Ken Heebner, one of the longest tenured managers in the fund business is well-known for his frenetic trading and highly concentrated portfolios. Now, with indicators and experts pointing to a continued strong expansion of the global economy, Heebner shared his opinion on some key trends he’s keeping an eye on and his advice on how to leverage those trends for maximum returns.
[Editor's Note: 5 Ways to Profit from the Housing Bust]
Topping his list of key trends is what he described as the "subprime mortgage disaster,” which Heebner said "is much bigger than anyone can imagine. It won’t derail the economy, but it will scare the financial community. It will slow the economy, and that’s good for the stock market.”
Heebner explained that housing prices rose 100 percent in some markets between 2000 and 2005.
"The move from ’04 on was driven by people taking out mortgages they couldn’t afford to service and using the money to bid up the prices of houses,” he added. "A correction of that situation is under way, and it will intensify because of massive foreclosures.”
Story Continues Below
Heebner forecasts that a lot of prime mortgages will become subprime because "it takes time for a homeowner to realize that his house is under water and that he’s better off leaving and mailing in the keys.”
What does this dire prediction mean? The housing market will stay weak for another year, said Heebner. Slower growth will extend the duration of the business cycle because the Federal Reserve won’t have to raise interest rates.
"This is positive for the stock market,” he offered.
Heebner also observed that the global economy is the strongest he’s seen in 30 years.
"India and China are booming. So is the Middle East with $60 oil. As the global economy drives ahead, there are opportunities to participate. One way is through investment banks,” he said.
[Editor's Note: Correction In India’s Markets Makes This A Great Time To Buy!]
Heebner continued to explain that, "You hear a lot about excess global liquidity, and the strong global economy amplifies the trend. Investment banks are harvesting all this money in lucrative ways, giving them higher growth profiles than they had before…”
In particular, Heebner likes Lehman Brothers, Merrill Lunch, Bear Stearns, Morgan Stanley and Goldman Sachs — he’s owned all five since Dec. 31.
Heebner at one time also favored energy stocks, but he admitted that "our energy positions hurt us badly in the second half of 2006.”
When oil prices dropped severely after last July’s $70 high, he admitted a lot of his energy investments went down a lot. Since then, he’s cut back his energy position and hasn’t rebuilt it.
He observed that, "I believe that the long-term trend toward higher oil prices remain intact because we are not finding oil as fast as we are consuming it. That said, we (Focus) currently have a surplus of oil globally because non-OPEC production in places like Brazil, western Africa and Azerbaijan is rising, and that comes as energy demand seems to have slowed in some places.”
He predicted that, "The price rise will resume,” and added that for the time being, there’s more opportunity in other stocks.
Among his preferences is Allegheny Technologies, a manufacturer of specialty metals. Global growth is creating strong demand for stainless for use in capital goods, chemical plants and oil-and-gas drilling, Heebner said. Another new use is in ethanol plants.
Heebner also has his eye on the agricultural sector which he said will deliver a higher long-term level of profitability because of the country’s increased interest in using corn and sugar to make ethanol, and palm oil and soybeans to make biodiesel fuel.
[Editor's Note: Double or Triple Your Money With Energy and Precious Metals Stock Options]
"As we start to harvest live plants to make our liquid hydrocarbons, we create a permanent demand for these crops. That means that grain prices, which historically have gone up only when the weather is bad, are going to plateau at elevated levels,” Heebner said.
Heebner admitted that the common thread in his approach to stock pricing is looking for "fundamental developments that will cause a stock to significantly outperform the market.”
He cited, for example, Las Vegas Sands, which is run by Sheldon Adelson who had been in the convention business, sold it and developed the Venetian Casino in Las Vegas. Sands plans to develop casinos, shopping malls, condos and hotels.
According to Heebner, analysts estimate that Sands will earn $2.88 a share in 2008, although he said it will probably be much higher.
In general, said Heebner, "I like stocks that are going up. It means I’m not the only person seeing that something good is happening…I like stocks…”
He emphasized though that he doesn’t want to do too much shorting. As of Dec. 31, shorts represented about 16 percent of Focus’ assets.
Editor's note:
Double or Triple Your Money With Energy and Precious Metals Stock Options
Correction In India’s Markets Makes This A Great Time To Buy!
5 Ways to Profit from the Housing Bust
Expert: Residential Real Estate Will Fall 20% to 40% -- Go Here Now
Big Gains as Stocks Go Up ... Or Down! -- Find Out How
