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Solid as an Oak
07/16/2004 12:00 am EST
"My goal is to help you build wealth over time by introducing you to some of the best long-term opportunities," says Lou Dobbs. "One way I do that is by inviting the analysts I most respect to share their top ideas." Here, he interviews Bedford Oaks' Harvey Eisen.
"Harvey Eisen, chairman of Bedford Oak Partners, is one of the best," says Lou Dobbs. "In a little over a year, his track record is impressive by any standard:Harvey can always be counted on to provide interesting and valuable insights on what’s happening in the stock market. He never pulls his punches, and he speaks his mind as honestly and directly as anyone in the business. That, coupled with his extraordinary success, makes him well worth listening to." Here are excerpts from the interview:
Lou Dobbs: Harvey, welcome back. We’ve certainly had an interesting few months in the market. What is your take on it so far this year?
Harvey Eisen:My take on the market is that it’s doing what it always does—which is doing its best to drive everybody totally and completely crazy. In my opinion, there have been a handful of major changes that have occurred in the last three months. First of all, John Kerry became a viable candidate against George Bush. Forgetting political opinions, the market wants George Bush as president, not John Kerry. So that’s the first thing. The second thing that affected the market is this eruption of negative events in Iraq. The third thing that happened was everybody turned their focus on the Fed, knowing that it is raising rates. And the fourth thing, which to me is the single most important thing in terms of negatives, is the huge explosive increase in the price of oil. That’s a huge negative in terms of a tax on the consumer. It’s also hurting industrial company and corporate profits. Now, there are a couple of wild cards. Terrorism is the one thing nobody can predict or deal with. And then there’s China, which in my view has been what’s tipped the scale to this incredible run in commodities. In the longer term, my view on China’s growth is that it’s a huge positive for the American economy and world economies because it creates demand. So, where does that leave me? I think that the market is going through a significant correction. It is an election year, and history tells us that unlike other years, the market does well in the May to November period. The average gain in an election year has always been up. The economy is booming. Job growth is back. Earnings are screaming. This will be the fourth quarter of corporate earnings growth in excess of 20%. The ultimate fear is that inflation is coming back, which, combined with interest rates rising, will lower p/e multiples. That’s the real major question for the market, and the jury is out on that. But for the balance of this year, I continue to think the market is going to be okay.
Do you have year-end targets for the remainder of 2004?
I think the market will be modestly up this year. I would add 10% to 15% to the market close of 2003.
You’ve said that business leaders have a good relationship with President Bush. What could the outcome be if a Democrat wins the White House?
Nothing. Markets do just fine under Democrats. The market prefers Bush because he has been pro business and has cut taxes. Historically, incumbents losing are not good for the market right away, and that could hurt my bullish case for this year. But if John Kerry wins, it ultimately doesn’t matter because history shows you that the economy does just fine under Democrats. So, I think it’s really a waste of time to worry about that and what the Fed is pontificating about.
Harvey, as always, you’ve given us some truly unique insights into the market. Let’s turn to the companies you’ve recommended to us. Give us an update on each, if you would.
Okay. Going alphabetically, I loveAbbott Labs (ABT NYSE). They just did a spin-off. I think it’s a cheap stock, and it’s a premier company. I see modest risk—less than 10% on the downside—with 50% upside potential in 18 to 24 months. American International Group (AIG NYSE) is a premier company in financials, right up there behind Berkshire Hathaway. The stock is reasonably priced because financial stocks are in the tank. But, again I don’t see more than 10% risk, and I see 30% to 40% upside. Bank One (ONE NYSE) is my favorite because Jamie Dimon is a guy I worked with for ten years, and I think the merger of Bank One and JP Morgan is a colossal home run. This is as strong a pick as I have right now. What can you say about Berkshire Hathaway (BRK.B NYSE)? I recommend the B shares, and as long as Buffett wakes up in the morning, is vertical, and takes nourishment, this stock is fine. I think Citigroup (C NYSE)has become a monster, a great company. And while it’s not the Citigroup that I worked for for ten years, I again see 10% downside risk and 35% to 40% potential to the upside. GP Strategies, one of the largest independent training companies in the US, is a very cheap stock, and things are beginning to turn around there. I have to say straight out that I’m now on the board of GP Strategies and I’m a 15% holder. Ivax (IVX ASE) is in the sweet spot of what I think could be a very, very powerful up-trend in the medical area. I know Phil Frost, the chairman, well. I know that he’s the largest stockholder in the company. Therefore, he is very interested in the price of the stock. I think for a more aggressive investor, it’s a perfect stock for a portfolio. It’s a midcap stock that has 10% to 15% downside risk and 50% to 100% upside. Leggett & Platt (LEG NYSE) is cheap, cheap, cheap. One of my few industrial plays, it hasn’t worked—yet. The numbers are getting better. It’s a high-quality company, and earnings growth is going to accelerate. Rite Aid (RAD NYSE) is a great, great speculation. There was a deal in the first quarter where CVS bought Eckerd, so there are now only three large national drug chains. Walgreen's being the best, CVS being number two. Eckerd was a disaster, and CVS will fix it over time. But the most exciting story of the group is Rite Aid because Rite Aid has a great management team. They have refinanced the company so it will not have any risk of going out of business. Comp-store sales are rising. Earnings are rising. It’s one of the best speculative plays that I could recommend. WebMD (HLTH NASDAQ) would be right there with Rite Aid. It’s an $8.50 stock, down from $100. It’s a premier company in terms of employing technology and the Internet to cut medical costs, and cutting costs is a huge issue in medicine. It’s run by Marty Wygod, who is one of the greatest wealth-builders ever. He’s the guy who built Medco from zero and sold it to Merck for $6 billion. This could be a $25 to $30 stock in 24 to 36 months.
Thank you, Harvey. We’ll continue to follow your recommendations and check back with you in a few months.
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