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There's an old saying that there are people that make things happen, people that watch things happen and people that say "what happened."
We love leaders - people that make things happen, show direction in unclear territory and inspire others.
A prerequisite to be a quarterback on a football team is to be a "leader" - it's the quarterback who calls the play, provides confidence and makes it happen. The only real statistics that matters for a quarterback is a "W" or an "L". Joe Montana will go down as one of the greatest quarterbacks of all time not because he had the strongest arm or was the fastest, but because he knew how to lead and win.
I believe one of the reasons there is so much interest in the 2008 Presidential Elections in June of 2007 is America is desperate for leaders. Despite the fact the Dow is at record high, unemployment is at 4.5%, an accomplishment that is at the highest level in history, people are depressed. IRAQ, scandals in government, and a negative media have the population thinking that we are heading in the wrong direction despite many positives. We need a leader for America and a leader of the free world.
Even with anemic economic growth of 0.6% in the first quarter, oil and gas prices going to the moon and the 10-year note bumping against 5%, stocks are on fire. Most importantly, the stocks that are leading the way are the fastest growing, most innovative companies in the marketplace. Baidu.com (NASDAQ: BIDU, $140.31 - Not Rated), Cbeyond (NASDAQ: CBEY, $37.47, Buy - Price Target: $45), Chipotle (NYSE: CMG, $87.81 - Not Rated), Research in Motion (NASDAQ: RIMM, $165.07, Buy - Price Target: $165), Color Kinetics (NASDAQ: CLRK, $29.51, Buy - Price Target: $28), Blue Coat (NASDAQ: BCSI, $42.05, Buy - Price Target: $49), Blue Nile (NASDAQ: NILE, $57.64, Accumulate - Price Target: $61) and salesforce.com (NYSE: CRM, $47.88, Buy - Price Target: $55) to name few, are all hitting new highs and are new leaders, in our view.
As we have screamed from the rooftop, new bull markets are not led by the old "hall of famers," but by companies that are fresh and emerging. The S&P 500 is finally above its March 2000 high and NASDAQ is at its highest level since February 2001. What will take indices to the next level and beyond are leaders.
Every era has companies that epitomize the characteristics of the drivers. In the early 1900's, it was in the heart of the Industrial Era and no company symbolized this more than Thomas Edison's General Electric (NYSE: GE, $37.45 - Not Rated).
The Manufacturing Era was ignited with the innovation of the automobile and Ford Motor (NYSE: F, $8.35 - Not Rated) was the leader of this Era.
The Service Era evolved from the 1950's with a flip-flop in service jobs versus manufacturing. IBM (NYSE: IBM, $106.54, Accumulate - Price Target: $110) and EDS (NYSE: EDS, $28.74 - Not Rated) were leaders of this era.
Then came the Information Era with the birth of the PC. The leaders of this Era were Microsoft (NASDAQ: MSFT, $30.59 - Not Rated), Intel (NASDAQ: INTC, $22.36, Accumulate - Price Target: $23) and Dell (NASDAQ: DELL, $27.30, Sell - Price Target: $20).
The Information Era moved into the Knowledge Era with the commercialization of the Internet, the pay gap between educated and non-educated people widening dramatically and wellness becoming the new medicine. Leaders of the Knowledge Era were Netscape, Apollo Group (NASDAQ: APOL, $48.08, Accumulate - Price Target: $52), Whole Foods (NASDAQ: WFMI, $41.67 - Not Rated) and Google (NASDAQ: GOOG, $540.00, Buy - Price target: $620).
The new Era we are entering I call the Innovation Era with the companies that will likely emerge as leaders, creating solutions for the world's biggest problems, and will be both leveraging technology and benefiting from convergence.
For example, green technology is at the center of the innovation economy and new leaders include First Solar (NASDAQ: FSLR, $68.17, Buy - Price target: $80) and SunPower (NASDAQ: SPWR, $53.98, Buy - Price target: $70). Web 3.0 - using personalization and artificial intelligence - is coming to the forefront as a theme with private company Second Life ahead of the puck, but salesforce.com, Apple (NASDAQ: AAPL, $118.40, Buy - Price target: $130) and Google all embracing this trend.
Last week, despite the holiday-shortened week, stocks moved up nicely, led by the Russell 2000, up 2.8%, the NASDAQ advancing 2.2%, the S&P 500 up 1.4% and the Dow up 1.2%. On one hand, breadth was good - advancers beat decliners 3 to 1 and companies making new highs were 985 versus just 163 making new lows. On a negative note, there were $4 billion of outflows from mutual funds.
We remain bullish on stocks overall and particularly on growth stocks. Fundamentals are good, valuations are attractive especially with an under 5% 10-year note and an earnings yield of 6.5% on the S&P 500. And despite equities doing well - investors are bearish, with the adage "stocks climb a wall of worry" as true today as ever.
Posted by Michael T. Moe at June 4, 2007 05:23 PM
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