Contrarian strategist David Dreman says stocks are trading at their lowest values in more than two decades, and is continuing to expect an “inferno” of inflation for the U.S.
“Smoldering inflationary fires will burst into an inferno once the unemployment rate falls below 7.5%, if not sooner,” Dreman wrote in a recent Forbes column. “In this environment good stocks, not Treasurys, are the place to be. So forget the risk of flight to Treasurys trade. Rising inflation-primed interest rates will send bond prices plummeting.”
Dreman says corporate balance sheets and earnings are strong and valuations are very attractive. But he adds, “Be warned that it will not be a straight-line recovery. It never is. We will undoubtedly have more scares and volatility ahead, but if you’ve taken an ultraconservative approach to date it’s time to revamp your assets in preparation for rising inflation and interest rates.”
One area Dreman says is a good place to start looking is the much-maligned U.S. banking industry. He offers three picks from the industry, including U.S. Bancorp.