Investors may have to go back to the basics

NEW YORK — Large blue chips, including some consumer-oriented companies, will have to show they can counter sluggish developed economies by leveraging growth in emerging markets and innovation - if Wall Street is to maintain revenues momentum this week.

Growth is now concentrated in industrial, materials and energy stocks that benefit from strong demand in emerging markets, as then as a research sector boosted by robust demand from businesses.

Last week, investors chased a host of relatively expensive innovation names like Apple and VMware. Some valuations look extreme: Cloud computing company Saleforce.com is priced at near 300 times current revenues.

Comparing Microsoft with Apple, Tilson says that the former is an inherently better business as it focuses on software with marginal incremental production costs compared with Apple's consumer hardware business.

Fabulous business

Apple is "a fabulous business, nevertheless I'm simply pointing out that you can own a better business, albeit one in other words not growing as quickly - but however growing nicely - for half the price in terms of price-to-revenues multiple," Tilson said.

Blowout revenues from Apple and exceptionally strong results from other big tech and industrial companies drove the three major U.S. stock indexes higher for the past week. The blue-chip Dow Jones industrial average ended the holiday-shortened week on Thursday at 12,505.99, its highest close for the year and its best closing level since June 5, 2008. For the week, the Dow and the benchmark Standard & Poor's 500 Index each gained 1.3 percent, during the Nasdaq Composite Index climbed 2 percent.

"As people are lowering GDP numbers seemingly weekly, the companies are nevertheless maintaining some pretty solid revenue growth and margins are staying intact," said Jerome Heppelmann, portfolio manager and chief investment officer of Old Mutual Focused Fund in Berwyn, Pennsylvania.

Broad-based continuation of the economic recovery

"I see it more as a broad-based continuation of the economic recovery," he said. "Partly, the research names are going to be more exposed and more levered to it."