Through The Fly's Eyes: Tom Brown
from Theflyonthewall.com
Good Stock Ideas From Tom Brown
Tom Brown, CEO of Second Curve Capital and owner of the Bankstocks.com website, gave some excellent ideas in this weekend's Barron's interview.
Brown's favorite ideas include:
* CompuCredit (CCRT), a subprime credit card and automobile lender. Brown likes the growth prospects in the automobile lending business and CompuCredit's overcapitalized balance sheet. CompuCredit has over $700 million of excess liquidity that could be put to work to grow shareholder value.
* Capital One (COF), which trades eight times 2007 estimated earnings should attract interest from investors. By 2007, credit cards will be only half of the company's earnings. Investors have been upset with Capital One due to fears that Capital One might be masking a slowdown in its credit card operations by getting into the full service banking business. Brown says that investor perceptions will change and the company will become viewed as a "rapidly growing diversified institution."
* Renaissance Re (RNR), a play on higher reinsurance rates in the aftermath of Hurricane Katrina. Higher premiums and less hurricanes should lead to stronger than expected earnings for the reinsurer.
Brown's picks are often very volatile but work out over time. As the inverted yield slows the economy down, these stocks should hit some bumps in the road. Buying Brown's idea when fear and panic is high has proven a very profitable strategy.
posted by Eric at
7:23 AM
1 Comments:
In 1996, authors Estrella and Mishkin released a famous Fed study that developed a probability table about how likely a recession would be 4 quarters later, given a particular level of the yield curve spread. Their study accurately predicted the stock market crash in 2001 when the yield curve was inverted one year earlier.
The last few months, the spread between the 3-month & 10-year bonds has been -0.40% indicating a ~40% chance of a recession.
Every time a bearish set of economic data was released in late 2006, the stock market shrugged it off since it heightened expectations of a Fed rate cut in 2007 (which stimulates growth). On the other hand, when positive data was released, the market still rallied. Thus, the stock market was going to rally no matter what the news!!!
This year should be different due to (a dirty word for investors) STAGFLATION. Yesterday’s Fed minutes indicated the presence of this double whammy: slowing growth AND rising inflation. These 2 phenomena rarely work in opposition. What this means is that the economy is slowing, but the Fed is unlikely to cut rates as long as inflation is an issue. This is very bad for the stock market and, to a lesser extent, the bond market.
By
Eric Bergen, at 4:22 PM
Post a Comment
Links to this post:
Create a Link
<< Home