Stock Market Picks - Stock Market Analysis

Millions of moviegoers throughout the world will anxiously hang on those very familiar words Sunday as they glue themselves to their TV sets for Hollywood's 79th annual Academy Awards.

But what about the investment Oscars? Who wins those for outstanding performance in accurately forecasting the direction of the market and having the perception to spot mini changes along the way?

For some insights, I went through my columns of the past year to ferret out the best market calls by a Wall Street pro. The results: Pretty much a tie between two veterans � stock market guru Elaine Garzarelli and chief investment strategist Fred Dickson of Great Falls, Mont., regional brokerage D.A. Davidson & Co.
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The $64,000 question: What do our Oscar winners see next?

Both see the market moving even higher, though Mr. Dickson at a snail's pace.

"Watching the market now is like watching a turtle race," he tells me. "You see them clustered, waddling slowly ahead." After several surprisingly strong quarters for earnings, he says lower earnings increases are slowing the market down. For example, he sees the current quarter's earnings rise for the S&P 500 dropping to between 6% and 7% from 10% in the fourth quarter.

A former strategist at Goldman Sachs, Mr. Dickson says "The days of big gains are over for now." He sees the market shifting from a fast jitterbug to a slow waltz. Or more specifically, he says, embarking on "a slow drift upward." The increase, he says, is spurred by huge liquidity on the sidelines ($2.4 trillion in money market funds), and the eagerness of the mergers and acquisitions crowd to put money to work on any slight market declines.
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His five favorite investment ideas: Intel, Illinois Tool Works, Teva Pharmaceuticals, Allstate, and an exchange-traded fund focusing on emerging markets, Claymore/BNY BRIC.

Ms. Garzarelli, who heads Garzarelli Capital, which doles out advice to institutional investors, notes 9 of the 14 indicators she tracks are bullish. That's a 65.5% reading which signals to her "the bull market is roaring." Accordingly, she sees the major averages continuing to barrel ahead for the remainder of 2007, posting gains between 10% and 15%.

Some skeptics warn the current bull market, nearly five years old, is growing whiskers. But Ms. Garzarelli fires back that the market � despite roughly a 25% increase in the major averages from last August's lows � is still undervalued based on likely 5% earnings growth this year and long-term interest rates (as measured by 10-year Treasuries) of just about 4.7%.

Granted, she says, earnings growth is slowing, but she thinks the economy will still show decent 2007 growth of 2.7%.

Ms. Garzarelli thinks investor focus should be on areas that will outstrip general economic growth. In this context, she favors consumer services (such as health care, banking, and brokerage), equipment spending by business (notably computers, peripherals, and communications equipment), structural spending for plant and equipment, and net exports.

Her five top investment picks include two exchange-traded funds that reflect this thinking. One is the S & P Select Technology Spider Fund; the other is the iShares DJ Transportation Averages Industry Fund. Rounding out the five are Hovnanian, Verizon, and Home Depot.

Ms. Garzarelli also hastens to toss out some cautionary notes, pointing to five potential wild cards, any of which would dampen her market enthusiasm. They involve a move to protectionism, stronger labor unions, Fed tightening, a surge in oil to $100 a barrel, and a rise in long-term rates to 7%.

"I don't expect any of these to happen, but you never know," she says.

Mr. Dickson adds yet another wild card that could give the market a whipping � an escalation of tensions in the Middle East, particularly centering on Iran. No one would argue with that view.

(Excerpted from "The Investment Oscar Goes to ...".)

Mr. Dorfman's column appears in the New York Sun every Monday, Wednesday, and Friday
E-mail Dandordan@aol.com