|TheStreet.com, Summer, 2012. This article was written with Oliver Pursche, the Co-Portfolio Manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with thestreet.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
NEW YORK (TheStreet) — Five things need to happen to facilitate and act as a catalyst for a market rally:
Successful Greek elections
Leaders in Europe take a more aggressive approach to the looming debt
Investors are positively surprised with the upcoming earnings season (AA just beat)
The Federal Reserve puts out a third round of quantitative easing, or QE3
Bonds start turning into equities
I am confident for more than emotional or hopeful reasons. Two of these catalysts have already happened — the Greek elections were successfully held and leaders in Europe are becoming more proactive about their debt — and many around the Street are saying that improving investor sentiment is on its way.
The Fed should launch QE3 based on recent jobs reports. People as well as institutions are going to need more liquidity than bonds typically offer. Accordingly, I still believe a market rally is afoot.
We know the saying, be fearful when others are greedy and greedy when others are fearful. I would like to add my own little tweak to it: Be rational when others are emotional, and emotional when others are rational.
I see Europe not as something that has shrunk, but rather as something that will grow. As such, I am buying multi-nationals at what I believe will someday be viewed as an historic discount.
The 10 multi-national names with exposure to Europe, which, if the rally materializes, I believe will pop are:
Total (TOT), Yum Brands (YUM), McDonald’s (MCD), Owens Illinois (OI), Advanced Micro Devices (AMD) , Caterpillar (CAT), Fluor (FLR), Chevron (CVX), Raytheon (RTN) and J.B. Hunt Transport (JBHT).