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Stock Market Very Risky Now, But We Still Love Apple, Says Jeff Matthews

Posted Feb 28, 2011 02:07pm EST by Henry Blodget in Investing, Commodities

Back in the dark days of early 2009, hedge fund manager Jeff Matthews (RAM Partners) got bullish on stocks when everyone else was seeing only doom.

In those days, Jeff said, the risk/reward for stocks was good, so it made sense to start buying.

Now, however, Jeff has changed his tune.  The two-year bull market that has almost doubled the DOW has changed the risk/reward profile of stocks -- to the point where Jeff now sees more risk than reward.

What risk?

Well, for one thing, the Middle East, which Jeff thinks investors are still too optimistic about.  Libya may contribute only 2% of the world's oil production, but Libya exports "light sweet crude," which is a much higher quality oil than much of the world's oil supply. And the unrest in the Middle East has spread way beyond Libya, to, for example, Oman and Bahrain.  If problems hit Saudi Arabia, says Jeff, all bets are off.

But there's at least one stock that Jeff continues to like: Apple (AAPL). The stock actually isn't that expensive on a PE basis, Jeff says, and the iPad product cycle has a long way to run. Jeff thinks Apple will soon be selling 50-100 million iPads a year, versus the ~15 million the company sold last year.  Steve Jobs' health is certainly a concern over the long term, Jeff says, but over the short term, Apple will be fine.

Apple is set to announce the iPad 2 on Wednesday. Here's a quick primer on what to expect.

32 comments

  • A Yahoo! User
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    A Yahoo! User Tue Mar 01, 2011 10:11 pm EST Report Abuse
    Oil madness. The Saudis will not allow injury to their customers and will increase supply. Today was just another hysterical over reaction to ephemera. Manufacturing up the most in 7 years, auto sales up 27%. We will get. It all back th is week. Please don't do anything without my permission.
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    Clear Head Tue Mar 01, 2011 05:41 pm EST Report Abuse
    I also like AAPL, but I think Jeff Matthews' sales projection on iPad is too optimistic.

    iPad is almost like a notebook/laptop, but would do less. In a recession when people have to decide where to put their precious money, food & gas would always come first, and they'll try to delay in buying a new car or a new computer until they have to.

    If I have only enough money to buy either a laptop or an iPad, I would buy the laptop. I don't have to have an iPad, it's a luxury item that I could do without.
  • A Yahoo! User
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    A Yahoo! User Tue Mar 01, 2011 05:31 pm EST Report Abuse
    I luv apples
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    W.D. Tue Mar 01, 2011 04:06 pm EST Report Abuse
    it ain't just libya anymore.
    there going down like dominoes.
    these people are willing to die for what they believe and right now they believe that they can be free.
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 2 users disliked this comment
    Johnny Randal Tue Mar 01, 2011 02:47 am EST Report Abuse
    No risk yet but a corrrection is necessary and it will happen in May.........Sell in May and Come back fresh on Saint Ledger Day to get the Christmas Rally.................Happy Christmas 2011 and have a good bounty and gain......Thank you.........
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    Y Mon Feb 28, 2011 11:12 pm EST Report Abuse
    You can bet on the market based on these two hosts who do the interview I think. I use them as reverse indicator, it worked so well. Ah ..
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    ToMathew Mon Feb 28, 2011 11:04 pm EST Report Abuse
    Mr. Matthews must know a lot of people who have money to burn.
  • A Yahoo! User
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    A Yahoo! User Mon Feb 28, 2011 10:49 pm EST Report Abuse
    More Mideast boo when Libya is all but over. Who here believes Kadaffi will be around in 30 days? Who thinks the fat and happy Saudies will endanger their entitlements by revolting? Libya is Egypt all over again and Friday and today will give us a blockbuster week. It will instill greater confidence. What does not kill the Market makes it stronger.
    I am sick sick sick of QE boo. Does anyone here believe people have bought more stock because the QEs have made more money available? We buy because of earnings. Can you relate them to the QEs? No. The major impact of the QEs has been to keep rates low, a good thing, and to recapitalize banks. They have been investing overseas and trading( not investing which causes stocks to inflate) banks earn 25% of corporate profits and pay federal taxes on this. The fed hasn't given the QE money away. It will get it all back with interest.
    I called DOW14000 by May and I'm stcking to it. Earnings for my positions have been stellar. I hope you bought BRKB last Wed when I told you to buy. I imagine those who refused crying themselves to sleep tonight, with those who mocked me when I told them here to buy XOM with me on 10/11/10. If you sold on Libya boo when I told you to hold fast, all I can say is boo hoo you've got me crying for you.
  • 1 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    DTT Mon Feb 28, 2011 09:08 pm EST Report Abuse
    I can't understand why the market continues to go higher? Yes, some earning have been good, but just as many have had disappointing earnings and revenues are still below estimates. I know QEII is responsible for part or most of this rally, but QEII will end in June. The market is supposed to reflect what is likely to happen in 6 months or so. What does it see that I can't. I've thought there would be a correction or even a second recession, but the market continues almost straight up which is supposed to be a sign of problems. Is everyone jumping in again just before a big dive or have I missed what the market is seeing?
  • 0 users liked this comment Please sign in to rate this comment up. Please sign in to rate this comment down. 0 users disliked this comment
    72 Olds Cutlass Mon Feb 28, 2011 08:55 pm EST Report Abuse
    Double-dip, Stag-flation or Growth-flation ... any has implications for investors and consumers. But, do the math. For oil, the U.S. consumes over 20 million barrels per day, the World over 80 million. An increase in the price of oil of only $10 per barrel directly costs U.S. consumers over $200 million per day or over $6 billion per month or over $70 billion per year, and World consumers over $800 million per day, $25 billion per month and may be $300 billion per year ... for every $10 per barrel increase. Indirect costs multiply the impacts (e.g., increased energy costs in China that are passed along to export customers in the form of a higher cost of goods sold). Oil's price is well up from OPEC's once espoused $70 price range. And while these impacts are not small, they are not huge either in the $14 trillion per year U.S. economy. The U.S. Government's $1.6 trillion budget deficit is much larger! These oil costs are clearly a drag on the economy, but not an arrow through the heart. ... As to market risk, I might agree that there is at least as much downside risk as upside risk today, except for one Wild Card. Rising interest rates would cause falling bond prices, perhaps driving investors out of bonds and into other investments, like stocks. If the bond bubble starts bursting and the stock bubble starts growing (on top of the Fed's already present market reflation), then watchout for a run-up followed by a bigger correction! Happy investing.

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