HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Ed Finn
Finn is Editor and President of Barron’s.
1) They are optimistic.
2) The election will be a positive, because uncertainty will be removed (see p 3).
3) Companies are upbeat, with good profits and costs under control.
4) The political pendulum has been to the left, but will swing back, because people are concerned about spending.
5) They are watching England closely, because they are taking the bold action of cutting expenses and workers.
Scott Black
Black, founder and president of Delphi Management, is a long-time member of Barron’s Roundtable.
Next year the P/E of the S&P 500 will be about 13; thus the market is under-valued.
He likes Aeropostale (ARO). Earnings next year will be $2.85.
Petroleum Development (PETD) is 85% natural gas, 15% oil, all domestic. Their production at the drill bit will grow 5-10% per year. He sees little downside.
First Potomac (FPO) has a big dividend and a 7.6% cap rate. It is cheap statistically. Otherwise, he is cautious on the REIT industry. Money keeps flowing in because people are so desperate for yield.
FSIN (Fushi Copperweld) has 20% per year top-line growth. You are effectively paying 6X earnings for the stock.
The general trend in tech is the switch from PCs and laptops to hand-held devices. Many areas of tech are under-valued; however, disk drive is under pressure.
Varian Semiconductor (VSEA) owns the ion implantation business. They have no debt and a 25% return on capital.
In health care, you must be careful about medical reform and re-imbursement. Novartis (NVS) is the only big drug stock he owns.
(Black is a very sophisticated art collector). You must look sector by sector. Prices are high; a significant factor is the entrance of Russian and Chinese buyers. There is a diminished supply of 19th century paintings. Old Masters are under-valued; a contributing factor is a change in taste to modern works. “Buy the best you can afford—fewer and better” (RMD comment: I have emphasized this in all of my writing and speaking).
Natural gas: we have a glut because of low demand and new discoveries. Problem is that we don’t have good public policy. We should convert all of our cars to natural gas. Green energy stocks don’t fit with a value investor.
The financial sector: Citigroup (C): avoid. JP Morgan (JPM): well run, but never had a good return on equity. Bank of America (BAC): problems with portfolio. Goldman Sachs (GS): probably the best franchise in the investment space, but much earnings power will disappear with loss of proprietary trading. State Street (STT): wasted their cash and destroyed shareholder value. Many regional banks are under water and won’t be acquired because of potential problems.
Most important general point: Over any reasonable time frame, stocks will out-perform bonds. The US has major structural problems and bonds will do poorly.
Fred Hickey
Hickey is publisher of The High Tech Strategist and Barron’s Roundtable member.
The big tech picture; headed more toward bearish fundamentals that don’t justify current prices. Consumer PC demand is weak, enterprise is stronger (which favors Dell). Server demand is good but weakening. He is cautious about cloud computing (in comparison to the recent more bullish cover article in Barron’s).
Semi-conductors: supply has caught up with demand, wave is headed downward. Semis will not improve until 2nd half of 2011. The memory and DRAM market has turned down.
“Normally, I’d be shorting the semis now, but with the Fed printing money, it’s tough to go short”. The market rally started 2 months ago when Bernanke said he would start to print. We have been in a secular bear market in tech since March, 2000, and we’re still not flushed out. His technical indicators suggest a sell-off around the time of the Fed announcement.
Microsoft (MSFT); he still likes it. Earnings and dividends will continue to grow, and they will beat on Thursday (he got that right). MSFT is a safe stock, and they are a main player in cloud computing.
Verizon (VZ) has had a nice run, and the move isn’t over yet. They were gaining market share even without the I-Phone business, which is very profitable. Debt is down; they are generating a lot of cash and have a great dividend.
EBAY; he is bullish; they have the lead in the on-line payment business.
Apple (AAPL); he would buy on a sell-off. He doesn’t see the competition threatening them. Nokia (NOK) doesn’t have their act together.
Intel (INTC): good dividend, but PC market is weak. Not a bad place to hide because they probably won’t decline much. Their acquisitions have been poor; they made a lot of cash then waste it.
RMD
On Friday, the US Dollar closed at an alltime low against the Japanese Yen.
More importantly, silver (represented by SLV) and the major silver miners Silver Wheaton (SLW, see chart below) and Pan American Silver (PAAS) broke to new highs. As I have frequently noted, silver usually leads gold and the miners usually lead bullion. This action is very bullish, and suggests gold could soon follow silver higher.
Will the Bush Tax Cuts Expire?
Watch the November Elections.
Unless Congress takes action between now and the end of the year, the Bush tax cuts will expire. This depends on the results of the November elections.
1) No matter what happens, the inheritance tax will change considerably. As I have been recommending all year, see your estate planning attorney before the end of the year.
2) If the cuts are allowed to expire, your pre-tax retirement accounts; Traditional IRA and 401K (but not a Roth), are instantly worth less. If tax rates go up, an argument can be made to begin to systematically drain your IRA. Take out some money this year rather than be assured it will be taxed at a higher rate next year, and potentially even higher down the line.
3) Cousin Tony gave me this idea. If it appears the Bush cuts will expire and people withdraw money before the end of the year, what will it do to the market?
Good question. If people liquidate stocks to have funds to withdraw, it could push the market down. There is always some tax loss selling at the end of the year, especially in a down year. Bottom line is that I don’t see how this could be a positive.
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