WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet: 9-3-04

» SteveT - 9-3-04

Bill Griffeth served as guest host this week as Lou continues his slow but steady return to good health. Bill talked about the rhythm of the market, or seasonality. Griffeth compared the market to a dance, sometimes fast, sometimes slow. With the dog days of summer behind us is the market due for a rally? Will the pace pick up? Will all the markets get back to doing the same dance? Time will tell.

Barbara Marcin is positive on the market even though it appears the economy is moderating. She is encouraged due to the confidence shown by corporate executives and thinks the market dip is temporary, caused by rising oil and election uncertainty. Marcin likes companies that use their cash to buy back stock and increase dividends. Some of her current favorites are Halliburton (HAL), Noble Corp. (NE) and Microsoft (MSFT).

Frank Gannon says corporate cash is king now. The key for the economy this year and next is what will corporate America do with their cash? If they spend it the economy will grow. Frank thinks the DOW will be a barometer for the Presidential election. If the DOW is up Bush should win, if it is down Kerry could win. Now Gannon is looking to add volatility to his portfolio wanting to make the most out of an anticipated market run going into the end of the year. Stocks he likes are Transocean (RIG), Goldman Sachs (GS), and Lexmark International (LXK).

Elizabeth Dater said the consumer is always key to the economy. She does agree at some point in this cycle capital spending will pickup. For now cash is accumulating quicker than capital spending is increasing. Beth thinks we are still unwinding the last of the excesses from the late 1990s. She thinks before they buy new equipment companies want to be absolutely sure money spent is going to see a return. Dater also thinks stock buy backs will be increasing as well as merger and acquisition activity and more private equity investors. She likes Carbo Ceramics (CRR), Denbury Resources (DNR), and Mentor Corp (MNT).

Bill then introduced Michael Fasciano, Portfolio Manager, Neuberger Berman Fasciano Fund. Michael is a small growth manager and believes small stocks always offer the opportunity to make money and can be exciting. He is currently optimistic but always cautious. He tempers his enthusiasm, saying he is looking for real businesses, making real money, that present real value. He doesn’t buy growth unless he sees value in the stock, and don’t buy value unless he sees growth in the business. Fasciano says small stocks are fertile ground for finding companies that are under followed by Wall Street and under owned by institutions. They also can be frequently under valued. His current thinking is go with quality and proven moneymakers with positive free cash flow. Stocks he likes now are International Speedway (ISCA), Direct General (DRCT), and Young Innovations (YDNT).

Barbara asked if he is finding value in small cap energy stocks? Michael thinks they can do well as long as oil is above $30 per barrel. Possible selections could include Carbo Ceramics, Offshore Logistics, and FMC Technology. Frank asked if M&A would be a big part of the small cap story going forward? It is possible as larger companies look for niche players. This is true more so in moderate economic growth periods as larger companies look to enhance their growth rates. Fasciano thinks this will be held in check by the relative valuations of small vs. larger stocks. Beth asked for a view on technology. Michael is under weighted by about 50% of his normal tech allocation. He is not anti-tech but is looking for longer product cycles. He tries to look out five years, and right not five month is a stretch for many Tech companies. He did mention some holdings that could be worth a look. Scansource, Plantronics, and Methode Electronics.

Next week Consuelo Mack will be back as guest host. Special guest will be Ned Davis, President and Founder, Ned Davis Research. The panel will be Mary Farrell, Tom Gallagher, and Liz Ann Sonders.

-- posted by SteveT