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Will the Bull Buck Off the Little Guy?

March 09, 2011 – by Richard Band

Well, here we are, two years later. The S&P 500 index has almost doubled from its fateful low of March 9, 2009. And an AP story tells us that, finally, “the little guy is back.” Since year-end, investors have poured $24.2 billion into U.S. stock mutual funds, after withdrawing four times as much ($96.7 billion) in 2010.

Sell lower, buy higher. Go figure!

I do hope the little guy gets lucky for once, and makes a bundle of money in the remaining months of this bull market. However, his track record isn’t particularly inspiring.

One of the gentlemen quoted in the AP piece converted his 401(k) accounts from stocks to cash after the 2008 meltdown. (He also lost his shirt in the Internet collapse 10 years ago.) Now he’s 85% back in mutual funds. Is this the kind of Patton-like hero you’re itching to march after?

Over the next few sessions, I’m looking for another marginal new high on the blue-chip U.S. stock indexes. But I also suspect that the market will then undergo a deeper “correction” than we saw after the Feb. 18 top. The bull never likes to carry so many Johnny-come-latelies on his back, even if they’re just “little guys.”

Meanwhile, it looks as if the super-juiced-up energy sector may be ready for the timeout chair. Natural gas is lagging far behind oil, often a sign of an approaching pullback for the entire energy complex. My advice: Make a graceful exit now.

So is there anything worth buying? Besides the bond funds I mentioned last week, I’m keen on Telkom Indonesia (NYSE: TLK). Last week, management issued guidance for 2011, and the numbers are encouraging.

TLK says we can expect the company to generate a cash-flow profit margin (EBITDA to sales) of about 52%. Working backward from that figure, I project earnings per ADR of about $2.75 to $2.85.

That gives us a P/E ratio of about 12 at yesterday’s closing price — quite reasonable, I think, for a telco serving a fast-growing market. Current yield, based on my estimate of dividends to be paid in the next 12 months, stands at 4.4%. Pay up to $36 for TLK.