Kangas: A Talk with Stack

09/19/2003 12:00 am EST

Focus:

Paul Kangas

Co-Anchor and Financial Commentator, Nightly Business Report

Paul Kangas needs little introduction. As host of TV's Nightly Business Report, he is one of the most well-known and respected financial commentators. Here, he interviews Jim Stack, editor of InvesTech Market Analyst, who offers his market outlook and some top stock picks.

PAUL KANGAS: My guest market monitor this week is James Stack, President of InvesTech Research, based in Whitefish, Montana. Welcome back to Nightly Business Report, Jim.

JAMES STACK, PRESIDENT, INVESTECH RESEARCH: Thank you, Paul. It`s great to talk to you again.

KANGAS: Do you think the stock market is telling us that its recovery has gotten ahead of the recovery in the U.S. economy, given today`s weak August job report?

STACK: Well, one factor we have to keep in mind is the unemployment statistics are very lagging. Another is that we`ve been through six consecutive months of gains for all market averages. That`s something we haven`t seen since 1997. In addition, September is notably not a good month for the market. Over the past 40 years, 60% of the Septembers have been a down month. So I wouldn`t be surprised to see some more correction here.

KANGAS: Last February, on your last visit with us as a market monitor, you said the building blocks were in place for a new bull market. Is the foundation solid enough now to expect more gains ahead?

STACK: I think it is, Paul. Some of our technical readings in breadth, that is in market participation and in leadership, have hit their best or their strongest readings in over a decade. This is a bull market. It`s a very tenuous bull market, and there are sectors I think I`d definitely avoid out there - some of the high-value tech sectors.

KANGAS: You mean like high-tech stocks that have had a big run-up and no earnings?

STACK: The technology, I think, are priced to perfection, and there`s a risk there for disappointment. You don`t have to play that momentum or that technology to gain or make good profits in this market. Our model InvesTech portfolios are up over 20% year to date, and we don`t have a single technology stock in them.

KANGAS: You know, at that time early in the year we were on the precipice of the second Iraqi war. And you said your history, your databank, which is considerable, shows that six months to a year after wars like that the market is always higher. Well, it certainly is now. It was 7,800 on the Dow then. Now we`re up at 9,500, and all the major averages are higher, too. Are we going to continue to go higher?

STACK: Yes, I think we will see higher averages by the end of this year. This bull market has good liquidity. It has good strength. The frothiness right now has me a little worried. I think we`re due for some correction or consolidation. But, again, looking at the longevity of this market, as long as we don`t see any warning flags appear, it could extend well into next year`s election. But the warning flags, I think I`d watch the long-term bond market and consumer confidence out there. Those are keys to this economic recovery right now.

KANGAS: Can you give us a few stocks that are going to go up, you hope?

STACK: Well, some of our favorites - and these are in our managed accounts at this time - Biomet (BMET NASDAQ). It specializes in orthopedic products. It has a 15% sales and earnings growth over the past 10 years.

KANGAS: OK. All right.

STACK: It has no debt. We also like Mentor Corp. (MNT NYSE).

KANGAS: These are both health-related stocks, aren`t they?

STACK: They are. They have good growth, no debt and Mentor has a 2.5% dividend yield.

KANGAS: OK.

STACK: We also like EnCana (ECA  NYSE). The reason, it`s one of the largest natural gas producers in North America, and natural gas prices are up quite a bit over the past year. It`s more of a defensive hedge - a defensive, protective hedge in our portfolio. The last one I`d probably toss out right now is Newmont Mining (NEM NYSE).

KANGAS: You liked that before, too, in February. It`s done very well.

STACK: It`s done very well. It`s up about 35% year to date. But when you have a central bank, our Federal Reserve, trying to reinflate right now, one of the casualties will be the U.S. dollar. As the dollar falls, gold prices are going to be firm or move higher.

KANGAS: All right, well, I`m glad you`re constructive on the market, and we`ll look at those choices of yours very carefully. Thanks very much, Jim.

STACK: Always my pleasure, Paul.

KANGAS: My guest market monitor, James Stack, President of InvesTech Research.

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