"No-Brainer" Buys

05/20/2005 12:00 am EST

Focus:

John Dessauer

President, John Dessauer Investments, Inc.

"Investors should ignore the market’s irrational anxiety," says John Dessauer, one of the best and the brightest in the advisory world. "My basic thesis is quite simple: the market’s next move is clearly going to be up." Here, he looks at some current opportunities.

"The market is going to go up. And we also know exactly when that will happen. It will go up when the Fed stops raising interest rates. All we need to figure out is when Alan Greenspan & Co. will stop raising rates, and we’re all set. Now, what’s going to happen in terms of interest rates is, of course, complex. The first thing I want to point out is that the US economy did not slow down in the first quarter. Yes, the real growth number in the first quarter was below the real growth number in the fourth quarter. But that’s because the deflator went up. If you look at current dollar activity in the US economy it ran at 6.2% in the fourth quarter and 6.4% in the first quarter. The US economy is doing great in current dollar terms, while the deflator is getting pushed around by oil prices.

"So keep you eye on the current dollar GDP number. I can guarantee you that the Fed does not want that to go to 7%. They would be very happy if the current dollar number stayed right around where it is. We’re positive that Greenspan will raise interest rates until such time as they are comfortable that the current dollar growth number isn’t going to shoot up. What could make that happen? Two things. One would be if oil prices stopped going up, or even went down. I think it’s highly unlikely for the Fed to go above 4%. We’re already at 3%. So we could get that stock market moving sometime later this year.

"What can you do in anticipation? In this kind of market, you want to go with blue-chip stocks. I think this is a no-brainer. We’re riding the solid big blue-chip companies that we would put in the low-risk category. We want companies with good balance sheets, that are highly profitable, and where Wall Street’s expectations are low. In this market, look at Citigroup (C NYSE). Although the stock hasn’t done much, all the better. The more shares you own, the happier you’re going to be when it moves. The stock has been under water. It has a nice dividend. Cisco Systems (CSCO NASDAQ) is a wonderful company. They have sales of $3.50 per share and they earn $0.90 a share in profits, after-tax. Those are enormous profit margins. You hardly ever see profit margins like that. And they have some emerging new technologies like Voice over Internet coming along and their new servers can handle voice, and handle data, and handle video. These areas have huge growth potential. Cisco has a lot in front of them and the stock is looking too cheap. Another company with a great balance sheet is Nokia (NOK NYSE). This is a high quality, top-notch company that is bringing out gaming software that I believe is really terrific. Two kids with Nokia phones can play anything they want to play, back and forth live through their telephones.

"Finally, look at Merck (MRK NYSE) or Pfizer (PFE NYSE). Personally, I’m going with Pfizer, but you could own either, and you should own at least one. These are wonderful companies with strong balance sheets, global footprints, and strong pipelines. The negative Merck and Pfizer stories are way overblown. Those are two of the finest companies on earth. Pfizer happens to be the one I’m buying, but take your pick. But I think clearly that you want to own one of them. I think at this stage and the way that economic cycles are working out, it’s time to go back into technology. And by the way, they both own pieces of the smaller biotech companies, and they do this in a very intelligent, diversified way. They all have that biotech footprint. In the current challenging drug sector environment, the weak will get weaker and the strong will get stronger, and buying shares of companies like Merck or Pfizer is the way to go. I don‘t think investors will lose money with this list of stocks over the next year."

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