'It's going to 30,000': A CIO who oversees $4.9 billion explains why the Dow is headed for fresh record highs - and shares his top 4 stock picks for the upswing
- Neil Hennessy, founder and chief investment officer of $4.9 billion Hennessy Funds, makes a compelling case for a near-term 11% rally in the Dow Jones industrial average.
- He cites the "recycling of headlines" and a yield curve that was inverted for "10 minutes" as reasons why pessimism in the marketplace is omnipresent.
- Hennessy also relays 4 stocks he thinks represent huge upside opportunity.
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With trade-war tensions mounting, a glut of central banks cutting interest rates, and recession fears flaring, it's safe to say the doom-and-gloom narrative is in full-force on Wall Street.
But not are all forecasting the end of the 10-year bull market - and one investment chief in particular thinks the historic rally is far from over.
That CIO is Neil Hennessy, founder and CIO of Hennessy Funds - and he thinks the Dow is going to 30,000 "sooner, rather than later."
For the uninitiated, Hennessy has nearly four decades of financial industry experience, and his firm currently oversees $4.9 billion.
"At some point in time, people are going to actually believe in the market," he said on the Money Life podcast with Chuck Jaffe. "I'm telling you it's going to 30,000 before we start to readjust and say: 'Okay, what are we looking at, where are we going from now,' because you have everything in place for a bull market."
That's a bold call - and one that involves a more than 11% increase in the Dow Jones industrial average from today's levels. That's no small feat considering the overwhelming amount of pessimism present in the marketplace.
After all, investors are actually willing to lock in losses today in order to preserve purchasing power in the future. That's not something you usually see when markets are calm, cool, and collected.
But to Hennessy, the market's jitters are due to the "recycling of headlines" concerning tariffs, recession fears, and a yield curve that was inverted for "10 minutes." He thinks negative sentiment is way overblown and full of hyperbole - and he's not shy in making his bullish thesis clear.
Hennessy laid out his thoughts in detail: "If I told you that you were going to have 2% interest rates, you're going to have 1.5% 10-year Treasury, a 2% 30-year treasury, mortgage rates for 30-years at 4%, full employment, corporate profits at all-time high, corporate cash flow at all-time high, consumer discretionary spending continues along with consumer confidence, you'd say: 'Neil, I've got to get into this market.'"
"You would not short into that," he added.
To further his bull-continuation thesis, Hennessy cites a veritable war chest of capital waiting to be deployed.
"There's tons of money on the sideline," he said. "If you look at the balance sheets of the S&P 500, there's over $5 trillion in cash and short-term investments, sitting in those 500 companies."
That means there's no shortage of capital to raise dividends and buyback stock going-forward - two potential catalysts that can send shares soaring higher.
With all of that established, Hennessy relays four stocks he thinks have a great opportunity to flourish. He's a big proponent of the price-to-sales ratio as far as evaluation is concerned, due to the amount of tinkering a company can do to manipulate their bottom-line price-to-earnings ratio.
Without further ado, here are the stocks Hennessy sees big opportunities in, listed in descending price-to-sales order:
1. Restoration Hardware (RH)
- Price-to-sales: 1.21
- Year-to-date performance: 41%
2. Trinity Industries, Inc. (TRN)
- Price-to-sales: 0.94
- Year-to-date performance: -27%
3. American Eagle Outfitters, Inc. (AEO)
- Price-to-sales: 0.67
- Year-to-date performance: -15.9%
4. Casey's General Stores, Inc. (CASY)
- Price-to-sales: 0.65
- Year-to-date performance: 28%