Montier Has ‘Never Been More Bullish’ on Stocks

By Michael Patterson

Nov. 25 (Bloomberg) -- Societe Generale SA strategist James Montier said he’s never been so bullish after the financial crisis dragged down prices for stocks, corporate bonds and inflation-protected government debt.

The Standard & Poor’s 500 Index is “distinctly cheap” because it trades for 15.4 times the 10-year moving average of its companies’ profits, compared with an average of 18 for the U.S. market since 1881, London-based Montier wrote in a research note today. Fifteen stocks in the U.S. index, from Chevron Corp. to Gap Inc., pass his test for “deep value,” while a tenth of shares in Europe and a fifth in Asia qualify.

“This is a value investor’s version of heaven,” wrote Montier, SocGen’s global equity strategist. “From a bottom-up perspective, the equity market is offering some excellent companies at truly bargain prices for those with the fortitude to shut their eyes, or at least switch off their screens and buy.”

Corporate bonds are pricing in the highest default rate since the Great Depression and some senior secured debt is trading for as little as 50 percent what investors would recover in a bankruptcy, Montier wrote. The drop in bonds may amount to “the investment opportunity of a lifetime,” he said.

Market Plunges

Equities tumbled this year, sending benchmark indexes in the U.S., Europe and Asia down more than 40 percent, as financial-company losses stemming from the U.S. housing-market collapse approached $1 trillion. Merrill Lynch & Co.’s U.S. Corporate Master Total Return Index of investment-grade corporate bonds declined 13 percent this year.

The Federal Reserve has reduced its benchmark interest rate to 1 percent from 5.25 percent in September 2007 and pledged to lend more than $7 trillion to revive the economy. Investors can get cheap insurance against the risk Fed lending spurs inflation by purchasing government bonds that pay interest on a principal amount that rises with the consumer price index, Montier wrote.

“Such instruments have seen their yields rise dramatically of late,” he said. “Mr. Market is offering you the opportunity to protect yourself from the ravages of inflation in an exceptionally cheap way.” Bond yields move inversely to prices.

Montier was a member of the top-ranked investment strategy team in Thomson Extel’s surveys the past three years.

“With all of these opportunities available I have never been more bullish!” he wrote. “Will I be early? Almost certainly yes, but if I can find assets with attractive returns and I have a long time horizon I would be mad to turn them down.”

S&P 500 stocks that Montier characterizes as “deep value
opportunities” based on profit and dividend yields, debt levels
and price relative to earnings:

Allegheny Technologies Inc.
Carnival Corp.
Chevron Corp.
ConocoPhillips
Cummins Inc.
Dow Chemical Co.
Gap Inc.
Illinois Tool Works Inc.
Ingersoll-Rand Co.
KLA-Tencor Corp.
Marathon Oil Corp.
Molex Inc.
Nucor Corp.
Tesoro Corp.
Valero Energy Corp.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net;