's 500-stock index. For 2010 and 2011, Goldman boosted its earnings forecast to $78 and $93, respectively, from 2009's $57.

The bottom line: The Goldman strategists forecast the S&P 500 climbing to 1,160 in three months and to 1,250 by year-end. As of June 3, the S&P 500 stands at 1,102. Members of the Goldman team are David J. Kostin, Stuart Kaiser, Amanda Sneider and Yi Zhang. "Domestic macro data remains positive," says the group in a Portfolio Strategy Report dated June 1.

Cautiously Optimistic

Standard & Poor's is another besieged Wall Street institution with advice worth listening to. With one of its businesses being a major credit-rating agency, it's under fire for its role in the mortgage-backed securities meltdown that precipitated the financial crisis. But the other side of S&P is its equity research business, which despite the credit-rating unit's current travails has opinions about equities that investors still hold in high regard.

At S&P, the overall sentiment is one of cautious optimism. Its Investment Policy Committee, led by chief investment strategist Sam Stovall, sees the equity markets testing investors' resolve, given the uncertainty over financial regulatory reform, tensions in Asia and recession worries. Says the committee: "We still believe this market correction will not become a bear market as, unlike 2008, the world is emerging from a recession, not heading into it." The committee notes that the "S&P 500 EPS growth estimates remain steadfast."

Commenting on the market's technical outlook, the committee believes the "downside momentum will start to abate, as the market begins to recover over the near term." It argues that the market is now out of danger in the short term, but the committee acknowledges that "the intermediate-to-longer-term outlook remains unclear due to the damage done to many domestic and international equity charts."

GARP Picks From Goldman

Back at Goldman Sachs, its portfolio strategists have selected nine value and growth stocks that they think deserve investor attention.

Among growth stocks that they figure are currently priced right -- commonly referred to as GARP stocks -- the Goldman team picks Broadcom (BRCM) among the semiconductors, currently trading at $35 a share; biotech giant Amgen (AMGN), now at $55; and Consolidated Energy (CNX) currently at $36.

Their three other growth-stock picks are Nucor (NUE, the largest minimill steelmaker in the U.S.), now at $42 a share; Wynn Resorts (WYNN), a hotel and casino operator in Las Vegas and Macau, trading at $84; and Hewlett-Packard (HPQ), the leading maker of computer products, printers and servers, priced at $47.

Among value stocks, the Goldman team picks specialized REIT (real estate investment trust) HCP, currently selling at $31 a share; Hospira (HSP), a major provider of hospital equipment, at $52; and computer and electronics retailer RadioShack.(RSH), now trading at $22.

The Goldman team also lists stocks that it finds unattractive in the current environment. They are oil-and-gas refiner Valero Energy (VLO) now trading at $18 a share; giant apparel retailer Gap (GPS); and chocolate maker Hershey (HSY), currently priced at $49.

Clearly, Goldman's shopping list constitutes a signal that the giant Wall Street house is pretty positive on info tech, energy, semiconductors and biotech. That's quite an informative guide for investors seeking some direction in this depressed and still volatile stock market.