U.S. stocks are cheap after suffering the biggest losses since March 2009, according to Byron Wien, a senior managing director at
Blackstone Group LP, the world's largest private equity firm.
“You got the market down to 11 times earnings,” Wien said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Usually it sells at around 15. That makes a number of stocks attractive here.”
The Standard & Poor's 500 Index fell 16 percent from July 22 through the end of last week in its biggest four-week loss since March 2009. Companies trade at an average 11.3 times estimated earnings, near the lowest level in 2 1/2 years. The four-week global equity rout has erased $8 trillion from share values as Europe's debt crisis and worsening economic reports raised concern the global economic recovery is faltering.
“Insiders are buying for the first time since March 2009,” said Wien, who predicted on Jan. 3 that 10-year Treasury yields and economic growth will approach 5 percent this year. “That's usually a favorable sign.”
Sixty-six executives at 50 companies bought shares between Aug. 3 and Aug. 9, the most since the five days ended March 9, 2009, when the benchmark index for U.S. equities reached a 12- year low, according to data compiled by Bloomberg.
Morgan Stanley Chief Executive Officer James Gorman and two other managers purchased 175,000 shares of the New York-based bank as they fell to the lowest level since March 2009, according to Securities and Exchange Commission filings.
Buying Banks
“Selectively, financials are attractive, but I wouldn't buy them across the board,” Wien said. “I don't think their return on equity is ever going to go back to what it once was.”
Financial institutions in the S&P 500 have tumbled 25 percent in 2011, the most among 10 groups, amid speculation the government debt crisis in Europe will spur banking losses. The industry is the second biggest in the benchmark measure of U.S. shares, at 14 percent. Goldman Sachs Group Inc. and Bank of America Corp. have slumped 37 percent and 52 percent, respectively, the most since 2008, so far this year.
The S&P 500 climbed 1.3 percent to 1,138.78 as of 11:29 a.m. today in New York, paring its 2011 retreat to 9.4 percent. Bank stocks rose 0.9 percent, halting a three-day slide.
High-Quality Stocks
“I would focus on the high-quality multinational growth stocks,” Wien said. “Stocks with proven earning power and dividends.”
U.S. gross domestic product may grow 1.75 percent this year and 2.35 percent next, according to the median estimate in Bloomberg survey of economists. Ten-year Treasury notes yield 2.10 percent, data compiled by Bloomberg show.
“There are good opportunities in the high-yield sector, but I would stay away from Treasuries,” Wien said. “I don't think we are going to go into a recession, although the odds of a recession are increasing every week.”
Wien, the former senior strategist for Morgan Stanley, said in June 2010 that rising pessimism in options markets signaled it was time to buy stocks. The S&P 500 climbed 23 percent from July 2 through the end of the year on government stimulus and higher-than-estimated earnings.
Central bankers from around the world meet this week in Jackson Hole, Wyoming, for a conference that last year resulted in U.S. Federal Reserve Chairman Ben S. Bernanke signaling a second round of quantitative easing, or QE2, buoying asset markets.
Gold as Insurance
“I'm not convinced QE2 did that much good,” Wien said today. “It certainly helped the financial markets in the fourth quarter, but I don't know how much it helped the economy.”
The Fed bought about $1.7 trillion of government and mortgage related debt in its first round of quantitative easing, or QE1, between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2 in an attempt to help the U.S. economy recover from worst financial crisis since the 1930s.
“I'm an equity guy, but I buy insurance on the equity portfolio and gold is the insurance,” Wien said today. “I think it's going higher,” he said. “The major currencies of the world are being debased by their governments.”
--Bloomberg News--
