Tags: Ward | stocks | gamco | bonds

Gamco’s Ward: Stocks Trump Bonds Big Time

Thursday, 08 Mar 2012 07:26 AM

By Dan Weil

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Even after the 7.6 percent jump by the Standard & Poor’s 500 Index so far this year, stock prices remain a screaming bargain compared to bonds, according to Howard Ward, portfolio manager of the Gamco Growth Fund.

The paltry yields available on bonds – 1.97 percent for the 10-year Treasury note late Wednesday – makes them unattractive, he tells CNBC.

Meanwhile, stocks have plenty of room for capital gains, and many of them offer juicy dividend yields, Ward notes.

“Stocks are demonstrably undervalued relative to fixed income,” he says.

“It’s a disparity the likes of which we've never seen in this country. The 10-year Treasury is selling at 50 times its coupon.”

And that coupon is unlikely to head higher anytime soon, Ward says. “With no growth in the coupon or principal, why would you want to buy that when you could buy stocks at 13 times earnings that are going to have principal appreciation as well as a dividend at 2 percent?”

Forecasts that earnings growth will slip to 7 percent this year don’t worry Ward. “Even with a muddied outlook for earnings, stocks should do well,” he says.

The stock market’s recovery Wednesday from its plunge Tuesday reassured many investors that the rally remains intact.

“The data coming out of the U.S. is supportive of growth,” Stephen Kylander, senior portfolio manager at RBC Global Asset Management, tells Bloomberg. “Valuations aren’t particularly stretched.”


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