Forbes: A Foursome of Favorites

12/24/2004 12:00 am EST

Focus:

Much of the best financial commentary comes from Forbes , and a recent special panel is no exception. Here are some excerpts from Bob StovallJoe Battipaglia, Vahan Janjigian, and Mary Farrell --each of whom happens to be among our favorite Money Show speakers. 

(For more information on the analysts cited below, please click on their photos.) 

Stovall, Robert"Our strategy is pretty simple," says Robert Stovall, managing director of Wood Asset Management. "We invest in quality value stocks—mostly dividend payers. What I see coming up is a seasonally strong time for equities. The investment period through February is usually positive and the market does show signs it wants to rise here. One factor supporting this outlook for equities is massive liquidity—lots of cash or cash equivalents. Trillions of dollars by any measure you want to use and many investors wanting to do something more exciting with their funds than just collect the low interest rates now available.

"I think that energy prices will stay high enough to build substantial cash flows for the energy companies. Gas is the fuel of preference. I like gas companies that don’t entail much political risk so our choices in this group are selective North American gas companies such as Apache (APA NYSE), Devon Energy (DVN NYSE), Chesapeake Energy (CHK NYSE), and EnCana (ECA NYSE). They have properties in the western US and Canada and elsewhere. They’re doing very well already. Among oil shares, we have gone with the old standbys Exxon Mobil (XOM NYSE), BP (BP NYSE) and Suncor (SU NYSE). I also like the ADRs of a French company, Total (TOT NYSE), which has good Middle East connections. Oil would need to break under $38 for me to start believing that energy stocks are not a good place to be invested."

Battipaglia, Joe"According to the Fed, wealth in America is at a record level," says Joe Battipaglia, chief investment officer at Ryan, Beck & Co. "Net of $11 trillion of debt, it’s at $44 trillion. And it’s balanced between real estate and fixed-income investment, private business investment, as best they can figure it, and equities. So you could say that the national net worth is in a very good position as we enter the new century. You could also point to the fact that we have a record number of Americans who are owners. And a record number of Americans own equities. That’s the good news. For 2005, I expect modest increases in interest rates and good economic activity that should allow the markets to expand by another 10% or so. I have an S&P target for next year of about 1300.

"We think large-cap stocks are a more attractive place to be than small-caps or mid-caps. We are indifferent as to whether they are value or growth stocks. We think both have an opportunity to perform. Here are some sector selections that we have made in our portfolios at Washington Crossing—driven by consistent businesses, low multiples of cash flow and financial strength. In the health care area, Johnson & Johnson (JNJ NYSE), Barr Laboratories (BRL NYSE) and Henry Schein (HSIC NASDAQ); in consumer discretionary, CBRL Group (CBRL NASDAQ), Books-A-Million (BAMM NASDAQ) and Cost Plus (CPWM NASDAQ); in the consumer nondiscretionary category, Fresh Del Monte Produce (FDP NYSE), a very good business from a cash-flow point of view; among the financials, Goldman Sachs (GS NYSE) and Fiserv (FISV NASDAQ); in information technology, a troubled company that we think can fix itself is Hewlett-Packard (HPQ NYSE). We also like  CheckPoint Software (CHKP NASDAQ), and Ingram Micro (IM NYSE). And one last name in telecommunications, Centennial Communications (CYCL NASDAQ). The stock trades at the $6.50 level, but we believe it is worth in the area of $10-11."

Janjigian, Vahan"There are a few stocks that we’re currently very fond of; they’ve all done very well, yet we’re still bullish on them," says Vahan Janjigian, executive director of Forbes Investors Advisory Institute, and editor of The Forbes Growth Letter. "They’re all defense-related stocks with relatively small market caps. The first is DHB Industries (DHB AMEX). This is a company that makes body armor such as bulletproof vests. Third quarter revenues were up 64% from a year ago. What’s more important, however, is that the company has received $525 million in orders over the past 12 months. We’re very pleased with that. DHB is expected to earn about $0.78 per share in 2005, which I believe is a conservative estimate. Armor Holdings (AH NYSE) also makes body armor for the military and also for police. It is also in the business of arming and protecting military and commercial vehicles. For the third quarter, AH had about $250 million in revenues, which is up from only $91 million a year ago. The company should earn about $2.60 per share in 2005. And the last company that is somewhat related to defense is Oshkosh Truck Company (OSK NYSE). It’s probably best known for its fire engines, garbage trucks, cement mixers. and things like that. But it also makes trucks for the military. In fact, the company currently has well over 4,000 vehicles in Iraq. And another thing that they’re getting into lately is that they are up-armoring Humvees. It’s primarily the defense side of this business that’s caught our attention."

Farrell, Mary"I’d say we are returning to more normal markets," says Mary Farrell, chief investment strategist for UBS Wealth Management. "We had the extraordinary rising inflation of the late 1960s and 1970s, the extraordinary deflation of the 1980s and the 1990s fueling that incredible bull market, then a bubble followed by a crash. Now I think we’re looking to a market that’s going to be driven by trend line economic growth, normal inflation, normal unemployment rates, trend line corporate earnings growth, and much more normal total returns, which have historically been in the 8-10% range. I think that’s what we’re likely to see over the next five years. One appropriate strategy in that environment is the dividend strategy - a great strategy that has been underappreciated. The 2003 tax law, which lowered the tax to 15% for dividend income, is only a small part of this very exciting dividend story. Corporations have responded with dividend increases well above average. We’re estimating that the payout ratio will go significantly back up and investors will once again see dividends as a much more important part of their total return.

"Overall, we face a lot of major issues like Social Security, Medicare, and large deficits. But I always come back to the fact that in my 34 years of studying markets and economic history, whatever the problems, we somehow have an amazing ability to cope with them and pull ourselves together. This is still the one country on the globe that people are knocking on the doors to get into. We have an incredible group of young and vibrant immigrants who want an opportunity to realize the American dream. I think that with the combination of hard work, high ambitions, and great assets that we have developed, we will resolve these problems. I can say with confidence, the market will be higher as we go forward."

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