The lack of a Santa Claus rally has some on Wall Street crying Grinch, but Aaron Task, co-executive editor at TheStreet.com, told listeners to the
"RealMoney" radio show on Friday that it could mean opportunities for 2006. "We are shaping up to have a pretty solid January because the macro environment looks good going into 2006," Task said. But he cautioned against making big bets on the financial sector right now because of unusual action in the bond market that has economists debating whether the economy is heading for a slowdown. The yields on two- and 10-year Treasury notes have inverted or remained flat all week. This means that you can get the same amount of return for lending your money for either period of time, or that you can get even more return for lending money for a shorter period of time. This is unusual, Task said, because investors generally demand more yield for the risk of a longer-term loan; and yield-curve inversion has preceded several recessions. As Wall Street debates what exactly the curve is telling us, investors should take note, Task said. The profitability of the financial sector has been historically dependent on the shape of the yield curve. Task said this is because banks usually borrow money at low short-term rates and then lend it at higher, long-term rates. When the curve inverts, it takes away a source of free money for the banks. The picture seems somewhat rosier for retail, Task said, with holiday spending up 8.75% from a year ago, Wal-Mart ( WMT) standing by its December forecast, and consumer confidence above pre-hurricane levels. But strong spending doesn't necessarily mean retail stocks will rise, Task said, noting that there are too many gut factors shaping the success of a retailer.
For example: Why do teen-agers like Urban Outfitters ( URBN) and steer clear of American Eagle ( AEOS)? How can investors know when a product will explode like Apple's ( AAPL) iPod did? Task said another way to play retail stocks is to look at companies that are potential buyouts. He referred to a
story on TheStreet.com Web site that identified Saks ( SKS), Dillards ( DDS), Limited Brands ( LTD), J.C. Penney ( JCP), Gap ( GPS) and Sears ( SHLD) as possible targets.
Willard remains bullish on Motorola. He said that the company has a huge hit with the Razr and is rolling out more great products, including a phone that could steal market share from Research In Motion's ( RIMM) Blackberry. Task told another caller that Computer Sciences ( CSC) looks like a potential buyout candidate. The company has been in talks with Lockheed Martin ( LMT), has $14 billion in annual revenue, and has likely put its accounting problems in the past. But Willard cautioned that it will be a boring stock unless someone buys it. He also called Cendant ( CD) a potential contrarian play. Another caller asked about Turkcell ( TKC), a mobile communication services company in Turkey. Task said that cell-phone growth in that part of the world is a great place to put money, but he said to use caution. Vodafone ( VOD) recently bought a different mobile telecom company in Turkey, which could create strong competition for Turkcell. Both Willard and Cramer said that Under Armour ( UARM) is a momentum play. The stock is currently near $40, and they told a caller who bought it at $27 to take some off the table. But the company has some great products and there's no reason to flip it, said Willard, who recommended trading around a core position. Task said that El Paso's ( EP) prospects for 2006 look good. He also recommended Chesapeake Energy ( CHK) to a listener looking for a good exploration bet. If telecoms are the great contrarian bet, a caller wanted to know if AT&T ( T) is a good buy. Task said that if the sector performed well that AT&T would certainly benefit, but recommended the Dow Jones US Telecom ( IYZ)exchange-traded fund as a way to avoid the risk of investing in a single stock.