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High Five

All the easy money’s already been made in the bull market’s recent awakening, right? Guess again. Presenting five delicious ways to play the second half.

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This bull market has to be the most-hated-least-praised bull market in history. With the scars of the bear still visible, no one wants to call it, claim it, or even label it a bull market for fear of sounding somehow politically incorrect.

Analysts don’t want to champion it (they fear investigation at the mention of “strong buys”). The strategists don’t back it. The superbulls were either broomed at the bottom or, like Goldman’s Abby Joseph Cohen, vanished, gone, invisible. Worst of all, the buysiders, the swashbuckling hedge-fund bigmouths who so dominated the press in the past few years, have nothing good to say about it. At best, they call it a “cyclical bull market inside a secular bear market,” whatever the heck that means. At worst, they keep trying to knock it down because they are still short the darned thing. Who knows what they are thinking? They won’t come on my CNBC show, Kudlow & Cramer, or any others like it, most likely because they have failed to deliver anywhere near the performance of the averages and it is too embarrassing to admit their failings.

But there’s no denying it. Not after the rocking first half we’ve just printed, with the S&P up 12 percent and the NASDAQ up more than 20 percent. Not after the third quarter started off just like that last one, which was the best since the fourth quarter of 1998.

And I’ve got some real bad news for those who still refuse to believe that the bear passed away in early March, after a horrifying three-year run: We’re not done yet. We’ve got another 1,000 Dow points ahead of us just based on the earnings, takeovers, and dividend boosts that I see occurring in the next six months.

Some of the gain might just be self-inflicted by the bears. Many hedge funds got their start in the past four years.

They survived by being “market neutral” or fully hedged against the market’s rallying. Their investors liked it when the market was headed down; they hate it now. They want their money back.

When mutual-fund managers get redemptions, they sell stocks to raise cash. That was part of the endless sell-off that was 2001–2003. When hedge-fund managers get redemptions, they have to cover open short positions. Hence some of the explosive rally we’ve been seeing.

But the rest of the gains are going to come from a series of excellent earnings reports, dividend payments that seem huge when compared with cash, and a genuine improvement in the U.S. economy because of artificially low interest rates.

Most market prognosticators I know are talking about how the big gains have been missed, and how all the easy money’s been made. That kind of talk revolts me. We’ve been through three years of hell; there’s going to be more good times before we call it quits. Even though I am up almost 30 percent in my personal account for the year, I am still buying, still putting money to work, even at these levels, because I see so much more upside ahead. What am I buying? Here are five delicious ways to play the second half where you’ve missed some, but not by any means all, of the move ahead:

1. Honeywell The cheapest stock in the Dow Jones average, this beleaguered cyclical giant has been cut in half from where it was when the bear began. It is about to get asbestos relief from Congress and earnings relief from the Defense Department and the turn in the aerospace sector.

2. Aol Time Warner Could there be a more reviled stock? A year from now, when Dick Parsons gets CEO of the Year honors from a host of business magazines, you’ll be saying, “Why didn’t someone tell me that this dog had stopped going down?” I’m telling you now. AOL’s going back to $23 and it might just be in a straight line, despite the press’s endless attempts to tell you otherwise.

3. Unitedhealth Group As I like to say on my radio show (“Jim Cramer’s Real Money,” on WOR 710), don’t look where a stock has been—think about where it is going to. I say that because UNH will look like it has run too much to get in now. But that’s nonsense. Here’s why: When I run through the new Medicare legislation, I sometimes think it was written by UNH, the world’s largest health-care company. Yeah, the changes are that great for this company, which touches one out of every five Americans now, and might double that figure in the next five years.

4. Nextel Forget the Direct Connect competition from Verizon—it will roll out slower than expected. Nextel’s got a plan to become the de facto emergency-service phone company worldwide, and it might just succeed. In the meantime, it just keeps taking share, share, and more share.

5. Dow Chemical Talk about hated! This 4 percent yielder hasn’t done anything in years. But with its raw costs under control and its biggest buyer, China, back in buying after a SARS slowdown, Dow could tack on 20 percent and still be the cheapest smokestack stock in the S&P 500.

You can keep waiting for the big pullback to buy. You can keep hoping that your money manager knows what he is doing when he protests that the market’s way overvalued and has moved up way too much. You can keep staring at that 1 to 2 percent you are getting in cash or C.D.’s.

Or you can do some buying and participate in the next leg up.

I’d go for the latter.


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