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The Oxford Club: The Best Place to Be in 2008?
by Alexander Green, Chairman, Investment U;
Investment Director, The Oxford Club
Wednesday, January 2, 2008: Issue #747
2007 was another good year for The Oxford Club.
We closed out 14 positions in our Oxford Trading Portfolio. Some of those stocks we held for just a few weeks, others we held for over a year. But the bottom line was pretty darn positive. Our average realized gain was 72.06%.
Of course, there are still dozens of recommendations we haven’t sold. In fact, exclude all the profits we took and our remaining stocks still more than quadrupled the S&P 500 in 2007.
The December edition of the independent Hulbert Financial Digest just reviewed our Oxford Club Communiqué again. The bottom line? “This service is currently in 5th place for risk-adjusted performance over the trailing five years among the newsletters the HFD tracks.” (And there are a couple hundred of them.)
But that’s last year. Now we’re gearing up for 2008.
A 2008 Economic Outlook from the Oxford Club
Unfortunately, I don’t expect an easy ride. As I point out in the January issue of the Communiqué, the residential real estate market is weighing heavily on the U.S. economy.
Why? The housing slump is dampening consumer confidence and, ultimately, spending. The refinancing game is over. That removes another source of consumer spending. Finally, rising defaults are deepening the problems in world credit markets.
For all these reasons, I believe 2008 is going to be a year to tread lightly. That doesn’t mean you should sell your stocks – or stop buying them. But it is a time for caution.
Specifically, I believe three things are likely to happen in the stock market this year:
1. Safer, large-cap stocks will outperform more aggressive small-cap stocks.
2. Reliable dividend-paying stocks will beat non-dividend paying growth stocks. And…
3. Sectors that have already been battered down in anticipation of problems in real estate and banking will generate big returns with little risk.
Tap Into Oxford Club Recommendations in 2008 with this ETF
We kicked off the year by highlighting a great money center bank in the January Forecast Issue of the Communiqué. It’s big, it’s profitable and it’s plenty cheap. The bank’s shares have lost over a third of their value since mid-April. This is true even though revenue is still rising, operating margins are 43% and the dividend yield is now a mouthwatering 6.6%.
Some investors may wonder if a fat, rising dividend is really all that important?
Indeed, it is. As my friend and Investment U colleague Mark Skousen writes in his new book “Investing In One Lesson”:
“Studies show that not only do dividend stocks outperform non-dividend stocks, but they do so with less volatility. That’s the nature of large-cap stocks that pay dividends. By investing in these stable companies, you completely avoid the high-risk ventures of aggressive growth stocks, such as the tech bubble of the late
1990s. You avoid the Enrons or eToys of the future.”
Growth stocks do sometimes outperform dividend-paying stocks for months (and occasionally years) at a time. But, in the long run, value stocks generally win out.
And this is one terrific value. At current levels, the bank sells for just 8 times earnings and only 1.1 times book value.
In fairness to our paying members, we can’t give away any more details. But the sector as a whole has “value” written all over it. And the Regional Bank HOLDRs (AMEX: RKH) ETF is one way to catch the upside.
Good Investing,
Alex
Today’s Investment U Crib Sheet
Here’s more from The Oxford Club’s Annual Forecast Issue – 4 reasons to be optimistic this year…
1. Expect More Rate Cutting Ahead. There’s still plenty of room for the Fed – which is fighting both recession and, more importantly, the possibility of a deflationary spiral – to further lower rates to stimulate the economy. Never fight the Fed.
2. Stocks are Undervalued Relative to Bonds. With 10-year Treasury yields around 4%, stocks should be trading at 25 times earnings. The S&P 500, however, has a P/E of only 14.5, which represents a huge discount (and opportunity) for stocks.
3. Some Deflation in Home Prices is Desirable. Since both the price-to-rent and price-to-income ratios are badly out of whack, sitting at astronomic levels not seen before, a softening in home prices would actually be favorable. If home prices continue to rein in, it would help restore equilibrium and improve U.S. competitiveness.
4. The Low Impact of Higher Commodity Prices. High prices have been slow to filter through to the consumer, since – thanks to competition in general and the effects of globalization – manufacturers don’t have the pricing power to pass along all the costs.
In short, we’re actually in better shape than most pundits are leading on these days. And there will be plenty of profit opportunities.
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Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
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