Tuesday, January 02, 2007

ideas for 2007

2007 looks to be a great year for markets, if we do get some rate-cutting by the Fed. The big question that markets will likely have is when the rate cutting cycle will begin. This could introduce some uncertainty (and volatility) into things in the early part of the year.

With that thesis in mind, here is a summary of what we'll be doing over the next few sessions to get positioned:

* GS. Phenomenal earnings, best of breed investment bank, lower interest rates and a rising stock market should keep GS flying high this year.

* RIO. Growth in emerging markets will keep demand for raw materials (steel/iron ore) high.

* JNJ. Defensive play. Any weakness in the dollar or panic about the soft landing should propel this issue higher.

* MA. Tremendous organic and secular growth in Mastercard's business should provide great upside for this stock. I think it will be beaten down over concerns about the strength of retail... but this is not levered as heavily to retail as most people think. That means buying opportunities.

* USG. Strong fundamentals because of home remodeling, which happens when the housing market slows down. USG also looks cheap here and could be taken out by PE guys or Mr. Buffett.

This will be our model portfolio so far. There is space for speculation which happens orthogonally to these positional movements. I am also still looking for a good technology play for 2007, and any ideas would be welcome. AKAM and NVDA did well in 06 so they may continue to do so. CSCO also looked strong during the December selloff. Updates will be posted here.

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