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

» SteveT - Update Stock Picks

May 28, 2004
John Rogers, Chairman & Chief Executive Officer, Ariel Capital Management
1. Northern Trust (NTRS)
2. Markel (NJK)
3. St. Paul Traverlers (STA)
Panelists:
Richard Bernstein, Chief US Startegist, Merrill Lynch
1. Exxon Mobil (XOM)
2. Johnson & Johnson (JNJ)
3. Microsoft (MSFT)
Mary Farrell, Chief Investment Strategist, UBS Wealth Management
1. Boston Scientific (BSX)
2. Comcast (CMCSA)
3. Prudential Financial (PRU)
Barbara Marcin, Portfolio Manager, Gabelli Blue Chip Value Fund
1. Dow (DOW)
2. Alcoa (AA)
3. Ingersoll Rand (IR)

-- posted by SteveT

» Kirk - Re: May 28, 2004 John Rogers, Chairman & CEO Ariel Capital

I like John Rogers quite a bit as he is a good value manager. I even recommend one of his funds in my newsletter that is doing quite well this year. I was a bit surprised that he said he felt the market as a whole would pretty much go nowhere for the next 5 years and could be significantly lower many times over this period. I guess I should not be too surprised as he is a value manager from the East Coast where few think George Bush's economic plan will work... so it colors their outlook.

Louis Rukeyser Fan Club Hosted by Suite101.com

-- posted by Kirk

» Normxxx - Re: Re: May 28, 2004 John Rogers, Chairman & CEO Ariel Capital

What is George's economic plan? Eliminate all taxes, especially for the rich?

Oh, and print as much money as needed-- but that needs Greeny's cooperation.

If worse comes to worse, we could always invade Syria ... or Iran. We'll probably have to restart the draft for that, but that will certainly reduce the unemployment situation. Not to worry, with only the rich kids now being able to afford college, a college deferment would keep them out of the war.

-- posted by Normxxx

» SteveT - 6-4-04

Brian Rogers says inflation is on the horizon but a small bump up should be something investors can deal with. He believes the FED will act preemptively to keep inflation at bay. Rogers is looking for high quality companies with sustainable earnings selling at reasonable valuations. Companies that fit the bill are Wyeth (WYE) and Viacom (VIA).

Alison Deans is slightly worried about inflation, saying it is hard to imagine the market doing really well in a rising rate environment. She thinks the FED will be increasing rates the next 18 months and that will put pressure on the market. After having a great run Alison is leery on small caps, financial services, and grocery stocks. Deans does think mid caps will do well. She likes Arch Coal (ACI), Career Education (CECO), and Staples (SPLS).

Lou Holland is a bottom up investor and pays little attention to the economy. He is always fully invested and doesn’t market time. He does however think valuations are a little rich and expects a choppy market this year with a strong finish, up about 6-8% for the year. Lou likes the energy sector and health care. Stocks picks include Pfizer (PFE) Teva Pharmaceuticals (TEVA), and American International Group (AIG).

Maria then introduced special guest Don Hays, President & Chief Investment Strategist, Hays Advisory Group. Don says oil prices do affect the economy but as of now, personal income increases more than compensate as demonstrated by retail sales figures. Hays said in January the market was vulnerable so he raised cash levels to 15%. He put half that money back into the market in March and the other half a couple weeks ago. He believes the low a couple weeks ago will be the low for the year. He expects a so-so market the next four to six weeks and for the tempo to pick up after the Democratic convention. In all categories he has maximum stock exposure and minimum cash and bonds. His long-term growth allocation is currently 100% equities. Don says bottoms happen when value investors buy. We are now in the mid stage of the cycle where value and growth/momentum are essentially in balance. Late in the cycle growth/momentum investors take over. Hays expects the late cycle to last throughout this year. Maria asked what groups of stocks to sell as rates rise. Don did say he is not avoiding financials. He would if rates were rising to slow the economy, but they’re not. Rates for now will be going up just to get them to a neutral state and he expects banks to have good earnings.

Brian asked for advice to fixed income investors. Yields will come down so now is the time to be switching towards dividend paying equities. Don believes we will revert to the tradition of a generation or two ago when dividends were what people depended on for income. Brian then asked how investors should think about the Elections this autumn. We are coming to an important time in history. Next year has to see major reforms in Education, Health Care, and Social Security. That won’t happen with the gridlock we have often seen in the past. Hays predicts the Republicans maintain control of the White House and both houses in Congress. Alison asked which sectors are most attractive now. The key is Global companies with the best earnings growth. To get that you need to look at technology stocks. Alison then asked what Don looks at to determine if the market is going up or down. Three “shock absorbers” 1) Psychology 2) Monetary 3) Relative Valuation. No One has perfect answers to all the problem in the world but Don has found if all three shock absorbers are in good shape it buffers bad news. Lou asked about stock selection criteria. Firstly Hays is a top down Asset Allocator. Next he searches for the best combination he can find in three areas. 1) Relative Strength 2) Relative Valuation 3) Earnings Momentum.

Next weeks special guest will be Byron Wien, Investment Strategist, Morgan Stanley. The panel will be Elizabeth Dater, Tom Gallagher, and Michael Holland.

Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser

-- posted by SteveT

» SteveT - 6-11-04

Consuelo Mack filled in for Lou this week. Consuelo spent the majority of her time remembering Ronald Reagan and pointing out his accomplishments. They included Reaganomics, the end of the Cold War, and FED Chairman Paul Volcker. Other topics explored were the price of crude oil dropping and remarks by the current FED Chairman.

Tom Gallagher stated Ronald Reagan’s legacy will be Foreign Policy, Attempts to shrink the government, and support of Paul Volcker. Volcker’s policies did lead to disinflation, which made possible a long bull market in bonds and multiple expansion for stocks. Tom thinks now we are at a turning point because inflation can’t get lower unless we go into deflation so inflation is going to be increasing. For the stock market that means an advance no more than profit growth. Tom thinks FED action is going to be key and a close second is the statement they issue after each meeting. Gallagher doesn’t think an asbestos bill will pass this year and neither will allowing reimportation of pharmaceuticals. All though policy is probably headed that way.

Elizabeth Dater said Ronald Reagan was an out of the box thinker and that made a huge difference. She too believes we are heading into a period where inflation is gong to be a concern. Dater was encouraged by the bipartisanship seen this week, and hopes in some small measure it can continue in this election year. Beth’s outlook is for market volatility until we see some resolution in Iraq and the elections are over. For now the market is treading water. Her stock picks are small cap growth health care companies. They include Accredo Health (ACDO) Covance (CVD) and Mentor (MNT).

Michael Holland will remember Ronald Reagan as an optimist and for saying our best days are yet to come. Mike is positive on the markets, saying he sees problems in Iraq lessening. Mike also sees the FED being successful in making a measured move that helps the economy. He thinks earnings this year and next are going to be above expectations. In the past Mike has recommended selling Chinese stocks due to excessive valuations. They have come back to reality and now it appears China will be able to slow their economy without destroying it. For that reason Mike recommends the China Fund (CHN), Mike is on the board of that fund. Holland also recommends Johnson & Johnson (JNJ).

Consuelo then introduced special guest Byron Wien, Investment Strategist, Morgan Stanley. Wien is known for bucking the trend and Mack got right to work asking what is going to be the biggest surprise this year. Byron said the markets will do better than most people expect the second half of this year and finish up double digits. He did say there is a great deal of optimism in Technology and Financials, he is skeptical in those areas. Stocks he does like are Abbott Laboratories (ABT), Allergan (AGN), ConocoPhillips (COP), Valero (VLO), and Target (TGT).

Tom asked for a forecast on FED Funds rates and the yield of the 10 year Treasury. Wien thinks by year end FED funds will be close to 2% and move up further in 2005. 10 year Treasuries should yield 5.5% by year end and peak out next year at 6%. Rates were to low so some increase should not stop the stock market from making progress. Beth asked for recommendations for long term investors. Byron said if you are looking out 5 years or more think about a Biotechnology portfolio. You could use an ETF or Mutual fund. Mike asked what is one thing to avoid now. Look at valuations and dividends, avoid those high P/E stocks that don’t pay a dividend.

Mack asked the panel and guest what is one thing you should absolutely do now. For Wien it is to be careful on high multiple stocks. Tom would avoid bonds. Beth would not give up on small cap stocks but warned to be selective. Mike is not giving up on the economy or stock market. He thinks this year and beyond will be better than many expect. Mack closed by asking Wien what is one piece of advice from Ronald Reagan that has stood him in good stead. Keep it simple and stick with your passion.

Next weeks guest and panel have yet to be announced.

Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser

-- posted by SteveT

» Kirk - Re: 6-11-04: Special Guest Byron Wein

Elizabeth Dater: “Her stock picks are small cap growth health care companies. They include Accredo Health (ACDO) Covance (CVD) and Mentor (MNT).”

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Michael Holland: “…now it appears China will be able to slow their economy without destroying it. For that reason Mike recommends the China Fund (CHN), Mike is on the board of that fund. Holland also recommends Johnson & Johnson (JNJ).”

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Byron Wien: “Byron said the markets will do better than most people expect the second half of this year and finish up double digits. He did say there is a great deal of optimism in Technology and Financials, he is skeptical in those areas. Stocks he does like are Abbott Laboratories (ABT), Allergan (AGN), ConocoPhillips (COP), Valero (VLO), and Target (TGT).”

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PERIOD Total Returns   Kirk’s  W5000  S&P 500 Nasdaq  
                        NL     VTSMX   VFINX  ^IXIC
1 Year to 3/31/04      +70%    +40%    +35%    +49%
3 Year to 3/31/04      +37%     +8%     +2%     +8%
5 Year to 3/31/04     +102%     +2%     -6%    -19% 
 Total Return: 
                           Kirk   W5000 S&P500 NASDAQ 
5 Yrs 3/31/99 - 3/31/04   +102%   +1.6%  -6.2% -19.0%
Annualized Annual Return +15.1%   +0.3%  -1.3%  -4.1%
 
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Suitable for the aggressive growth part of your
  diversified investment portfolio. 

-- posted by Kirk

» SteveT - 6-18-04

Liz Ann Sonders says lately strong earnings have been over shadowed by other news. Now we have more of a sense what and when the FED is going to be doing the market should be able to concentrate on earnings. She believes second Quarter earnings are going to be as strong or perhaps a little stronger than first Quarter earnings. With worries about interest rates and inflation behind us that could provide the catalyst to get us out of this malaise. The market hates uncertainty so the major risks are Iraq and the November Elections. Liz Ann says now is the time to look for companies that have become reasonably valued. Some of her favorites are ChevronTexaco (CVX), FMC Corp (FMC), and Metlife (MET).

Frank Gannon Agrees that second Quarter earnings will be better than first. He is encouraged the market is up Year to Date considering the bad news it has digested. He believes once second Quarter earnings are out investors will start focusing on fundamentals and the market will go higher. Gannon believes one risk is that Corporations are sitting on stacks of cash and will be hesitant to spend it. Frank likes high quality Large Caps such as Microsoft (MSFT), Tyco International (TYC), and Merck (MRK).

Barbara Marcin noted earnings estimates for the rest of this year and next are still increasing. The Beige Book released this week shows the economy expanding across the Nation. She believes this is the foundation for a good economy for the next 12-18 months. Marcin said while stock prices are treading water they are building value into the market. For Marcin the major threat is an unexpected external event. Stocks Barbara likes are AES Corp. (AES) and El Paso Energy (EP).

Consuelo then introduced special guest Dan Fuss, Vice Chairman & Portfolio Manager, Loomis Sayles. Dan says interest rates rising is good news. He asked, would you rather lend money at 6% or 5? The trick is to get through this period with your capital intact. The other thing is to focus on is income level. Hopefully you can at least stay even or even go up slightly. Dan thinks we are about 80% through the adjustment for this cycle. He thinks the 10-year treasury yield will peak about 5.25%. He warned the next cycle a few years from now could be a “real hum dinger”. Fuss explained during the next cycle there is going to be real competition between Treasuries and Corporate bonds. For now his strategy is to shorten maturities. He used to be about 80% in maturities of more than 10 years. Now 50% is in cash or bonds maturing in less than five years. About 25% bonds maturing in 5-10 years. The balance in corporate bonds maturing in over 10 years. He says corporate credit is as good as he has seen it in four decades.

Liz Ann asked where the yield curve would be over the next year or so. His guess is short-term rates about 3% by the end of the cycle in about 2.5 years. The 10-year treasury peaks about 5.25. The 30-year Treasury around 6.25 or possibly 6.75 if they start issuing more. Fuss calls this cycle non-stress and better for bond investors. Frank asked for views on International bonds. Dan has a good chunk of his 1-5 year maturing bonds in Non U.S. currency denominated bonds. Many other Nations are experiencing higher yields and flat curves and that helps hold up the income. Fuss is a Dollar bull but acknowledges we are in a short-term adjustment of other currencies to ours. When this is over he will move towards longer maturing Corporate bonds. Barbara asked how does an individual know when tightening is over and when to start buying bonds. That is a tough one, Dan does it full time for over 40 years and doesn’t have a good answer because he is often not right. His best advice is build a ladder.

Consuelo asked if viewers did own treasuries what should they do. Don’t get too cute. If a non taxable account build a ladder starting with 5 year Treasuries down to 2 year. Wait a year to buy another 5 year. Mack finished by asking everyone for one big idea for investors. Liz Ann said don’t rely on one big idea. But do ask yourself who you are as an investor. Know your risk tolerance, establish a plan and stick to it. Frank said understand your asset allocation and look closely at your bonds and understand what you own. Barbara said to have a strategy you can stick with over the long term. The key is compounding long term returns. Dan recommends for bonds multi sector diversity or the use of a fund. If you are not going to use a fund go with the afore mentioned laddering strategy. This allows you to adjust your money to the higher rates and do so without a great deal of sweat.

Next weeks guest host will be Bill Griffith with the annual Mid-year show. The panel will be the top four Year to Date in the New Years stock picking contest, Rich Bernstein, Ed Brown, Kim Goodwin, and Bob Stovall.

Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser

-- posted by SteveT

» SteveT - 6-25-04

Bob Stovall thinks the second half of 2004 will see more volatility and volume than the first half. He believes earnings will remain good and we will see dividend increases. He also thinks we will see the market shift sectors towards consumer staples and continuing investment in energy, though that maybe a mistake. By the end of the year Stovall thinks the FED funds rate will be 2%. He traditionally watches the economic indicators of inflation and interest rates but now Bob is also watching the Philadelphia FED reports on manufacturing for signs of increased business spending. He thinks that is now starting to pick up and will remain strong. Stovall believes it does matter to Wall Street who wins the Presidency. As of the end of May Bob’s stock portfolio for the annual contest was up 14.17%. If he could, he would swap out Johnson & Johnson (JNJ) and buy Watson Pharmaceuticals (WPI). Another stock Bob likes now is Sasol LTD. (SSL).

Kim Goodwin thinks over the next six months the market will be digesting all it has been worrying about and start trading on fundamentals. She thinks it will end up being a fairly good year, up 6% or so. Kim agrees with Bob on which economic reports to watch. She said business is sitting on a huge amount of cash and if second quarter earnings come in strong that should give them confidence to start spending. Kim believes whom ever wins the White House won’t matter to the over all market but it will to the Health Care sector. Goodwin’s contest portfolio was up 4.97% at the end of May. She does have an under performer and would sell Carmax (KMX) and buy EOG Resources (EOG), She has a $72 target price on EOG. Kim also likes Trex Company (TWP).

Rich Bernstein believes now the market is in a transition period. 2003 saw earnings growth very strong and a very accommodative FED. He expects this year earnings growth to slow and rates to increase. He thinks it will be a flat year in the market. Economic indicators Rich will be watching are the price of oil and wages vs. inflation. If inflation increases faster than wages it could affect consumer spending. Rich doesn’t think the winner of the election matters either way, taxes are going to have to go up. He pointed out we had bull markets in both the Clinton and Reagan administrations and both raised taxes. It is what you do with tax dollars that matters to Wall Street. Bernstein’s portfolio was up at the end of May 5.03% and he would make no changes. A stock he recommends is Progress Energy Inc (PGN). It yields 5.3% and is expected to grow that dividend more than the worst inflation expectations.

Ed Brown says the market is on very solid footing in terms of fundamentals and is not excessively valued. The first half of this year saw very little difference between Large Cap value and growth. In the Small cap area value outpaced growth. He thinks that will change during the second half and Small growth will catch up to Small value. Ed is going to keep an eye on inflation and corporate profits. He is also going to be looking at economic growth and interest rates. Brown says Wall Street favors Republicans but he doesn’t think either way policies will change enough to dramatically affect the markets. Ed was up 8.09% in the annual contest and would make no changes to his portfolio. He does like Staples (SPLS).

Next weeks special guest will be Satya Pradhuman, Chief small cap strategist, Merrill Lynch. The host and panel have yet to be announced.

Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser

-- posted by SteveT

» SteveT - 7-2-04

Frank Cappiello said indications are the economy is slowing and expects 2004 GDP to be 3.5%, which isn’t bad. Summer is historically a dull period for the market but Frank says if you are in the market now is not the time to get out. Stocks Cappiello likes are Cendant (CE) and SunGard Data Systems (SDS).

Alison Deans thinks this year GDP will be closer to 4%. She also believes the FED will continue to increase rate at “a measured pace” making it hard for the market to go up the rest of this year. Deans likes Equity Office Properties (EOP) and Simon Property (SPG).

Nick Sargen also subscribes to 4% GDP this year. He expects the consumer to take a breather and says a rotation is approaching towards business spending leading the way on the next leg of economic expansion. Nick thinks we are in a trading range for now and the market it fairly valued. Earnings are improving and that is reason enough not to be bearish. No one knows when but earnings at some point will spark a rally. Stocks Sargen likes are Medtronic (MDT) and Comcast (CMCSA).

Consuelo then introduced special guest Satya Pradhuman, Chief Small Cap Strategist, Merrill Lynch. Satya thinks we are in an extended period of small cap out performance. The reason he believes this period will be longer than average small cap cycles is 1) Valuation. Now more than in the late 90’s investors are going to remain valuation sensitive. Today small caps valuations are very similar to what they were at the bottom of the 1990 cycle. 2) We are about to begin the second phase of the small cap cycle. Money invested in small caps will buy growth more so than large caps. We should see a wide gap in revenue and earnings vs. large caps per dollar invested. Pradhuman did warn small caps are volatile and recommends a portfolio approach or using a fund for small cap investing. Stocks he likes are URS Corporation (URS), American Axle & Manufacturing (AXL), and Province Healthcare (PRV).

Frank asked for definitions of the various market caps categories. Below $200 Million are micro caps, $200 Million to $1.6 Billion is considered small cap/mid cap. Frank also asked what percentage of equities should an investor with a twenty year time horizon have in small caps. Satya said it is also dependant on risk tolerance, those with an average risk tolerance could be around 15% to 20%. Increase this if you risk tolerance is higher. Alison said typically small cap cycles are four to six years, is this one nearing an end? No, as previously mentioned this cycle should last longer. For one thing the first three years of this small cap cycle went unnoticed. Historically the shortest cycle was three years, the longest nine years. Nick asked if today it is better to go small growth or small value. The answer is to look for the best manager. Look at good times and bad times and understand what good and bad times are. Pradhuman said absolute rate of return is not enough to judge a manager.

Next weeks special guest will be Dr. Bob Froehlich, Chief Investment Strategist, Scudder Investments. The panel will be Elizabeth Dater, Louis Holland, and Gretchen Lash.

Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser, Louis Rukeyser

-- posted by SteveT

» pbradford6 - Re: 7-2-04

Steve does a great job with his weekly reporting. I sure appreciate his talented writing and comments and wish him continued success in his endeavors.

-- posted by pbradford6