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

» Kirk - Re: 1-2-04

Mike asked Abby for advice to new investors on how to handle volatile markets. She said it is good when investors are a little nervous, they think about what could go wrong. They also need to think about fundamentals. Over long periods of time what drives stock prices is the economy. The U.S. economy is extraordinarily competitive in the world. Our outlook is good, we have a strong banking system, and great productivity. She advises balance, diversification, and a true sense of risk tolerance.

On cue for asset allocation and a balanced portfolio to smooth portfolio returns in up and down markets, I just updated my asset allocation article:

Asset Allocation Review for 2003

Exerpts:

The benefit of an asset allocation between stocks and bonds is the two asset classes tend to counter balance each other with the bonds having an effect of smoothing out the fluctuations in your total portfolio value.

Long term, 20 years or more, 100% equities has always offered the best overall returns but you pay a high price in volatility. If you are young and have far more than 25 years until retirement, then a portfolio between 100% stocks and 80:20 probably makes the most sense. Once you are within 25 years of your desired retirement date, then it makes great sense to increase your allocation to bonds in your asset allocation. This will smooth out the fluctuations so you can have a more stable portfolio when you retire.

In the article, I compare portfolios of all stocks, all bonds and three mixed portfolios.

2003 in Review

The DJIA finished 2003 up 25%
The NASDAQ finished 2003 up 50%.
VFINX (Vanguard's S&P500 Index Fund) finished 2003 up 28.5%
VTSMX (Vanguard Total Stock Market Index Fund) finished 2003 up 31.35%
VFIIX, (Vanguard GNMA Fund) finished 2003 up 2.49%
VBMFX (Vanguard Total Bond Fund) finished 2003 up 3.97%
Kirk's Newsletter Stock Portfolio finished 2003 up 76.7% (and it has 30% in fixed income!)

-- posted by Kirk

» SteveT - 1-9-04

John Kim believes the bull is alive and well and will continue into 2004. He is not expecting it to be as strong as it was in 2003. He sees no reason for it not to be a good year as Capital spending is starting to take off and inventories are improving. He does think the consumer and housing will slow. John likes the financial sector including Charles Schwab (SCH), Hartford Financial (HIG), and Hewitt Associates (HEW).

Barbara Marcin says the prevailing trend is positive. The consumer is still strong, Profits and corporate spending are picking up, and we have plenty of stimulus. She is expecting high single digit stock market returns for the next several years. Marcin looks to buy stocks that will be able to improve earnings the next three years. Some she expects will be able to do so are Dow Chemical (DOW), Honeywell (HON), and Ingersoll-Rand (IR).

Rich Bernstein still continues to be cautious about 2004. His maim worry is, will the profit cycle decelerate? In 2003 the comparisons were very easy, that will not be the case in 2004. Saying there is always opportunity on Wall Street Rich is keen on the consumer staples, energy, and defense. Stocks he likes are ConAgra (CAG), Exxon Mobil (XOM), and Raytheon (RTN).

Ron then introduced special guest Hersh Cohen, Co-Manager Smith Barney Appreciation Fund. Hersh has a Ph.D. in behavioral sciences and believes psychology is a driver in the markets but mostly at the extremes. We had a big extreme on the upside in 1999 and got the other side of the coin in March 2003. The rest of the time earnings and interest rates move markets. He thinks now is one of the in-between times. Many individuals are nervous about the market, he doesn't see much chasing the hot funds, he does see people buying funds with good long term consistent records. Cohen believes the NASDAQ is being driven by professionals, along with hedge funds and some pure speculation. Hersh believes as people begin doing their tax returns and see the benefits of dividends that companies with a history of increasing dividends should be more attractive.

Rich asked how to know if a dividend is secure and will continue to be paid. Look for a solid balance sheet and free cash flow. Also look at the company debt rating and the history of the dividend. Barbara asked if there is any good values in financials now. His biggest holding is Berkshire Hathaway (BRKa), he also is now buying St. Paul Companies (SPC). John asked about the outlook for Pharmaceuticals in 2004. After a few weak years many are good values now. He isn't sure what the catalyst will be yet. As always he looks for great companies with solid balance sheets and the ability to raise dividends. A couple he likes are Pfizer (PFE) and Johnson & Johnson (JNJ).

Ron asked if the news of Eliot Spitzer was considering bringing an action against drug companies for restraint of trade a concern. Hersh can't see another headline doing much damage, saying the drug companies are the whipping boy for many politicians. He believes this Country is better off having a profitable drug industry. Ron then asked how much influence the elections would have on the markets. One thing that could spook the markets is if one of the candidates that wants to reverse the tax cuts gets traction. Another concern all though a slight one is, the Dollar continues to weaken against China & Japan and they stop buying our treasuries. He thinks that is remote and interest rates will remain benign. A terrible terrorist attack on U.S. soil would probably affect the markets now more than a year ago. The 10-year Treasury quickly getting to a 5% yield would be a negative also. For now the trends are positive, the economy looks good and job growth should begin in the Spring.

Next weeks special guest will be John Montgomery President and manager Bridgeway Funds. The panel will be Alison Deans, Mary Farrell, and Frank Gannon.

-- posted by SteveT

» SteveT - 1-16-04

Alison Deans says most investors are encouraged by the actions of the SEC and prosecutors in dealing with scandals. The reality is the abuses are behind us and the loses weren't all that great to most investors. The market is going up and people want to get in. The economy is in recovery and she expects the market to be up 10%-12% in 2004. Deans expects fiscal stimulus to continue up until the election, low interest rates should continue as well. Overseas economies are starting to recover and the weak Dollar should help exporters. Alison expects a weak employment picture to dampen inflation. Corporations are starting to spend and do some hiring and this should increase merger and acquisition activity and drive the market higher. Alison looks for new stock ideas with a value bias. She looks for laggards and a low P/E plus potential for something to change the earnings momentum. She is avoiding Utilities. Deans used to work at Bank One and likes that merger, thinking the benefits advertised are understated. She also likes Alcoa (AA), Liberty Media (L), and Allmerica Financial (AFC).

Frank Gannon thinks the market will do a little better than 10%-12% this year. He believes market performance should be in line with earnings growth and we have yet to see peak earnings in this cycle. Frank thinks the economic expansion is durable and sustainable and that is what will drive earnings growth. He is looking at sectors that will benefit from the economic turn around, Industrials and some select technology. Gannon likes Hewlett Packard (HPQ), Tyco International (TYC), and Verizon (VZ).

Mary Farrell says investors can benefit in many ways in this type of market. The first thing to do is review your portfolio she advised. Her inclination now would to become more defensive after a good year. She likes Consumer staples and Health care sectors with emphasis on dividends. Farrell believes earnings should grow about 15% this year and the over all market should gain 10% at a minimum. Stocks she likes are Colgate Palmolive (CL), McDonalds (MCD), and Wachovia Corp. (WB).

Maria then asked each panelist what potential red flag could crop up and change their forecasts for the economy and markets. For Alison it is a faster than anticipated job growth that could fuel inflation and the Dollar decline continuing. Frank is worried higher oil prices will slow the economy. Mary worries about a disorderly decline in the Dollar and trade deficits along with Federal Budget deficits getting out of hand.

Maria then introduced John Montgomery, President Bridgeway Funds. John uses purely a quantitative approach, using a computer model devised as a student. He doesn't make site visits or read Wall Street analyst reports. He is a bottoms up stock picker looking at numbers and statistics. Right now the Telecommunication sector looks good to him. He also is holding sina.com (SINA) the Chinese Internet company. He bought it at $1.00-$1.50, it is around $47 now and looks fully valued but he hasn't sold any yet. He is and has been selling Home Builders and interest rate sensitive stocks. His model does not have an interest rate variable, but if you step back and look on aggregate the rate sensitive stocks are among those he is selling.

Alison asked if he looks at a sector and then picks names from that list or looks only at names. Montgomery looks just at names, one at a time. He does do some top down analysis for risk management to avoid getting to heavily in one sector, cost management, and tax management. Right now Telecom looks good and his top holding is Nextel (NXTL) he also likes Ford (F). Frank asked for advice for the individual investor in today's environment. Don't chase hot stocks or funds. Look to be diversified and at the long term. Mary asked him to define Ultra small cap and asked if he sold automatically if the stock gained enough to no longer fit that definition. John defined Ultra small cap as the smallest 10% of the NYSE. Currently that is around $200 Million, it did get as low as $75 Million. (by not addressing the sell discipline can we assume he lets his winners run?)

Next weeks special guest will be Doug Cliggott, President B&P Research. The panel will be Beth Dater, Harvey Eisen, and Kim Goodwin.

-- posted by SteveT

» pbradford6 - Re: 1-16-04

Steve, thanks for your weekly posts. I am wondering if Lou himself will ever return. Back surgery is very difficult when you are young and much more so when you're older.

I hope he'll be healthy enough to return.

-- posted by pbradford6

» allancoleman - Re: Re: 1-16-04

i feel for lou too pbradfort6 . i can see why he's hesitant to get back in front of the camera if he's in pain and can't get in and out of his chair without showing his distress . i miss lou . the other guys are o . k . but they're not lou .

-- posted by allancoleman

» Normxxx - Re: Re: 1-16-04

Yes, Steve, I second pbradford6's thanks.

Sounds like Lou has not had the 'best' outcome (noticeable reduction or elimination of chronic pain). Let's hope he has at least had the next best outcome: no increase in pain, and a good recovery.

Mostly, I hate that this makes the smug 'dancing bugs' on pbs look prescient.

-- posted by Normxxx

» SteveT - 1-23-04

Kim Goodwin thinks the market is due for a breather but should finish the year strong. She is confident we are in the early stages of an economic recovery. So far 88% of companies are meeting or beating earnings estimates. This bodes well for further capital spending and a strong market. Goodwin likes cyclicals such as Nordstrom Inc. (JWN), United Technologies (UTX), and Applied materials (AMAT).

Harvey Eisen says the market is overbought and due for a correction of 5%-10%. This has not been a bear market rally. Harvey would sell anything you have a substantial profit in and are not comfortable with. He would also sell a mistake that is enjoying a bounce. The key is to focus on companies you really want to invest in for the long term. Eisen worked with Jamie Dimon and really likes what he brings to the table in the JP Morgan Chase Bank One merger. He would play that by buying Bank One (ONE). He also likes Johnson & Johnson (JNJ) and Ivax (IVX).

Beth Dater expects attractive but moderating returns over the next year. She likes companies that keep costs under control and have spectacular franchises. Some of her favorites are Chicago Bridge & Iron (CBI), Herman Miller (MLHR), and DeVry (DV). Beth thinks these are good long-term investments and would buy them on any correction.

Tyler then introduced special guest Doug Cliggott, President B&P Research. Doug’s biggest concern is it is hard to imagine things could get any better than they already are fundamentally. Rates and inflation are low while earnings are exploding. He is very uncomfortable, saying things are perfect and it can’t stay that way very long. He would lower his equity allocation and look for areas left behind. Cliggott expects 2005 economic growth to slow and would look to sectors that do relatively well in a slowing economy such as Utilities, consumer staples, and health care. These types of companies don’t need a lot of rapid growth to have steady earnings growth. Sectors Doug would back away from are Technology, Industrials, and consumer discretionary.

Kim wants ideas on where to invest money taken out of those richly valued sectors. Doug thinks there are wonderful opportunities in fixed income outside the U.S. He thinks the Dollar still has 15% or 20% downside so European Government bonds look good. Kim asked for an outlook on corporate profits. The next two Quarters should be awesome, but slowing by mid year and significantly slower in 2005.

Harvey congratulated Doug on calling the market top nearly four years ago and wanted to know what it would take for Doug to change his outlook and believe the market was going to continue to go up. He is skeptical compared to the early 1980’s when we had Low P/Es, and we also had high interest rates, high inflation, and higher taxes. Now all those are the opposite. Over the next two or three years all of those metrics are going to move the wrong way for good equity performance. Harvey wanted to know when and how much rates were going up. Doug reasoned with an economy growing around 5.5% and short-term rates at 1% this spread is unheard of in recent history. Long term Treasuries yielding 4% and economic growth at 5.5% is also unheard of. Usually Treasuries are1% higher than growth in times of Government deficits. Doug thinks the bond market has got it right and growth will slow. Tyler then interjected what will the FED do? With no signs of inflation and slowing growth Cliggott thinks the FED will have no reason to raise rates for a couple years.

Beth wanted to know how much of an issue deficits are going to be. Over the short term there is a slight risk Japan and China quit buying our Treasuries. The bigger risk long term is Government spending is about 20% of GDP and rising. Tax revenue is around 16% of GDP and falling. Cutting spending maybe nearly impossible. At some point taxes may have to go up and that is an anchor on the economy and markets. Cliggott did offer an opinion that would be the least painful, a consumption tax. Saying that would encourage saving and be spread pretty evenly across the economy.

Tyler asked for a GDP forecast the next 18-24 months. It depends on employment growth but around 3% to 4%. This will be a drag on the markets and Doug expects the DOW and S&P 500 to be lower a year from now.

Next week Maria Bartiromo will be sitting in for Lou. Special guest will be Martin Sognoff, CEO Atalanta / Sognoff Capital. The panel has yet to be posted.

-- posted by SteveT

» allancoleman - Re: 1-23-04

appreciate your work here Steve T . glad to see you got in the part about lou returning next month maybe . i really want to see lou on his first show back under the camera .

i thought Doug was very well spoken last nite . i liked his style . i can see why lou calls him his " bearish friend " .

-- posted by allancoleman

» SteveT - 1-30-04

Ed Brown does not pay any attention to the January barometer. He believes in using fundamentals like earnings and interest rates for guidance. Earnings have been terrific. Brown is not to excited about telecommunication companies at this stage. For now it is hard to get a handle on spending by the major carriers. Stocks Ed likes now are Harley Davidson (HDI) SunGard Data Systems (SDS), and Texas instruments (TXN). He would sell long term bonds.

Brian Rogers thinks 2004 should be a good year, saying it should be an irregular path upwards. Investors went into the year expecting rate hikes so the market shouldn’t be affected all that much when rates tick up. In fact it signals underlying firmness in the economy. He expects the market to react to earnings and dividend growth. Rogers thinks now is the time to have your equity allocation near the upper end of your own reasonable range. Stocks he likes are Newell Rubbermaid (NWL) and Baxter International (BAX).

Bob Stovall has studied market reaction to expected rate increases. Since 1970 seven rate hikes have been heralded, as will this one. In the six months prior to the first increase the market has been up on average 8%. In the six months following the increase the market has dropped on average 4% and no sectors went up. Interest rate sensitive stocks were hit hardest. Bob thinks the market is somewhat over extended so his stock picks are long term. He likes Nova Gold Resources (NG), Sasol (SSL), and Union Pacific (UNP).

Maria the introduced special guest Martin Sosnoff, CEO Atalanta / Sosnoff Capital. Martin starts the stock selection process by taking a global macro point of view. He looks at fundamentals and the economic cycle. He uses that to spot inflection points for certain sectors. Then he looks to money mangers and analysts to select from their best ideas. As of now he has 50% of his money invested in Technology and Financial Services. He bought some of the Mutual Fund management companies right in the eye of the storm. He also bought HMOs when they were unattractive to the majority on Wall Street. Other stocks he likes for purchase now are Echostar (DISH and InaMed (IMDC). Stocks he is selling down to buy others are Time Warner (TWX) and Viacom (VIAb).

Ed asked which area would show leadership in the market going forward. Sosnoff thinks we are at an inflection point where growth will outperform value. Brian asked for the prospects for mergers and acquisitions. Martin foresees tremendous M&A activity with much of it coming from foreign Multi National companies due to the weak Dollar. Also there will be many leveraged buy outs going public. This should keep the Brokerage houses and underwriters busy and very profitable. Bob mentioned India and China building huge credits due to their exports. Much of that money is buying U.S. Treasuries and cash equivalents. Bob wanted to know if eventually they might start buying U.S. companies and what that might do to Treasuries. Sosnoff doubts they will buy equities, they are focused on broadening their industrial base at home. He doesn’t think Japan and China will stop buying Treasuries. They have bought $200 Billion in the last 18 months and that is not going to change. It is good for them to keep their currencies on parity with the U.S. Dollar, that is why bond yields have not increased. He isn’t too worried about the FED increasing short term rates. Saying the Treasury department policy on the Dollar is “benign neglect”. Other nations don’t care how much our Dollar depreciates and neither do we.

Next weeks guest will be Chuck Royce Chief Investment Officer the Royce Funds. The panel will be Tom Gallagher, Gretchen Lash, and Nick Sargen.

-- posted by SteveT

» Kirk - Atlanta Sosnoff Funds

ASFGX Atlanta Sosnoff Focus Fund Inc Nasdaq Large Blend

ASVFX Atlanta Sosnoff Value Fund Nasdaq Large Growth

http://finance.yahoo.com/l?s=Atalanta+So...

1 yr
<img src=http://pvcharts.quicken.com/images/chart...>

3 yr
<img src=http://pvcharts.quicken.com/images/chart...>

5 yr
<img src=http://pvcharts.quicken.com/images/chart...>

         PERIOD                Kirk  Wilshire5000  Delta
1 Year Return to 12-31-2003    +77%     +31%         46%  
3 Year Return to 12-31-2003    +25%      -7%         32%  
5 Year Return to 12-31-2003   +171%      +2%        169%  

 

Total Return:
                                  Kirk   S&P500+  NASDAQ 
5 Yrs 12/31/98 through 12/31/03  171.0%  ( 3.0%)  ( 8.6%)
Annualized Annual Return          22.1%  ( 0.6%)  ( 1.8%)
 
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Suitable for the aggressive growth part of your
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-- posted by Kirk