Forbes Gurus Tell How to Weather the Storm

02/07/2008 12:00 am EST


Matthew Schifrin

Vice President and Investing Editor, Forbes Media, LLC and Forbes Newsletters

Moderator Matt Schifrin, editor of the Forbes Newsletter Group and Personal Financial Channel led a gathering of Forbes’ top newsletter editors who advised investors how to get through the current market turmoil…

Jim Stack, president of InvesTech Research, noted that the Federal Reserve is showing its fear by its two consecutive interest rate cuts within ten days. It is targeting stock prices and trying to prevent the real estate bust from becoming a deep recession. He advised attendees to forget the debate of bull vs. bear and look for compelling values. For the first time in two years, his company has increased its allocation to stocks.

Larry McMillan, editor of The Option Strategist, said he believes that market volatility will remain high and that extreme spikes upward are buying opportunities. But, he also expects a retest of lows on the Standard & Poor’s 500 to the 1250 or 1260 level, and if they don’t hold, there may be problems in store for the market. McMillan suggested that investors consider covered call writing to protect themselves.

Richard Lehmann, editor of the Forbes/Lehmann Income Securities Investor, believes 2008 will be the year for yield, with possibly rising inflation. Even if the economy falls into a recession, interest rate declines will be good for income securities, holding the potential for capital gains. But he warned against risky, high-yield securities, which may face default during this rough patch.

Kelly Wright, managing editor of Investment Quality Trends, observed that the markets seem to be functioning with a certain degree of normalcy, and dividend yields are increasing as prices decline. More importantly, book values are getting interesting as price/earnings ratios are falling to levels we haven’t seen for a long time. This may be a “once-in-a-decade” opportunity to acquire high-value names at bargain prices.
Jim Lowell, editor of Fidelity Investor and editor-in-chief of the Forbes/Lowell ETF Advisor, told attendees that no question, we are in a bear market, but he considers it a building block for growth opportunities. The good news is that the global economies and markets are still holding up well, which is positive for the multinational companies with good dividend yields. Lowell advised investors that this provides a great opportunity to build a diverse, long-term portfolio of ETFs and mutual funds.

John Christy, founding editor of the Forbes International Investment Report, weighed in on international markets, noting that there is no such thing as a safe haven, but the need for basic products such as infrastructure and power—in addition to commodities—will continue to drive growth. However, he cautioned investors to be careful of panics and very careful about how to play China, recommending that they focus on blue chips that have a lot of exposure to that region.
Lehmann added that the US is still a safe haven for global investors and will profit from a global economic slowdown. And while we have our share of real estate problems, our values look attractive compared to regions such as Europe. When our market bottoms out, we will see an influx from foreign investors.

Stack suggested that the media focuses too much attention on the weak dollar, and he wouldn’t be surprised to see it stabilize. He suggested attendees look at stocks of US companies that make their revenues and earnings globally. One company trading at a good value is Sigma Aldrich (Nasdaq: SIAL), which gets 60% of its sales from overseas.

Matt Schifrin then polled the panel for their best investment ideas for the next 12 months, as well as which areas they are avoiding:

Wright said he is looking for very high-quality companies with low prices and high yields, such as Sigma Aldrich, as well as specialty chemical maker Rohm & Haas (Nyse: ROH); green up-and-comers United Technologies (Nyse: UTX) and LSI Industries (Nasdaq: LYTS); Bank of America (Nyse: BAC), and Wells Fargo (Nyse: WFC).

McMillan suggested playing ETF options on the grain markets, call options on Sovereign Bank (Nyse: SOV), and recommended staying away from crude oil and large-cap oil stocks.

Lowell agreed with McMillan about crude and cautioned against Latin American regional funds and ETFs. He suggested that the Fidelity Select Transportation Fund (FSRFX) will benefit from lower crude prices. He recommended cash and cash reserves for the intermediate time period, as well as mega-cap stocks, or the Dow Diamonds Trust (AMEX: DIA).

Stack noted that the four worst performing sectors in a bear market are financials, industrials, consumer discretionary, and technology, while the sectors that hold up the best are utilities, consumer staples, and health care. He particularly likes Johnson and Johnson (Nyse: JNJ) for its diversification, healthy 2.6% dividend yield, and its discounted valuation.
Lehmann sees opportunities in high yield once the turnaround begins—but not yet. Meanwhile, Canadian oil and gas trusts, while poor price performers in 2007, have seen their yields go up to the 15% range. His favorite is PennWest Energy Trust (Nyse: PWE), the largest energy trust in Canada, producing 200,000 barrels of oil per day, with 11 years of proven reserves.

Christy recommended the T. Rowe Price Africa and Mid East Fund (TRAMX), which is run by an emerging markets team with 20 years of experience. The fund is trading around ten times earnings and has a low correlation with the US and other emerging markets.

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