John Linehan, who heads T. Rowe Price’s U.S. equity division and co-manages its top-performing institutional large-cap value fund, says investors shouldn’t try to time the market, and instead should focus on solid businesses with cheap shares.
“Rather than suggest you time the market, make tactical trades and sell stocks, I advise you to roll up your sleeves and find companies with durable business models selling at discounted prices,” Linehan writes in Forbes. “It’s a long-term approach, but valuation matters over time.”
Linehan says that, while value investors like himself might be worried by the S&P 500’s big gains this year, further inspection shows the gains aren’t troubling. “Corporate earnings are up more than 80% since the beginning of 2000, but the market, absent its dividend stream, has risen only slightly in price,” he writes. “As a result, its price/earnings ratio has been halved. In other words, the stock market is reasonably priced and, relative to bonds, downright cheap.”
Linehan offers three themes that he thinks will lead to profits in 2013: the “reindustrialization of America”; investing in firms that can profit from “the nascent gas and oil production revolution (think fracking) going on in the U.S.”; and tapping into the growing emerging market consumer arena. He offers picks for each theme. Among them: Union Pacific, which he thinks will reap the benefits of America’s reindustrialization.