Comments & Outlook

Over the last few months, a broad swath of economic data, ranging from gross domestic product growth to consumer confidence, have deteriorated and the economic outlook is murky. Although I don’t believe another global recession is imminent, I expect economic growth to remain sluggish.

The biggest question is how US and European policymakers intend to address their respective debt burdens. The Europeans should be able to resolve their sovereign debt crisis over the next six months. We recently commissioned a stress test of the 90 largest banks in Europe. With the assumption that there will be moderately high rates of default, we expect write-downs approaching EUR260 billion. That may sound like a big number, but it pales in comparison to the EUR700 billion in write-downs we saw three years ago. It’s also only 13 percent of the European Central Bank’s (ECB) total assets, which means the ECB could backstop the troubled government debt in exchange for credible reforms.

Recommended Strategies

Fear controls the market and correlation among stocks is at an all-time high—even higher than during the 2008-09 credit crisis. These periods of extreme fear are usually followed by strong equity performance. Despite the economic headwinds, we believe this is an attractive time to buy stocks.

What to Buy Now

Decades into the Internet age, there are still opportunities to invest in small companies that have successfully taken brick-and-mortar business models online. Moneysupermarket.com (London: MONY) is a UK-based online price comparison site that allows consumers to compare the prices and features of financial and travel-related products. It currently has a 40 percent market share in the UK.

M3 Corp (Japan: 2413) is a Japanese medical services website that allows medical professionals to find information on the latest diagnostic and treatment methods online. The website generates revenue through advertising and by conducting market research for pharmaceutical companies. M3 just established a presence in the UK and is beginning to push into the US market. Both of these businesses should perform well regardless of how the global economy fares.

Kevin Landis // Portfolio Manager // Firsthand Technology Opportunities (TEFQX)

Comments & Outlook

We employ a sector-specific approach and usually don’t offer a global macro view. But the abundance of dismal economic indicators we’ve seen this year has led us to focus on preservation of capital. We don’t know how the European sovereign debt crisis will be resolved, but there’s a high likelihood that it could involve an ugly market sell-off. Nevertheless, we’re finding healthy growth in certain key markets, such as social networking, cloud computing and portable devices, such as tablet computers and smartphones.

Recommended Strategies

In this uncertain economic environment, risk management is paramount. We look for low-beta stocks and reasonably prices companies that are experiencing strong growth even during a weak economy. Among our other defensive measures, we hold relatively high levels of cash as well as out-of-the-money puts on our largest and most fully valued positions.

What to Buy Now

Although Apple (NSDQ: AAPL) boasts a huge market cap, it remains remarkably cheap. Apple is paragon of both innovation and execution—and it trades at only a small premium to the market. Apple has ample room for further growth. Apple’s market share in cell phones, for example, is less than 5 percent. And because the tablet computer is a relatively new category, iPad sales are still quite small when compared to the PC market.

Amazon.com (NSDQ: AMZN) is revolutionizing the retail industry by understanding what customers want and delivering it to them with extraordinary execution. Recent studies suggest that shoppers use Amazon.com more frequently than Google when searching for products they want to buy. The market underestimates the value of the Amazon brand and its ability to drive future growth.

Mobile payments—using a cell phone in lieu of credit cards at the checkout stand—present a potential second leg of growth for Verifone (NYSE: PAY). The company is best known for providing the credit card transaction processing terminals at retail points of sale. As technology enables smartphones to replace credit and debit cards, Verifone is well positioned to provide new terminals to capitalize on this emerging trend.