Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Rally Isn't Done for Good

Until today, we'd seen an impressive rally in the markets. Yet one long-time money manager sees the potential for another 15-20% in gains even from the recent highs of the rally.

At least that's the return Bob Doll -- the highly-regarded Chief Investment Officer of BlackRock (NYSE: BLK  ) -- has high bets on. At a recent CFA luncheon, Doll outlined his predictions on how he believes the market will close out the year:



Recovery Evident

2009 S&P 500 EPS

Y/E S&P 500 Level

Normal Recession


Mid-Year 2009

$70 to $75

1150 to 1250

Nasty Recession


Year End 2009

$50 to $55

1000 to 1050



2010 +

$35 to $45

500 to 700

By placing a 70% chance that by year end, the S&P 500 will reach levels well above its current value, Doll is pretty optimistic about a continuing near-term market recovery.

Why so confident?
According to Doll, several key factors are pointing towards a market bottom. As I've mentioned in the past, investors who wait for very specific and distinct signs of economic recovery before entering the market during a downturn are destined to get left in the dust.

But the general characteristics that Doll believes indicate that the low point for the market is near include the following, broken down into two categories. Fundamentally, Doll pointed to record levels of monetary and fiscal stimulus, as well as the massive impact of decline in oil prices from nearly $150 to $50 per barrel.

Moreover, from a valuation standpoint, stocks look attractive. Overall, the market's valuation fell to somewhere around 60% of GDP at the March lows. P/E ratios look extremely attractive, with many stocks carrying P/Es less than 10. Finally, dividend yields for the S&P 500 rose above Treasury yields for the first time in 50 years.

The key point Doll emphasized is that, overall, things are starting to appear "less bad." Historically, this is when the market begins to recover. When economic weakness beings to wane, investors become less risk averse and slowly add risky assets back into their portfolios.

Time to buy stocks
As the recovery enters its initial stages, investors seeking to recognize the profits Doll expects in 2009 need to be buying now. However, not all sectors will recover in tandem, so investors must carefully select where they choose to invest. Doll pointed out three industries he expects to carry the weight of the market's rally: energy, health care, and technology.

With oil prices having spiraled downward during the recession, a reversal could come quickly as supply and demand level out over the long term, particularly due to high demand levels in emerging markets. Energy companies like Exxon (NYSE: XOM  ) and Apache (NYSE: APA  ) have seen their shares take big hits, and now is a good time to capitalize on their attractive valuations.  

Health care companies have traditionally been viewed as defensive plays during downturns. And despite some concerns over the Obama administration's health care policies, I think the health care industry remains a safe haven for investors. Many drug companies are expecting positive bottom line growth during 2009. For example, GlaxoSmithKline (NYSE: GSK  ) and Abbott Laboratories (NYSE: ABT  ) are expected to report earnings growth of 6.4% and 10.5%, respectively.

Lastly, tech companies learned their lesson about bubbles back in the dot-com era, and thus many companies have remained conservative by sporting debt-free, cash-rich balance sheets. Google (Nasdaq: GOOG  ) , for example, has no long-term debt. Nearly one quarter of Apple's (Nasdaq: AAPL  ) share price is backed by cash.

Bottom line
Obviously, I can't say for certain whether the market has seen its lows. Volatility will stay with us for some time. However, there is growing evidence supporting the idea that the worst is behind us. And because of that, I agree with Doll that the market is positioned to continue rallying this year as confidence in our markets is regained. Investors who recognize this will likely be rewarded by year-end. Don't sell this rally.

Related Foolishness:

Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool Contributor Kristin Graham owns shares of Apple. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 878854, ~/Articles/ArticleHandler.aspx, 10/21/2016 2:38:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,141.53 -20.82 -0.11%
S&P 500 2,140.23 -1.11 -0.05%
NASD 5,251.79 9.95 0.19%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 2:23 PM
AAPL $116.67 Down -0.39 -0.33%
Apple CAPS Rating: ****
ABT $40.54 Down -0.21 -0.50%
Abbott Laboratorie… CAPS Rating: *****
APA $62.49 Down -0.99 -1.56%
Apache CAPS Rating: ***
BLK $346.13 Down -3.04 -0.87%
BlackRock CAPS Rating: ****
GSK $41.17 Down -0.27 -0.64%
GlaxoSmithKline CAPS Rating: ***
XOM $86.52 Down -0.69 -0.79%
ExxonMobil CAPS Rating: ****