Kangas "Monitors" Stack
04/01/2005 12:00 am EST
Each Friday on his Nightly Business Report , Paul Kangas features a guest "Market Monitor". Jim Stack was recently in the "spotlight". Here, are excerpts from the interview, as well as another favorite idea from Jim's newsletter, InvesTech Market Analyst.
Paul Kangas: How long in the tooth is this bull market?
Jim Stack: Historically the median life span for all of the bull markets of the past 75 years has been 3.4 years. Now, we’re in our third year. So chances are we’re in the latter innings.
Kangas: OK. What is your defensive investment strategy?
Stack: Avoid the interest rate sensitive areas. Those areas are going to be impact by inflation or interest rates. For example, home builders, real estate investment trusts, and the mortgage finance companies like Fannie Mae and Freddie Mac, pose very high risk going forward from this point. Focus instead on sectors and stocks that are more insulated from up side surprises in inflation or interest rates.
Kangas: Despite your caution, do you have any buy recommendations?
Stack: Yes, we do Paul. I like Abbott Laboratories (ABT NYSE), a big outfit in the pharmaceutical area. While its already had a good move, from a valuation standpoint, it’s selling at one of the lower valuations of the last 20 years, as are many of the big pharmaceuticals that have been out of favor.
Kangas: OK. Any others?
Stack: Another one is Biomet (BMET NASDAQ), which manufactures orthopedic products. Again, it has had a good run up, but it’s pulled back to what I think would be a good buying opportunity. The targeted market are those individuals who require orthopedic replacements. They are generally in the 50 to 75-year-old and that population is going to double from the baby boomers aging over the next.
Kangas: We have time for one more Jim.
Stack: Automatic Data Processing (ADP NYSE) provides payroll outsourcing for many companies. And again it`s an unusual situation with an $18 billion float in payroll that it can actually benefit from rising interest rates. Those are the kind of defensive stocks that you have to search out today.
KANGAS: Very interesting, so very much on the defensive indeed. Do you own those stocks incidentally?
STACK: Absolutely, Paul. We wouldn’t recommend them if we didn’t believe in them.
Meanwhile, in the latest issue of his InvesTech Research Market Analyst, Jim Stack offers an energy play as his latest featured investment. Says Stack, "We continue to like the energy sector for its long-term potential. Devon Energy ((DVN NYSE), is a prime example of the type of company we think offers the best combination of value and growth. The attributes we look for in an energy exploration firm are growing production and reserves, capital discipline, depth of leadership, and a commitment by management to build shareholder value. Devon far surpasses most all of its peers in these criteria. Although the stock has appreciated over 50% since it was first added to our portfolio in January 2004, it still looks undervalued. Barring a collapse in oil prices, the firm’s enviable production profile and strong focus on fiscal discipline should generate superior cash flow, suggesting that further gains in shareholder value can be expected."