Investor Alert! Unbiased Favorites

05/28/2004 12:00 am EST


John Mugarian

Editor, Investor Alert

"I don’t sugar coat the financial industry," says John Mugarian, a former broker who now publishes Investor Alert, a newsletter which turns a critical eye to Wall Street in an effort to protect investors. He also offers his own excellent and unbiased investment advice.

"My goal with Investor Alert is to provide a teaching tool for the serious investor. As a broker for 14 years, I know how the brokerage community operates and I know when their products are designed to benefit them more than you. My role is to let you know that. I’m actually pretty stunned at the arrogance of the major brokerage firms as they attempt to repair their tarnished images. Brokerage firms are no longer sneaking around behind our backs, cutting investment banking deals with the companies that their analysts recommend. No sir. Not anymore. These firms are now looking us square in the eye and telling us that it is going to be business as usual.

"I'd like to read to you from a disclaimer on a research report from a major brokerage firm. It says, ‘This firm does seek to do business with the firms named in these research reports. As a result, investors should be aware that this firm may have a conflict of interests that could affect the objectivity of this report.’ What the heck is this? This type of disclosure confirms what I have been warning investors about all along. The average investor has no business doing business with a brokerage firm that engages in investment banking activities.

"I'd also like to discuss my own outlook and some favorite current stocks. Recently, the market has become preoccupied with inflation, due to demand for raw materials in China which has been causing a boom in commodity prices. The good news it that some temporary relief is on the way. With a pullback in the Chinese economy will come a sell off in commodity prices, which will lessen inflationary fears. And since the market has already been discounting a 75 basis point move by the Fed, it will no longer worry about additional interest rate increases. The stock market hates uncertainty and the inflation wild card certainly adds uncertainty. I think that once the market finds out that inflation is no longer a factor, it will trigger a tremendous rally. I think the stock market will move back to the highs we saw earlier this year and maybe hit 11,000 by the end of the year.

"SBC Communications (SBC NYSE) is a classic contrarian stock. This is the largest telephone company in the US, with 57 million phone lines in 13 states. SBC is also the nation’s number one wireless carrier with its 60% ownership of Cingular Wireless. Phone companies are aggressively targeting the high speed broadband market by lowering the price of high speed Internet access to customers, and by bundling their long distance, local, and cellular services. Meanwhlile, SBC has announced a 350 million share buyback, which amounts to 10% of the company’s entire float. The stock also has a 5% dividend yield. But the real kicker here is that Mexico’s richest man, Carlos Slim Helu, purchased 6 million shares of SBC in the open market. He is on the board of directors at SBC. He is also the principal owner of Telmex, and he is the #10 man on the Forbes billionaire list. I would follow his lead and buy SBC.

"Meanwhile, the recent sell-off in technology has provided a wonderful opportunity for an entry point for investors in select technology shares. Texas Instruments (TXN NYSE) recently sold off in sympathy with the news that Nokia, one of its customers, had lost market share. But its slightly lower revenues reflected in this wireless shortfall is being offset by higher demand for its high performance and analog products. In addition, the company announced that visibility has improved and that order growth is now more predictable. I think that Texas Instruments can easily move to $35, for a gain of 40%. Also in the tech sector, I like chip equipment maker Applied Materials (AMAT NASDAQ). The company announced a $3 billion stock buyback in March. And the economic recovery has increased demand for semiconductors worldwide, and a cyclical upswing appears to be underway in the area. The company has also taken advantage of the demand for flat panel screens by selling testing products to flat panel manufacturers. Buy this stock while you can at prices under $20 a share for a run to the high $20s over the next 12 months."

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