WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet

» Kirk - Re: Re: Martin Sosonoff: 2/21/03 WSW Special Guest

Martin's comments on Echostar were great. He said they are selling at $1100 per subscriber.

I look at it as real estate where a building is usually worth 9 to 11 times annual rent. $1100 is high compared to 11 times the average cable bill (unless most use pay per view that I've never ordered).

I remember doing a calculation when AT&T bought Comcast and some other deals and back then they were paying between $2300 and $4600 a subscriber if memory serves me right.

I have AT&T Broadband and must admit I am not pleased. It costs me over $50 a month and all I really want is a few cable stations like CNBC, CNN, FOXCable, etc. plus HBO and Max to have 5 or 6 shows without commercials to watch. Pretty damned expensive and only the premium stuff is digital so the actual quality is less than I get off the air with my antenna. I may switch to Dish when AT&T raises my rate after my trial period ends.

Anyway, I too hope Steve recorded the show and does his summary as Mr Sosonoff was a great guest.

BTW, HPQ and IBM became value stocks due to their dividends and price errosion from the bear. I expect them to grow 2x as fast as the general economy so I am quite comfortable holding them in my personal portfolio. Funny that the dividends are now better than money funds for HPQ!

-- posted by Kirk

» Happy - Re: Re: Re: Martin Sosonoff: 2/21/03 WSW Special Guest

If one uses even $20 as an average monthly cable bill, this would be $240 per year. $1100 is just 4.6 X's $240. So it would seem based on the Real Estate model that $1100 per subscriber is cheap.

-- posted by Happy

» SteveT - 2-28-03

Frank Cappiello says Iraq is still a worry mainly due to fears over higher oil prices that could result in the event of war in addition to everything else. Franks said one way or another we need a solution that will settle the matter once and for all. Cappiello likes oil stocks such as ConocoPhillips (COP) and Valero Energy (VLO) and would sell bonds and gold.

Rich Bernstein is still a cautious bear and worried about a double dip recession. He says oil prices are likely to stay higher longer than most people think. This will make it hard for business to exceed expectations. Rich is not worried that higher oil will be inflationary but anti growth. For that reason he is still bullish on bonds. Bernstein does like some defensive dividend paying stocks like CINergy (CIN) and Sicor (SCRI). He is still worried about Tech and Consumer cyclicals and said individual investors could play that by shorting the CYCLICAL-TRANSPORTATION SPDR (XLY).

Barbara Marcin says war worries are depressing the stock market and economy. This is hurting consumer confidence and business spending. She thinks once war starts these problems will abate. Barbara has a long list of stocks she likes some of them being Ingersoll-Rand (IR), Honeywell (HON), JP Morgan Chase (JPM) Citigroup (C), Merrill Lynch (MER), Disney (DIS) and AOL Time Warner (AOL).

Lou then introduce special guest Edwin Walczak manager Vontobel U.S. Value Fund. Ed focuses on buying a very good business at cheap prices. Saying it is easy to say but hard to execute. Keys are to look at a business with a competitive edge or franchise with good management. Other factors are strong commitment by insiders to own the stock, plenty free cash flow, High return on equity, and modest use of financial leverage. Stocks he owns now and could recommend are American International Group (AIG), Universal Health Services (UHS), Cincinnati Financial (CINF), Markel (MKL), T J Maxx (TJX), and Tiffany & Co. (TIF). He recommends having a moderate time horizon of at least two years. His sell discipline is either the stock reaches his estimation of fair value or he will sell at a lose if he feels it will not grow as he thought it would. Walczak doesn’t differentiate growth and value by traditional measure such as P/E or P/B saying just because a stock has a low P/E doesn’t mean it has value and is selling for less than it is worth.

Frank asked why he is fully invested and has no cash reserves. Ed has a very narrow list of a 100 or so companies that he would buy and have very good records. When they get cheap he buys them. He did have some cash in 1997 because he sold stocks and could not find any replacements that met his criteria. Rich asked if there are some “value traps” out there and what he would avoid. One he is watching and is worried about is Safeway (SWY). Wal-Mart is coming into it’s territory and it could be harmed. For now he is holding and says he could be wrong. He went on to say he is wrong a lot and it is a very humbling business. Barbara asked if Ed is looking at Tech, Media and Telecom. Yes, saying you have to be open minded but stick to your discipline. They will have to have defensible franchises and able to create new and winning products today and tomorrow. Companies he is watching now are Tellabs (TLAB), American Power Conversion (APCC), First Data (FDC), and Comcast (CMCSA).

Lou finished asking if threats of terror attacks are factored into any of his analysis. It could affect insurance holdings but for the most part insurance companies have either excluded that coverage or increased premiums to cover that possibility.

Next week an unusual show with two special guest. They are Nobel Prize winning economist Franco Modigliani and his Granddaughter Leah Modigliani a strategist for Morgan Stanley. They will share new ways to access risk while seeking rewards.

-- posted by SteveT

» Kirk - Re: 2-28-03 - VONTOBEL U.S. VALUE (VUSVX) Mid-Cap Value

Thanks Steve.

VONTOBEL U.S. VALUE (VUSVX) Mid-Cap Value

3 Year Chart
<img src=http://pvcharts.quicken.com/images/chart... width=470 height=250>

5 Year Chart
<img src=http://pvcharts.quicken.com/images/chart... width=470 height=250>

Amazing that Total Bond has outperformed this hot fund over the last 5 years. No wonder so many are abandoning equities for bond funds. Of course, this is often a sign of a bottom.

ANNUAL EXPENSES
 Fund  Category  Ranking* 
VUSVX   1.75%     1.51%   
VTSMX   0.2%      1.26%   
FLPSX   0.97%     1.54%   
VBMFX   0.22%     0.99%   
ARGFX   1.19%     1.54%  
.

LOAD
 Fund  Category  Ranking* 
VUSVX   5.75%     1.02%   
VTSMX      0%     1.11%   
FLPSX    3.0%     0.98%   
VBMFX      0%     0.89%  
ARGFX      0%     0.96%

5.75% Front-end Load. I wish Lou could find some more fund managers to promote that didn't have front-end loads AND annual expenses over 1% a year. It seems like rape to pay 5.75% up front and then get hit each year with 1.75% in annual expenses.

-- posted by Kirk

» SteveT - Re: Re: 2-28-03 - VONTOBEL U.S. VALUE (VUSVX) Mid-Cap Value

You know I guess I never ( or almost never) look at a guest and think of buying what they are selling. I look at it more for information and the thought process they follow. But then that is me.

Years ago I took Lou's fund newsletter which was a few interviews and a fund screening of better performing funds in various categories. As I recall he did feature no-load or "low load" i.e. Fidelity funds. Maybe since the good ones for investors don't charge 12b-1 fees and loads they can't afford to advertise as much or someone to travel to Lou's place.

-- posted by SteveT

» SteveT - 3-7-03

Tom Gallagher says Iraq is for now the center of attention. He is not worried we will be militarily hurt by not having the element of surprise on our side. He likened Iraq to being in a poker game and having the second best hand. Saying since 1991 the U.S. is much stronger and Iraq is weaker. Now diplomacy is more important than tactical surprise. Gallagher is expecting a saw toothed war rally. With much selling of the rallies due to geopolitical risks and economic issues. Stocks Tom likes now are Mylan Labs (MYL) and Northrup Grumman (NOC).

Mary Farrell said it is evident war is on traders minds with the market reacting to ever piece of news. She expects this to continue until the Mid East is resolved. Mary says stock fundamentals are improving but we are in a very slow recovery. Farrell likes Caterpillar (CAT), Gannett (GCI), and Colgate (CL).

Lou then introduced Franco Modigliani and his Granddaughter Leah Modigliani. The team has produced research on evaluating the risks of stocks and mutual funds along with their actual returns. Their concept of risk adjusted performance is now widely used in the financial industry. Franco says the overall market is somewhat overvalued but not by very much. The risks are still very great he added. He feels once Iraq is settled we maybe near the right valuation. His main measure is P/E and that is currently at 17 trailing and not to far from being maintainable. His Noble research showed a high income has no correlation to a high savings rate. He contrasted the U.S. and China as an example. He does not personally favor President Bush’s tax plan. Saying it would make the rich richer and the poor poorer. {E.C. At first I thought this was rhetoric but after listening I found is reasoning had some logic to it}Franco thinks President Bush is taking advantage of the depressed situation of the economy to move towards a flat tax system and away from the progressive system we have now. He agrees it is desirable to treat corporate debt and equity alike, but this is not the way to do it he warns. Modigliani says the rest of the world has abolished the flat part of their taxation and kept the progressive part and we should too. He thinks all corporate income should be taxed on a progressive system, this would avoid a lose of revenue to the government and reduce deficits.

Leah Modigliani. Enjoys working with her Grandfather but does have some differing views on the dividend tax treatment. She is in favor of correcting market inefficiencies. Leah favors a level playing field for debt and equity as well as dividends and stock buy backs. Leah favors relief of corporate taxation and this would indirectly affect individuals. Conceding right now it may not be a priority in Washington since the current system has been in place for sometime. Her market outlook is more favorable than Franco’s. Leah says S&P 500 in the 800- 820 range is a pretty good value. She has observed mutual fund flows and noticed people selling equities and buying bonds, something she would not do at this juncture. Leah follows the rest of the world too and says Europe and Japan are having a rougher time than the U.S. She does think emerging markets do look interesting.

Tom asked Franco about the impact on the financial markets if President Bush does get his tax plan passed. In the short term it is hard to judge but in the long term it will be damaging. He does not believe it will cause the markets to go up since it will not affect earnings. It will reduce investment because firms can now retain earnings and finance cheaper than the market place. Companies will feel pressure to pay more dividends reducing their savings. The U.S. is meager when it comes to saving and corporate savings is a very important source of total savings. The outcome will be the rich get richer and consume more making less available for investment.

Mary asked Leah why there is such a gap between the research and knowledge on risk and applying it for the average investor. Human nature and psychology. Investors tend to chase performance and this causes them to make mistakes. She does not think the market is efficient because humans don’t react rationally.

Lou finished asking Leah to clarify risk asking is it volatility or something else. In academia volatility is a measure of risk but the average investor is not as comfortable with volatility as a measure of risk. Her work attempts to capture the essence of risk and explaining it a little more simply. She added think of it as the probability of losing money.

Next weeks special guest G. Paul Matthews Chairman Matthews Funds. The panel will be Mike Holland, Brian Rogers, and Nick Sargen.

-- posted by SteveT

» SteveT - 3-14-03

Mike Holland said the Baghdad stock exchange is up 58% from the low of last September after President Bush made a speech at the U.N. calling for a regime change. Baghdad real Estate is up 20% YTD so those folks are betting cash on positive change in Iraq and that is no guru talk. Holland say there are many reasonable value on the NYSE considering interest rates and inflation. He likes Intel (INTC) and would sell any U.S. Treasury due in less than five years. Saying the yields are less than the inflation rate.

Brian Rogers agrees there are many values in stocks now. The place to take money out of is Money Markets and high quality U.S. Treasuries. Stocks he likes now are Honeywell (HON), AOL Time Warner (AOL), and Waste Management (WMI). Rogers says once Iraq is resolved either via diplomatic channels or military action it will lessen concerns investors have and boost stocks over all.

Nick Sargen just returned from Europe and says the economies of Germany and France are in the worst shape in Europe. The periphery Nations like Ireland and Spain are in much better. In Asia Japan is in trouble however Emerging Asia is one of the bright spots. Nick says now bonds are over bought. Once the war starts Sargen is going to be watching the price of oil as a barometer of the future. He is looking for oil and gold to come down along with a stronger U. S. Dollar and stocks to rally for 2 or 3 months. It is then the price of oil will bear watching. What remains to be seen is will a new trend unfold or will stocks fall back again. If oil can stay below $30 a barrel it will be a sign things are going well and a sustainable rally can ensue. Nick likes Home Depot (HD) and is avoiding France and Germany for patriotic reasons. Outside the U.S. he like Asia and the U.K. GlaxoSmithKline (GSK) is one of his favorites.

Lou then introduced special guest G. Paul Matthews Chairman Matthews Funds. Matthews said the recent spike in oil prices has lowered the growth outlook for all of Asia 1 or 2% this year. The North Korea chest thumping has damaged the South Korea stock market but had little effect on the rest of the region. He thinks it is best to deal with North Korea by diplomatic channels and the sooner the better. China is the bright spot in Asia, it will be the growth engine for the region. Lou asked if any Nation could succeed economically without political freedoms. Paul said that China has been experimenting with economic reforms and opening their economy for 24 years and that has led to slight improvements in political freedoms. Many companies in China are benefiting from their growth of consumption Stocks he owns and would recommend are Huaneng Power (HNP), China Mobile (CHL) and Café De Coral (034.HK). Matthews has not historically invested in Japan but did recently buy a couple REITs, one Retail and one Office.

Mike disclosed he was on the board of a closed end competing fund and asked when investors should look at a closed vs. an open ended fund. When there is a significant discount to NAV, if no discount there is no advantage. Brian asked about accounting standards and corporate governance issues in Asia how to deal with it. Paul said first and foremost there is no substitute for frequent visits. Accounting practices vary over the region Hong Kong and Singapore are very good on par with the U.S. It goes down from there to the Domestic China markets being the bottom. Nick asked if China will impact the raw materials market. Eventually it will have a significant impact. Their economy is growing at 7% a year and if that continues it will have an impact.

Lou asked in light of the Asian Contagion of 6 years ago how much should the average investor put in Asia. Asia ex-Japan is about 10% of the Global economy so for a sophisticated investor 5% is appropriate. Lou then finished by asking if the growth in China has cost U.S. jobs. No doubt the growth in China has cost some manufacturing jobs in other parts of the World. The trade off will come as they grow they will consume more goods from other Nations. Long term it will be a job creator.

Next week special guest will be Byron Wien Chief U.S. strategist Morgan Stanley.

-- posted by SteveT

» SteveT - 3-21-03

Lou asked and answered why Wall Street seems to be responding so spectacularly to war. Two factors; the market took heart to the decisive action after months of uncertainty, and stocks had over reacted on the down side prior to this rally. Investors are betting on a better and more prosperous future. This week the DOW enjoyed its best weekly percentage gain since October 8, 1982. Lou’s web site does offer replays of his commentary. Lou can say it far better than I can report it so please stop by his site to hear it as it was intended.

Frank Cappiello is surprised at how fast things moved this week and is worried things maybe getting a little ahead of itself. He is cautious on the war saying we have not yet come up against their best troops and lots could still go wrong. Frank likes Metlife (MET) Dean Foods (DF) and Duke Energy (DUK). He would sell gold and thinks it is time or past time to lighten up on bonds.

Lou Holland expects good news in the short term but is more cautious about the longer term. He thinks the market has gotten ahead of the economy. Holland is worried consumers are not spending and says stocks are still relatively expensive compared to historic norms. He is concerned about inflation becoming a problem due to the FED increasing money supply and manufacturing outsourcing to foreign countries. Despite these misgivings Lou likes Pfizer (PFE), Northern Trust (NTRS, Total System Services (TSS), and Amdocs DOX). He would sell some of the consumer staples like Procter & Gamble Co (PG) and some of the conglomerate banks.

Kim Goodwin is concerned about the economy and thinks the recovery has stalled. According to Kim the market is not focusing on fundamentals, it is either euphoric or depressed. She is buying select equities that she thinks can out perform the market and grow their top line. A couple are Starbucks (SBUX) and Career Education (CECO).

Lou then introduced Byron Wien Chief U.S. strategist Morgan Stanley who is know for his forecasting ability. Byron thinks the market is going higher with the S&P 500 rising through the 950 resistance to around 1000. He also thinks interest rates will increase a little but stocks will continue to do well. Wien said people held back waiting for war and when we the war is behind us we will see more capital spending, hiring and inventory building. Both individuals and institutions will be investing again. Tech is still not his favorite sector, saying it still has some inventory excesses. He does like the energy sector thinking oil prices will remain high as supply and demand is favorable for oil stocks. Wien recommends Valero VLO) and ConocoPhillips (COP). He also likes the Biotech area and Amgen (AMGN). Byron also likes DOW Chemical (DOW) and General Dynamics ( GD).

Frank said Byron predicted Japan this year will leave behind their deflation problems, why is that? He is optimistic because they are being forced into reforms to compete with China. Lou asked where he would put investment money overseas. Wien said the real opportunities are in the U.S. but for foreign money Emerging Markets will do well with perhaps Brazil leading the way. Kim asked for his views on housing. He said we are not in a bubble and in the U.S. housing is a good deal. The average house cost 3 or 4 times an average families yearly income and is very affordable. Wien thinks housing will continue to be a force in the economy.

Lou asked about the future of the U.S. Dollar. It should be under some pressure due to the trade deficit but not more than we can handle. Lou asked why hasn’t the trade deficit torpedoed the Dollar. The differential between overseas bonds and ours has remained attractive. Lou wanted to know what to sell. Consumer staples that have held up well, bonds, and some financial service. Financial services now account for 20% of S&P 500 earnings, historically when they reach that level it is a bad sign. Lou asked for an economic forecast. The economy has been compressed waiting for war and when that is behind us consumers and corporations will spend and GDP will grow from 2%-3%. The economy is strong, even with all the bad news it hasn’t gone into recession the past two quarters.

Lou will be taking the next two weeks off. Next week Tyler Mathisen will host (although the web site says Sue Herera). Special guest will be Lanny Thorndike Chief Investment Officer Century Funds. The panel will be Ed Brown, Gretchen Lash, and Liz Ann Sonders.

-- posted by SteveT

» Kirk - Re: 3-21-03 - Byron Wien's Stocks

Great work Steve!

Wien recommends Valero VLO) and ConocoPhillips (COP). He also likes the Biotech area and Amgen (AMGN). Byron also likes DOW Chemical (DOW) and General Dynamics ( GD).

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=570>

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=570>

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=570>

<img src=http://cbs.marketwatch.com/charts/int-ad... height=570>

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=570>

I believe Byron said his company does investment banking with all these firms and they own more than 1% of the stock in them (via mutual funds). I wish Lou would ask him "Would you consider increasing your position to 2% in any of these companies at today's prices or will you sell if you get a quick 10% gain?"

-- posted by Kirk

» smile_1 - Re: 3-21-03 - Thanks Steve

For these summaries.

Noticed Lou will be on vacation.

Those who are familiar with the program, know that Uncle Lou muses when he is on vacation, there is no one to hold the market up. Market sinks generally when Lou is out - consistent indicator.

We will see if this holds this time too.

-- posted by smile_1