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10 reasons to stick to stocks

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by Peter Switzer

It’s always darkest before the dawn and so with stock markets around the world going through another rough patch, are there any good reasons to maintain the faith in stocks?

Overnight, the Dow was up nearly one per cent on an improved view on what the Greeks will do when they vote later today but I want to focus on why I remain positive for stocks.

On a projected earnings basis and given the relative forward market price/earnings ratios, stocks are cheap.
The third and fourth years of a US presidential cycle historically are good for stocks and Obama needs all the help he can get and US Fed boss Ben Bernanke is doing that.
The US economic slowdown is temporary and is related to bad weather, high oil prices and Japanese supply problems to manufacturing, and all three of these issues have been reversed.
US company earnings will come through better than expected and this will spark a rush for stocks. Overnight, Nike reported miles better than expected and we have seen Adobe and FedEx in recent times do the same thing.
The Europeans will come up with another rescue package that will diffuse the Greek and other debtor nation challenges.
China will remain a strong grower around eight to nine per cent and RBS Asia’s Wendy Liu, head of China research, is tipping a massive comeback for the Chinese stock market. She is unbelievably bullish!
Since 2000, whenever the US stock market was up in the first half of the year, the second half was always stronger. The only year that didn’t happen was 2007 and that was the start of the GFC.
Ron Bewley, the head of Woodhall Investment Research, surveys mountains of analysts' reports to predict where the stock market is going and his historically reliable research says there’s a 20 per cent gain for stocks over the next 12 months.
Interest rates are so low around the world that stocks do make enormous appeal, provided investors are not spooked by debt worries and whether the US is heading for a double dip recession.
The balance sheets of US companies have been repaired in recent years and putting this altogether with the fact that the stock market in the US has dropped more than five per cent and the VIX or fear index has not gone much over 22, which is a low reading, shows that the spook factor isn’t big. When we get a couple of positive catalysts, such as a good company reporting season in the US, then a rally should take place.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, June 28, 2011

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