Skousen Downloads Adobe

04/29/2005 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

With workshops ranging from income and capital gains to creating a "Terror-Proof" portfolio, Mark Skousen puts his full range economic and stock market skills to the test. Here’s a glimpse into his latest economic forecast and a new "top gun" stock pick.

"With interest rates rising, many investors ask, ‘Is this time to bail out?’ No! Once the market adjusts, I firmly believe the stock market will continue its upward trend, as it has done many times in the past. Many Wall Streeters complain about the Fed raising rates, but they don’t understand sound economics. In a stable economy, the ‘natural’ rate of interest is likely to be 4% to 6% in the US, reflecting the desire to save and the demand for investing. T he Fed is simply bringing reality back to the investment world. Once the markets adjust to this higher inflationary period—and I expect the adjustment period to last a month or two—the markets will recover and we’ll be back on the road to genuine prosperity.

"Meanwhile, we plan to use the upcoming months to look for buying opportunities, such as our latest new buy recommendation, Adobe Systems (ADBE NASDAQ). If you’re like me, you use Adobe Acrobat Reader all the time. It’s a convenient way to create digital imaging, video, and photographs; it’s popular with graphic designers, photographers, videographers, and Web designers. In fact, Adobe enjoys a remarkable 27% profit margin, with a return on equity of over 35%. Adobe has more than $1.5 billion in cash in the bank, generates lots of cash flow, and its profits are growing rapidly, up 69% last quarter. Meanwhile, the stock is selling at only 28 times next year’s earnings, which is low among tech stocks.

"In addition, Adobe recently announced that it is buying Macromedia for $3.4 billion, which sent the stock down in initial trading. However, the long-term goal is extremely positive. By combining these two giant software companies—aimed at distributing documents, video and other media to personal computers, cellphones and hand-held devices—Adobe seeks to take on Microsoft as the top provider of electronic communications. Marketing wizard Bruce Chizen, boss of Adobe and the new CEO of the combined software companies hopes to create the ability to 'sign' documents on the Internet and thus eliminate the physical handling and mailing of paper documents to the government, corporations, etc. This could have a major impact in the tax and legal profession, among others. I wouldn’t be surprised to see Adobe approach $100 by the end of the year and split 2-to-1."

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