The stock rally in 2012 has been characterized by a low-quality rally, or "dash for trash". I wrote here
that investors were under-invested in equities and have been rushing for the entrance. They have been chasing the low-quality high-beta names as a way to quickly increase their equity exposure.
If I am right in my thesis that we are in the midst of a buying panic, then the low-quality theme makes sense as a trade. The way to participate is through the use of the Phoenix strategy.The Phoenix rises again?
I gave a buy list
of Phoenix stocks
on February 24, 2009, shortly before the ultimate bottom in the stock market in March 2009. The idea behind the strategy is to find beaten down stocks that barely survived the bear market and have the financial or operational leverage to benefit from the coming upturn.
The February 24, 2009 list produced many winners. Notable among them were household names such as the Bank of America (BAC):
Liz Claiborne (LIZ):
...and Saks (SKS):Different macro backdrop, but still dashing for trash
This time, the macro backdrop is different. We were not in a recession, though arguably it has been a period of anemic economic growth, so the situation for many companies isn't as dire as it was in late 2008 and early 2009.