The Banyan Market Letter
An Opportunistic Investment Approach
by MIKE BURNICK on January 26, 2011 Issue 1
In last week’s special issue of Weiss Advice, Sherri Daniels shared the exciting news about our company’s merger with Banyan Partners, LLC.
Starting this week, in the Banyan Market Letter, we introduce you to some of the key members of Banyan’s investment team. We’ll also point out why we expect this business combination to deliver complementary synergies and new opportunities.
As always, we’ll continue to offer our best investment insights and guidance — including actionable investment ideas — delivered to you via email each and every week.
PLUS we can now bring you even more in-depth research and commentary about financial markets and the economy ... by adding useful insights from Banyan’s investment team.
We didn’t skip a beat getting started last week ... even before the ink was dry on our agreement. After the market closed last Friday, our investment team gathered around Banyan Partners’ conference room table for our first combined strategy session.
And Monday morning at 8:30 a.m., we were right back at it, gathering again to discuss the latest developments, including corporate profit reports and economic data that could impact markets and investment portfolios in the week ahead.
Banyan’s founder and CEO Peter Raimondi, leads an investment team with decades of experience managing money. Before starting Banyan Partners in 2006, Peter spent 20 years building the Colony Group, a Boston-based wealth management firm catering to high net worth clients.
A technical market analyst at heart, Peter has a quick mind — instantly sizing up both the risk and reward potential in any investment. He and Steve Chapman have a lot in common in this respect. And in our strategy sessions, they quickly began sharing insights about where we are now in the current market cycle and what to expect next.
Just like our own approach to managing money, Banyan follows a consistent and proactive investment discipline, making changes to client portfolios as needed to stay a step ahead of ever-changing market conditions.
Michael Blackmon, CFA, is Banyan’s Chief Investment Officer and brings to the table more than 34-years experience as a research analyst and portfolio manager. Michael will be working closely with Sebastian Leburn, performing the vital fundamental and valuation analysis that tells us which sectors and individual stocks, bonds and other securities offer the best investment potential for our clients.
Michael describes Banyan’s investment approach in a single word: opportunistic!
The investment strategy isn’t limited by market cap, investment style, sector or geographic region. It is a true “go-anywhere” investment approach suitable for any market conditions and free to follow opportunities wherever they are found in global markets.
Banyan Partners takes great pride in building customized investment portfolios — one security at a time — just as we do. These solutions are designed to suit your individual needs and financial goals. This is no mass market, one-size-fits-all approach.
Proper risk management is — of course — a top priority. And Banyan makes extensive use of sophisticated option strategies to help hedge the risk in equity portfolios, much like we use inverse mutual funds and ETFs as hedging tools.
Robert Pavlik is Banyan’s Chief Market Strategist and like me, he closely monitors every twist and turn in the markets and economy ... keeping the investment team up-to-date with fast-breaking news on financial markets. You may recognize him as a frequent commentator on CNBC and other financial media.
Since we’re now in the midst of the fourth quarter earnings season, Bob is busy monitoring reports from each and every company in our potential investment universe.
According to Bob’s analysis, the earnings season is off to a good start so far.
With about 16 percent of S&P 500 companies issuing year-end 2010 financial results to date, the trend is upbeat so far. Total net income for these companies is up over 60 percent year-over-year and the ratio of upside earnings is running nearly 4-to-1 in favor of positive surprises!1
Although early results look good, it’s important to remember that most profit reports are still to come. In fact, the vast majority of S&P 500 companies will be reporting this week and next. When all is said and done, analysts expect fourth quarter 2010 corporate profits to rise about 23 percent year-over-year.2
Bob believes corporate profit growth is likely to surprise on the upside in 2011 as well.
According to analyst estimates, S&P 500 profits should expand another 11 percent this year, but Banyan’s research suggests more like 15 percent plus earnings growth may be in the cards this year, with top-line sales showing strong gains.
In fact, more than three-quarters of S&P 500 companies reporting so far are exceeding revenue estimates ... a positive fundamental sign for stocks.3
Even with such positive results so far, investors seem to be taking the opportunity to SELL on the good earnings news.
Stocks of companies reporting earnings so far have declined 1.2 percent on average the day of their announcements. Even high profile favorites haven’t been exempt. Tech bellwether Apple, for instance, sold off sharply last week in spite of stellar profit results.4
This isn’t a complete surprise. In fact, we warned previously that stocks appear to be overbought after rallying sharply since September 2010.
The number of warning flags is also on the rise. Market volatility has recently fallen to the lowest level since stocks peaked in April 2010, indicating that complacency could be growing among investors — and market breadth is narrowing even as the indexes keep moving higher.
As you can see in the chart above, although the S&P 500 Index has moved to new highs early in 2011, the number of stocks on the New York Stock Exchange trading above their 50-day moving average of price has fallen steadily in recent weeks.
Translation: Fewer individual stocks are participating in the recent move higher in the broad market ... a growing number are trending lower instead.
Let’s face it, earnings reporting season is often a good excuse for at least a temporary pause in the market’s advance and can sometimes trigger a deeper consolidation in stock prices. So a correction of perhaps 5 to 10 percent wouldn’t be surprising, but we believe any pullback in stocks is likely to be a good buying opportunity if you’re selective.
A short-term market correction shouldn’t be feared, it should be welcomed, as a chance to adjust your portfolio and search for new investment opportunities. Focus on the stocks and sectors that hold up best during any brief correction because these may be among the leaders during a renewed rally phase.
At Banyan Partners, we’re currently overweight certain sectors including technology, industrials, energy and agriculture, and we will look to add new stock positions selectively at attractive prices. Should we see increased market volatility in coming months, perhaps the best approach will be to adopt a more flexible and opportunistic investment strategy in the year ahead. Be nimble and look for shifting leadership among stocks and sectors.
Good investing,
Mike Burnick
Director of Client Communications
Banyan Partners, LLC
P.S. In the weeks ahead we’re looking forward to bringing you even more investing insights from Banyan Partners, including a very special video webinar we’re planning now. Stay tuned!
1 Zacks.com: Earnings Trends: A Good Start to Earnings Season, 1/24/11
2 Bloomberg market data, 1/25/11
3 Bloomberg news, 1/25/11
4 Bespoke Investment Group, 1/21/11
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