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Stocks Can Rally Another 10% and Still Be Cheap: Fund Manager

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It wont' be official until the President signs it, but Congress is heading towards a vote later today on the bipartisan compromise to extend the 2% payroll tax reduction through the end of the year. The bill is a $143 billion package that will cut taxes for 160 million workers and extend jobless benefits for those out of work the longest.

The question is how this will impact the economy and the market rally we've been experiencing this year.

"Anything to keep the consumer spending right now," says Ted Parrish, fund manager, Henssler Financial in the attached video. "I think it will keep the growth going. We don't need to detract from that."

It's really about maintaining momentum, since Parrish points out that the jobs situation has improved, with weekly unemployment claims last week falling to the lowest level since March 2008.

"We've had 19 weeks of positive economic data and we need to keep that going," he says.

The current 8.3% unemployment rate is certainly better than where we were year ago (9.1%), but it's still nearly double where it needs to be and has averaged over the last 50-years. Even so, stocks aren't sitting idle and have sprinted to their best start in a new year in 15-years, without even a hint of a pullback.

Parrish believes earnings and an improving political environment should allow the S&P 500 to continue its rebound toward all-time highs, and is targeting a move to 1495 by year-end.

But he also says volatility will increase and investors would be wise to use a "defensive growth" strategy. He has three stock ideas to offer up for this environment.

Despite a 5% decline so far this year, Parrish is sticking with his Pepsi (PEP) and thinks it will ultimately be rewarded for its emerging markets growth, 3.3% dividend yield, and recent efforts to reinvigorate their domestic sales.

Energy is another area of focus for this Georgia-based fund manager, who cites Apache (APA) as a top sector pick. He considers it a ''mini-major" that resembles a small Exxon Mobil (XOM). The oil & gas production company has properties in obscure places, including Egypt, which he says hurt Apache last year but should fade going forward.

He's also taken a stake in Aaron's (AAN), a small cap rent-to-own retailer experiencing increased demand from credit-starved customers.

"Overall, the market's just cheap," Parrish says, and argues that earnings have grown by more than double the rate of stock prices since 2008, which means there's still lots of catching-up to do.

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