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

» Kirk - Stocks May Enter Bull Market, Morgan Stanley's Wien Tells NYT

Stocks May Enter Bull Market, Morgan Stanley's Wien Tells NYT

By Claudia Carpenter
03/23 11:01
http://quote.bloomberg.com/fgcgi.cgi?pti...

New York, March 23 (Bloomberg) -- Stocks may be about to enter a bull market, Byron Wien, senior investment strategist at Morgan Stanley & Co., told the New York Times ``Market Insight'' interview column.

The Dow Jones Industrial Average and the Standard & Poor's 500 Index turned higher for the year last week as U.S. and U.K. troops entered Iraq. Wien told the paper the rally ``will carry further than the consensus expects'' though first-quarter earnings are likely to be disappointing.

``The very strong move we have had is actually encouraging, because that is the way important bull markets often start,'' Wien told the paper. ``There will be some pullback, but I am on the bullish side of the consensus.''

First-quarter earnings were probably hurt because the economy was ``held back by the war and the weather,'' Wien told the Times. ``But the remaining quarters will be positive.''

Stocks worldwide fell for a third straight year in 2002 amid concern about corporate scandals, slowing economic growth and threats of terrorism and war. Last week, the Dow gained 8.4 percent, the biggest weekly gain since Oct. 8, 1982, and the S&P 500 advanced 7.5 percent.

(New York Times 3-23, 3-6) (For the New York Times Web site, see {NYTI }.)

-- posted by Kirk

» Kirk - Rukeyser Vacation Week

Let's see how the markets did:

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=366>

We should not let him go on vacations!

-- posted by Kirk

» SteveT - 3-28-03

Gretchen Lash said this is a time when as investors we need to look past the fears and at the underlying fundamentals. Consumers and Corporate America are in better fundamental shape than they have been in at least three years. Lash thinks the economy started to dramatically improve in October 2002 but has gone through a temporary emotionally driven stall in February and March. Currently Corporate profits and balance sheets plus disposable income for consumers are very strong Gretchen is looking for a pick up in capital spending and consumer spending hence a dramatic pick up in the economy once some of these fears are resolved. She gives credit to some of the fear to the war and the press along with high unemployment and weak employment growth. She points out consumer income has been rising for 15 months. Lash recommends positioning a portfolio towards return to normalcy and buying economically sensitive companies like American Express (AXP), Kohl’s (KSS), and Oracle (ORCL). She would sell Pharmaceuticals, Defense stocks, and not be buying treasury bonds at this point.

Ed Brown favors dependable companies like Pfizer (PFE) Kohl’s (KSS), and Family Dollar (FDO). He does not like anything related to travel. Brown says the overall market will be fine long term but sees many short term obstacles. Those being the war and the consequences after the war in the Mid East and Europe.

Liz Ann Sonders said historically the most successful investors have made courageous decisions at times when the risks seemed highest. She thinks this is one of those times and is an excellent opportunity. For her the big problem is time horizons have become condensed to minutes and hours. Sonders points out we have record stimulus. Liz Ann is in favor of a diverse approach and likes H&R Block (HRB), United Technologies Corp. (UTX), Cisco (CSCO), and AFLAC (AFL).She does warn in Tech you need to be selective and can’t just pick and stock in the sector. She is concerned some of the semi related companies have had to much of a run up lately.

Tyler then introduced special guest will be Lanny Thorndike Chief Investment Officer Century Funds. Lanny likes to buy leaders at laggard prices. Those companies he thinks have an advantage over their competitors over the next five years but at valuations less than the over all market and their peer group. You often get a couple opportunities through an average cycle of six or seven years to make these buys. You look for the best performers and management teams and ride them for a long time. Buying those great companies at low prices involves examining return on equity (ROE), it ties the balance sheet to the income statement. If they have a ROE of 15% or more over three and five years they pass his test as a good company. Thorndike doesn’t stop there, he visits about eighty companies per year. Talking to the CEO,CFO, marketing reps, and the lower level people a various location within the company. He picks companies he deems have sustainable franchises, some of them now are Moody’s Corp (MCO), Stericycle (SRCL),and Anthem (ATH). Lanny describes himself as a growth investor in value industries. About 30% of his holding now are in the health care related field. He also likes the business services sector. He would avoid Banks, Life insurance, and Technology.

Gretchen asked how he uses Wall Street firms for research. It is getting harder due to about a 20% cut back in research. They help you learn more about what you know and bring new ideas into the mix. With the cut backs investors are going to have to fill the void and do more of their own research. Ed asked when he decides to sell a stock. Thorndike has a defined and systematical sell approach, he sells for three reasons. 1. It reaches his price target, and every stock he owns has one. Adhering to his discipline helps avoid “falling in love with a stock”. 2. A change in fundamentals 3. A catalyst change. Liz Ann said financials are now a very big part of the S&P 500 and with possible interest rate increases what is his position on financials now. Lanny is under weighted in regional banks due to high valuations, possible slow loan growth, and credit quality concerns. He expects some head winds for investment banks as well with fewer transactions and lower volume. Credit cards too could see some near term cloudy conditions with eventual recovery.

90% of Lanny’s time is spent as a bottoms up fundamental investor. He does spend about 10% of his time looking at macro market conditions and the economy. Once each Quarter he steps back to look at the industries and sectors to see if things have changed. He is expecting the first half of 2003 to be anemic. The second half to be back end loaded. In 2004 he hopes some of the Mid East problems are solved. He thinks the next economic up turn will be revenue driven. SG&A (Selling, General, & Administrative expenses) have been getting tightened and that can’t last forever. By the end of 2004 he sees real opportunity. To avoid mistakes Lanny recommends doing your homework on the stocks you own. Try to talk to the people behind the company, get to know their products and services, dig into the financials and look closely at the footnotes.

Next week Sue Herera will guest host. Special guest will be Kevin Grant, Fidelity Investments, Portfolio Manager. The panel will be Alison Deans, Roger McNamee, and Bob Stovall.

-- posted by SteveT

» Kirk - Lanny Thorndike - CSMVX - Century Small Cap Select

One-and-a-half-year-old Century Small Cap Select (CSMVX) could be classified as a sector fund, as its policy is to have at least 25% of assets in financial services and healthcare. The most recent report shows 60% in financial services and 8% in healthcare, but 21% in non-financial services; so it would be incorrect to call it a financial-and-healthcare fund. Its median market cap ($2 billion) has crept up to the mid-cap area. Whatever the recent focus, Lanny Thorndike must be making good choices as the fund has delivered an annualized total return of 35% in a period in which the market declined 10%. A risk exposure half the market and small distributions make it a fund for most any portfolio.

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=366>

<img src=http://cbs.marketwatch.com/charts/int-ad... width=452 height=366>

More on Lanny http://www.diansfundfreebies.com/audio/1...

-- posted by Kirk

» SteveT - 4-11-03

Tom Gallagher says the final budget should have some meaningful tax cuts on dividends, perhaps a 50% exclusion. He believes this would raise the value of the S&P (500) by about 3.5%. The costs of the war are already part of the budget but reconstruction costs for Iraq are yet unknown. Tom thinks large engineering and construction companies could benefit with new business in Iraq. The benefits should start slow but increase over a long and difficult process.

Rich Bernstein is very cautious but says there will be opportunities. He thinks the probability of a double dip recession is higher than many people think. Bernstein also thinks corporate profits will be lower than many people think for the entire year. Rich predicts a flat to slightly down year for the stock market. Three stocks he does like are Alliant Techsystems (ATK), Avery Dennison (AVY), and Gillette (G).

Frank Cappiello says we may still have some problems but thinks we are in a bottoming process. Frank thinks the lows of last year will hold but we may bounce around here for a while. Despite a weak consumer and SARS possibly damaging global trade the stock market is a reasonable value according to Cappiello. He likes Citigroup (C ) and Wellpoint Health Systems (WLP).

Lou then introduced special guest Kevin Divney, Portfolio Manager, Putnam Tax Smart Equity Fund. Kevin tries to minimize taxes by avoiding short-term gains and harvesting a loss. The trick is to do so and still achieve a competitive return. He begins by using traditional valuation methods and then looks for a catalyst that will propel the stock. Stocks he currently likes are AutoZone (AZO) and Capital One (COF). He is avoiding some of the airlines after a good run. He is trimming his position in Southwest air saying it maybe the best house in a bad neighborhood. He is also under weighted in consumer cyclicals.

Tom asked if we don’t get a tax cut this year will that affect his fund. It won’t, Kevin looks at a companies return on capital. If they pay a dividend that means they can’t find anything better to do with the money. In his view good companies find a better use for capital. Rich asked what catalysts he looks for in an under valued stock. They can be numerous but a few are valuation, growth, relative valuation to peers, and earnings momentum. They change constantly so you need to keep on top of them. Frank asked what his philosophy was on Tech stocks. Divney’s Tech holdings have a more traditional business model. They have slower but more dependable growth, they are market leaders that will be around for awhile, and they have diverse businesses.

Lou finished asking what was the biggest mistake he made recently. This year Kevin was a little over weighted on consumer cyclicals.

Next week special guest will be Eugene Flood, CEO, Smith Breeden Associates. The panel will be Mary Farrell, Mike Holland, and Frank Gannon.

-- posted by SteveT

» Kirk - Re: 4-11-03: Special Guest Kevin Divney

Thanks Steve

At any rate the extended bear market seems to have ended last Fall. Since then all the major market averages have had double-digit gains.

Lets have a look at the markets since the bottom set last Fall:

Rich asked what catalysts he looks for in an under valued stock. They can be numerous but a few are valuation, growth, relative valuation to peers, and earnings momentum. They change constantly so you need to keep on top of them.

It is interesting how many use earnings momentum to buy stocks. This is probably why he says his fund is a "Blend Fund" as he uses metrics from both value and growth.

Frank asked what his philosophy was on Tech stocks. Divney’s Tech holdings have a more traditional business model. They have slower but more dependable growth, they are market leaders that will be around for awhile, and they have diverse businesses.

I thought it interesting he chose HP, MSFT and Dell as three of his tech holdings to highlight. Does anyone remember if he mentioned Intel? HP is a good value just on its dividend and there is great potential for growth from the service business while Dell is the growth leader in the space. Both are growing by taking market share from the others who are, IMHO, failing in these difficult times (such as Gateway). He picked MSFT because it had so many new, diverse businesses besides the operating system and office software. It did seem odd that he said he likes to invest in companies that don't pay a dividend because it means they can get a better return for investors by growing the business, then he said something about MSFT just deciding to pay a dividend. I don't think he was too clear on this point.

HPQ sure has done well since the bottom last Fall! I hope Kevin Divney didn't jinx HPQ by mentioning it on the show as HPQ seems to be testing a fairly large support level with a somewhat bearish chart pattern.

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-- posted by Kirk

» SteveT - 4-18-03

-- posted by SteveT

» Kirk - Re: 4-18-03

Maybe we can fill in the blanks for you Steve.

Lou's guest was Dr. Eugene Flood, CEO, Smith Breeden Associates. He is known for Bond Funds. Professor Flood said he expects equities going forward to have high single digit returns while he expects bonds to have 4 or 5% return over the next few years.

http://www.smithbreeden.net/index_sba.ht...

Smith Breeden Associates

Smith Breeden Associates, Inc. was founded as an Investment Advisor in 1982. In the years since, Smith Breeden has established a reputation as one of the premier research and trading firms in the fixed-income market. Initially, Smith Breeden's research and portfolio management activities focused on the U.S. mortgage market, and agency mortgage-backed securities in particular.

In recent years, the firm has applied its quantitative research and trading skills to other sectors of the fixed income market such as corporate bonds and commercial MBS. The firm currently manages discretionary assets of approximately $11 billion and advises on financial institution assets of approximately $15 billion.

Dr. Flood, current CEO, was a professor at Stanford before coming to Smith Breeden. He is also a regular guest on CNBC.

================== COMMERCIAL BREAK =================

Kirk's Newsletter performance vs the S&P500

  Date       Kirk    S&P500    Delta
2003 YTD     10.1%    1.6%      8.5%  as of 4/19/03

                                 Kirk    S&P500 
3 Yrs. 1/1/99 through 12/31/01   94.6%   (5.1%)
4 Yrs. 1/1/99 through 12/31/02   53.4%  (24.5%)

-- posted by Kirk

» SteveT - 4-25-03

Harvey Eisen thinks a ten month base building started last July and the long bear market is over. Harvey likes the demographics of health care stocks and generic drug stocks. In particular he likes IVAX Corp. (IVAX). Eisen says the Internet is real but some of the Internet companies are not. One that is real is WEBMD (HLTH). Harvey is selling Government Bonds due to fears of rising rates.

Barbara Marcin says now that the war is over we can concentrate on the economy and earnings. She thinks increased capital spending is a question of when not if. There is some pent up demand but so far no signs companies are breaking down the door to buy new equipment. Marcin thinks now is the time to start taking a little more risk. Barbara thinks Utilities are a buy now with income while you wait for capital appreciation. Her favorites are NiSource (NI), Public Service Enterprise (PEG), and First Energy (FE). In health care she likes Bristol Myers Squibb (BMY) and Baxter International (BAX).

Nick Sargen says SARS is a big unknown in Asia. The good news is prior to the outbreak emerging Asia was in the best shape of any region in the World. Now that the war is over Nick is feeling better about North Korea. At this point they are making a lot of noise and that is about it. The SARS scare has caused some downward earnings revision in Canada due to concerns in Toronto. In the U.S. Sargen likes Wells Fargo (WFC). He also likes Brazil iron ore exporter Companhia Vale Rio Doce NYSE:(RIO). He would not buy yet but is watching Cathay Pacific Airlines in Hong Kong.

Lou then welcomed special guest Satya Pradhuman Chief Small Cap strategist Merrill Lynch. Satya thinks after taking a breather last year small caps are poised to out perform in 2003. People are value conscious after bear markets and now small caps compared to large caps are better relative valuation than at the bottom of 1990. Pradhuman says small cap investing can be both rewarding and humbling. Over the past few years value and growth have evened out with much over lap so savvy investors are looking to buy good companies at good prices. Some of his favorite picks now are Cumulus Media (CMLS) American Axle (AXL) Ventas (VTR).

Harvey asked how small investors should build a small cap portfolio. Satya recommends taking a total portfolio and asset allocation approach. Then if you are a talented stock picker go ahead. For most people mutual funds is a good way to go and consider a passive index. Barbara asked for an opinion on Cracker Barrel (CBRL). It may do well since 90% of the locations are near Interstate highways and oil is dropping but it is trading at a P/E of 15 while earnings are expected to grow at around 12%. Nick asked how small caps were affected by the accounting scandals. There were some small pockets of aggressive accounting by companies active in mergers and acquisitions but the net affect on small caps was minimal.

Lou asked Pradhuman to define a small cap. It would have a market capitalization of between $300 Million and $1.7 Billion but it is a moving target so to speak. Lou also asked what percentage of a portfolio should be in small stocks. A range of between 5% and 25% is generally accepted. With his outlook he would be near the top of that range.

Next week a special treat for all you Technical buffs. Lou’s “Elves’ Night Out”. We will have a special panel consisting of Jeffrey de Graaf Lehman Brothers Chief Technical Analyst, Richard McCabe Merrill Lynch Chief Market Analyst, and Louise Yamada Salomon Smith Barney Senior Technical Analyst.

-- posted by SteveT

» SteveT - 5-2-03

Then Lou moved to his favorite chair and got to work interviewing three top Wall Street Technical Analysts; Louise Yamada Salomon Smith Barney Senior Technical Analyst, Jeffrey de Graaf Lehman Brothers Chief Technical Analyst, and Richard McCabe Merrill Lynch Chief Market Analyst.

Louise is a pure technician but admits TA is only one tool an investor should have in their toolbox. She says if both fundamental and technical analysis are used investors have a better chance at success. TA is as much an art as a science, two people can look at the same chart and see different things. For Yamada the art is interpreting the long term charts trend and separating that from the daily noise of trading. Her current buys would be Mylan Labs (MYL), Danaher (DHR), and Lexmark (LXK). She also likes Gold saying it is in a new bull market with support at $300-$310 and it should be in a portfolio. Louise thinks small and mid cap stocks will be the leaders going forward but large cap stocks will have a very good rally too. Her view of the Dollar is not positive and would sell Cardinal Health (CAH) saying it is technically fragile. The over all market should inch higher in her view over the next year. Her favorite indicator is the NASDAQ momentum that signaled a buy recently on a positive divergence when the price reached a new low and the momentum did not. The price is the actual price of the index while momentum is the exponential moving average. When one crosses over or under the other that gives a signal.

Jeff has a fundamental background but says he has found the “wisdom of the charts”. He has a less optimistic view of the coming twelve months saying traditionally the fourth year after three down years has many sharp turns. His favorite indicator is his own “Master Sentiment indicator”. It is a measure of the overly pessimistic and overly optimistic, it recently dipped into the optimistic territory. De Graaf says it is not a problem now but could become an issue in the next fifty points of the S&P 500. His favorite buys now are IVAX (IVX) saying it could go to $20 and he would like to buy more if it pulled back to $13, Halliburton (HAL) saying it could go to $30 pretty easily, and Symbol Technologies (SBL) seeing a rise to $20. He does like Gold and thinks it will be difficult for stocks in general to do well when Gold is doing well. Lou asked what would make him more bullish. In a word volume. We need to see volume consistently high to verify the end of the bear market. Historically good bull markets start on volume levels of 100% of the 65 day average. The current rally has been about 30% and he sees that as a problem.

Richard is more optimistic saying we have been bottoming since last July. He sees a 15% to 20% gain this year and a positive year in 2004. One of his favorite indicators is the S&P 500 annual rate of change, which has shown and oversold market for the past two years. He also uses the 25 day Moving average CBOE Put/Call ratio as a contrarian indicator. Lately that is showing an up beat interpretation. McCabe says the rally we are now experiencing will be the springboard for this year and into next year. Richard uses both fundamental and technical analysis to arrive at a final decision. He does like to observe how stocks or the market react to a piece of fundamental news. McCabe likes to use bear markets to identify future leadership, saying stocks that hold up well in bear markets often lead in the subsequent bull markets. Some stocks he likes now are Praxair (PX), Danaher (DHR), Apache Corp. (APA) and Lexmark (LXK). Areas he is less sanguine on are consumer staples and some financials mainly insurance. Richard would be cautious if he saw momentum deteriorate or people turn to bullish to quickly especially in a speculative manor. He is by no means predicting a straight up advance but a choppy up trend for the next year or two. He thinks trading is a difficult full time job that requires much experience and skill. Most investors would be better served to take a long term view.

Next weeks special guest will be Ed Hyman Chairman of ISI group. He has been voted the top Wall Street economist for the last 23 years. The panel will be Laszlo Birinyi, Lou Holland and Brian Rogers.

-- posted by SteveT