U.S. investors should put all of their money into stocks, according to Prudential Equity Group LLC's Edward Keon. The call was the most bullish since Bloomberg News began surveying Wall Street strategists in 1996.

Keon increased his equity weighting to 100 percent from 80 percent and recommended that investors sell a 20 percent holding in bonds. Stocks look as cheap compared to bonds as bonds were compared to stocks during the "height of the equity bubble" in early 2000, he said.

"I didn't do it to be provocative," Keon said from his office in New York last week. "I just did it because that's what the valuations of stocks and bonds were telling me to do."

The 52-year old Keon's call compares to an average recommendation of 65 percent from 15 strategists surveyed by Bloomberg. The next highest weighting is 75 percent by three strategists including Goldman Sachs Group Inc.'s Abby Joseph Cohen.

Keon was named chief investment strategist for Prudential in September, replacing Edward Yardeni. He was previously the U.S. chief quantitative analyst and was named the best such analyst in Institutional Investor's 2004 poll.

Stocks are cheaper relative to bonds than they have been at any time since 1980 according to the so-called Fed model, wrote Keon. The model, a method of valuing the U.S. stock market cited by Federal Reserve Chairman Alan Greenspan, compares the average earnings forecast for Standard & Poor's 500 Index companies with the yield on 10-year Treasury notes.

The companies in the S&P 500 are expected to earn $74.45 per "share" of the index this year, according to Bloomberg data. That equals about 6.2 percent of the index level, while the 10-year U.S. Treasury yields about 4.1 percent.

"I have a feeling that people don't think they can lose money in the bond market," Keon said. "People know for sure you can lose money in stocks and they have some risk associated with them. You want to trade away from the asset, which has a perception of no risk and into that which does have some more risk but also offers the opportunity of growth."

The recommendation for a 100 percent allocation to equities was aimed at investors with appropriate risk expectations who were "willing to embrace the opportunities presented by today's relative valuations," Keon wrote in a note last week.

Keon also said that at the current level of interest rates companies that have "a lot of debt capacity can buy back their own stock in a way that would boost their earnings per share." He cited Microsoft Corp., Cisco Systems Inc. and Symantec Corp. as examples.

The strategist has gradually become more bullish since taking the position. He started with a 55 percent allocation for equities in September, and raised that to 60 percent in November, 65 percent in January, 75 percent at the end of March, and 80 percent in May. The S&P 500 has climbed 7 percent over that time.

In October 2004, he forecast that percentage returns in the stock market would be in the "middle single digits" during the next two years because "profits may be pretty stagnant over the next couple quarters."

When Keon raised his stock allocation to 80 percent in May, he wrote that first-quarter "earnings have been terrific."

Keon said last month that the S&P 500 may reach a record high in 2006 because stocks are undervalued relative to bonds and real estate.

The benchmark will gain almost 30 percent to 1,560 in the next 1 1/2 years, surpassing its high of 1,527.46 set in March 2000, he said. Industries that benefit from an expanding economy, such as technology, will lead the rally.

Other strategists are more pessimistic about the outlook for stocks. Merrill Lynch & Co.'s Richard Bernstein, the most-bearish strategist on Wall Street with a stock allocation of 45 percent, wrote last week that he expects "a wave of downward" earnings estimate revisions in the second-half.

While Keon's stance is a first for strategists, it is not unique in the investment world. The Vanguard Asset Allocation Fund, managed by San Francisco-based Mellon Capital Management, went to a 100 percent weighting for stocks in January. The fund has had all of its assets in stocks only six other times in the last three decades.

Strategist defends 100% shift to stocks