Chief investment officer
Sit Investment Associates Inc.
Assets under management: $8 billion
GDP: 1% to 2%
CPI: 2.3% or 2.4%
S&P 500: 1,250
Hot sectors: technology, consumer goods, media
Hot stocks: Protein Design Labs, PartnerRe, Stericycle, ONI Systems, Cisco Systems
"We're bottoming in the economy right now," said Gene Sit.
He is expecting a slow recovery to begin in February or March. History, he said, is an encouraging factor: The average length of a recession is 11 months; the current recession is in its 10th month. In addition, Mr. Sit said, consumer confidence has stabilized.
Recessions are followed by a real growth rate of 6% on average, said Mr. Sit. But due to the current unemployment rate, which he estimates will rise to 7%, that level of growth is not realistic. Mr. Sit is predicting a real growth rate between 3% and 4%.
Mr. Sit does not expect inflation to be a concern in 2002. He is expecting the CPI to drop to 2.3% or 2.4% by the end of the year, but said that will hinge on what happens to foreign economies. In addition, Mr. Sit is expecting the CPI to rise in 2003.
His outlook for equities in 2002 is bullish: an average return between 10% and 15% from domestic equities. The main driver in returns will be small-cap growth stocks, he predicted, adding current valuations favor small-cap growth. Sit Investment is an all-cap growth equities manager, with a majority of its assets in large-cap equities.
The battered technology sector, which stumbled badly in 1999 and 2000, will come back to be a top-performing sector this year, Mr. Sit said.
Among the stocks he likes, Protein Design Labs Inc., a biotechnology firm, is a rare profitable company in the sector that could see it stock rise due to intellectual property royalties it receives. Stericycle Inc., a medical waste management company, and ONI Systems Corp., an optical broadband company, occupy unique market niches.