WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet: 7-30-04

» SteveT - 7-30-04

Consuelo Mack once again served as guest host. She was happy to report the market was up this week, perhaps triggered by the Tuesday report from the Conference Board on consumer confidence. This report hit a 2 year high and has now posted 4 consecutive monthly gains. On the down side oil prices closed the week at $43.80, a 21 year high.

Rich Bernstein thinks the slowing of expected future earnings can explain the market activity. Also weighing things down are the FED increasing rates and the price of oil. Rich advises going with quality and dividends. Stocks he likes are Alltel (AT) and Ameren Corp (AEE).

Liz Ann Sonders says Mutual Fund flows have been strong in June and July. Corporations are buying back stock. Which leaves hedge funds as the sellers. She believes that started to turn around this week and could be the catalyst for a nice rally over the next couple months. Liz Ann agrees about going with quality and recommends being properly diversified. Stocks Sonders likes are ChevronTexaco (CVX), Nordstrom (JWN), Safeco (SAFC), and Potlatch (PCH).

Ed Brown said the third quarter got off to a tough start. He wonders if a weaker than expected economy with alleviate the FED from increasing rates at the next meeting. He expects the market to be rocky with slower earnings and terrorism fears. Ed too signs on to the quality theme. Saying he looks for both deliverability and predictability of earnings and he never pays too much for a stock. Brown believes a shift will occur from value to growth stocks. Stocks that fit his criteria are Health Management (HMA), Staples (SPLS), Harley Davidson (HDI), and Applied Materials (AMAT).

Consuelo then introduced Daniel Boone III, Portfolio Manager, Calvert Social Investment Equity Fund. Boone’s fund invests only in companies that respect the environment and communities in which they work. Further his criteria include strong balance sheets, growth approaching 15%, and reasonable valuation. Focusing on socially responsible companies helped him avoid holding stocks of bankrupt companies or those involved in the ethical and accounting scandals. He is positive on the economy and stock market. Daniel believes we are in a consolidation phase and after that is complete the market can go up 10% or 15% over the next year. He uses a top down approach and is currently over weighted Health Care and Information Technology. He is underweight interest rate sensitive areas such as Finance, Telecom, and Utilities. Boone believes short term rates will peak out around 3.5% to 4%. Stocks he likes now are Medtronic (MDT), Costco (COST), and Dell (DELL).

Rich asked about the impact of raising rates on housing and the consumer. Daniel believes it will be a headwind. One of his biggest concerns is can inflation stay around 2%? If it does the FED funds should top out about 2% above that, at 4% or so. If we go above that threshold those with excess debt and adjustable mortgages will have even less money to spend. Liz Ann asked when the Health Care sector should see earnings growth improve. Boone says that earnings are starting to pick up across the spectrum of Pharmaceuticals, Devices, and Providers. Valuations are the lowest they have been since 1993 so as a contrarian now is a good time to buy. Ed asked where we are today in the capital spending cycle. The economy is growing in the 3% to 4% range after coming in higher in the initial stages of the recovery. Using history as a guide Boone expects capital spending to be strong for at least the next 18 months.

Next week Consuelo Mack will host the annual travel special. Guests will be Jason Ader, CEO & Founder, Hayground Cove Asset Management covering the gaming and hotel sector. Other guests will be Julius Maldutis, Airline Analyst, Aviation Dynamics, and Chris Ceraso, Auto Analyst, Credit Suisse First Boston.

-- posted by SteveT