WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet: 7-16-04

» SteveT - 7-16-04

Consuelo Mack once again served as guest host. Earnings were the major new across Wall Street this week. Earnings have been strong but most are expect earnings to decelerate. Citigroup reported strong earnings but set aside nearly $5 Billion for future costs associated with scandals and Pfizer warned of lower revenue. Stock prices of these companies took significant hits. On the bright side Treasury Bonds rallied. Inflation showed signs of moderating in June. In the courtroom news was not so good for Martha Stewart. Mark Belnick was found not guilty of all criminal charges against him while serving as Lawyer for Tyco.

Marty Zweig says the market is pretty neutral and so are the indicators he follows. Earnings are decent but inflation offsets that. He is worried longer term about inflation. It is trending up, oil is up again, and commodities have been rising over the last year. Low interest rates and the tax cuts have taken awhile to work into the system to cause inflation but that is starting to happen now. Zweig runs hedge funds and he is currently about 60% net long and calls that neutralish. He expects the market to be neutral and is trying to grind it out by stock picking. Stocks he likes now are Phelps Dodge (PD), Etna, W.R. Berkley (BER), and Berkshire Hathaway (BRKa). Marty advises holding both stocks and bonds, not to exit the market and not to make any majors bets either.

Mary Farrell said there is a tug of war going on between rising rates and inflation vs. good earnings, which should last a couple more quarters. Investor seem to be focusing on the uncertainties of rates, inflation, Iraq, oil prices, and the election. Farrell isn’t overly concerned about inflation. She thinks the FED will get it under control and have Short term rates up to around 2.5% by next year, which isn’t problematic. Mary expects the market to return around 8%- 10% over the next 12 months. Stocks she likes are United Health Group (UNH), McDonald’s (MCD), and Air Products & Chemicals (APD).

Brian Rogers is tired of hearing about Martha Stewart. Earnings have been generally good and as scandal problems are resolved he believes investor confidence will slowly build. Modest expectations are going to be key to avoid disappointment. Brian advises looking for good earnings and dividends. Stocks he likes are Comcast (CMCSA), Dow Jones (DJ), and Viacom (VIA).

Mack the introduced special guest will be Alan Blake, Large Growth Manager, Smith Barney. Alan is a bottoms up manager. He does have an opinion on the over all market but that does not influence how he picks stocks. He has a list of around forty stocks that fit his criteria, which include a market cap in excess of $5 Billion, fairly unique product or service, powerful balance sheets, and a good management team. Growth is somewhat defined by industry. For tech he likes to see growth of more than 20%, for consumer stocks 10-15% is acceptable. He will buy when the price is right. His $6 Billion fund owns 32 stocks and has a turn over rate of 5%-10%. He likes to buy growth stocks when they are under a cloud. If they get expensive he will trim the position but he never plays the binary game of all in or all out of a stock or the market. Now that some stocks have come down in price he uses cash flow to add to them. He will sell a stock entirely only when the reason he bought it changes. Stocks that fit the buy criteria now are Eli Lily (LLY), Coca-Cola (KO), Amgen (AMGN), and Interactive, check Lou’s web site to narrow this one down. My guess is either (IACI) or (ININ). http://www.rukeyser.com/tvshow/guestsnpa...

Marty asked if there is a limit on how high the P/E is for Alan to purchase. It depends on the industry. Tech he is willing to pay nearly 2 times the growth rate, in financials he likes to buy them at a discount to the market. In long term investing 80% of getting it right is buying at proper valuation and that is where you should spend the majority of your time in research. Mary asked how Blake handled the bear market. He “let the stocks speak”. As tech got wildly expensive he kept trimming positions. He shifted that capital to cheap stocks like Media and Pharmaceutical areas. Brian asked if there were any sectors he shied away from. He tends to only be in consumer related, tech, health care, and financial services.

Consuelo asked for one must own stock for all investors. Alan said he couldn’t do that. He recommends being diversified, looking for reasonable valuation, a dividend yield of more than 2%, and the ability to increase dividends.

Maria Bartiromo is scheduled to host next week. Special guest will be Bob Doll, Investment Managers Chief Investment Officer, Merrill Lynch. The panel will be Harvey Eisen, Frank Gannon, and Barbara Marcin.

-- posted by SteveT