You need to be in the equities market, Neil Hennessy
said today, and for a variety of reasons.
The chairman and chief investment officer outlined the reasons for his bullishness during a steak and salmon lunch his company provided for roughly 30 journalists in Manhattan's McCormick and Schmick.
Much of his argument was derived from analyses of the portfolio of his firm's Hennessy Cornerstone Mid Cap 30 Fund
The fund, which has outperformed the S&P by 40 percent since its inception in 2003, derives its stocks via this process:
Hennessy and co-PM Brian Peery
first pore through a Compustat database, eliminating ADRs and looking at companies with market caps between $1 billion and $10 billion. The PMs then go through companies with share price to sales ratios at 1.5 or less. They then look at companies with annual earnings higher than last year. They then look at companies with positive stock appreciation over the past three and six month periods.
They then buy the 30 companies that meet all these critieria and show the best price appreciation.
And what did Hennessy glean from this portfolio this year? At the very least, investors need to be in the market. Also, the consumer is not dead, he said.
However, at the end of the day, the economy needs more job creation. Without more jobs, Hennessy argued, firms won't have as many incentives to grow organically. Lots of money will continue to sit on the sidelines.
"We need job creation. This is what is holding companies back from making a lot more money than they are," he said.
Nonetheless, Hennessy said that the portfolio is also good at looking ahead in the market, and many details from this portfolio show a moderately rosy near-future.
For example, 74 percent of the companies in the portfolio increased or initiated dividends, with 63 percent paying out dividends. About 53 percent of the companies bought stock back, on average $400 million worth. They bought back, on average, 9.5 percent of outstanding shares. Importantly, 60 percent made acquisitions in the past 18 months.
Hennessy said that these indicators point to what he believes will be a cyclical bull market, comparable of the bulls of '82 and 2000.
"I'm very, very bullish," he told the journalists as they nibbled cakes and cookies.
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