Dessauer: Triple Plays
02/20/2004 12:00 am EST
John Dessauer has long been among the financial world's most respected proponents of global investing. He continually travels the world to gain firsthand experience in the markets that impact his investments. Here, he offers three economic forecasts and three top stocks.
"Here are three trends we look for over the coming year or two:
1) Look for the US dollar to keep falling, breaking $1.30 and going all the way to $1.35 vs. the Euro later this year. Once the exchange rate is above $1.30, the screams from European businesses will be deafening. The European central bank will then cut interest rates, and European politicians will take more steps in the direction of real economic reform.
2) A similar scenario will play out in Japan. The Japanese central bank continues to spend billions, buying dollars and selling yen in an effort to put off the inevitable. The yen is headed for 100, a critical point for Japan. Like Europe, Japan's economy will slow unless the Japanese make tough decisions and embrace real reform. Japan will eventually move in the right direction. A year from now, their outlook will be brighter.
3) We are headed for two more great years for our portfolios. Last year was a great year, but it was only a recovery year. This year takes us to new high ground. The percentage gains this year won't be as spectacular as last year (our portfolio was up 60% in 2003), but by year-end, I predict we will be in new high ground. This year will be driven by rising demand at home. And thanks to the lower dollar, I expect the pace of economic activity in the global economy will quicken in 2005, providing us with the fuel to keep corporate profits surging and our portfolios rising.
"Here are three of our current favorite stocks:
"IndyMac (NDE NYSE) is a mortgage banker. Earnings this year will only be slightly higher than last year. But last year's earnings were extraordinary, so I think it is extraordinary that they were able to match last year's profits. CEO Michael Perry came out of CountryWide, a stock that had risen 23,000%. Is Michael Perry one of the brightest in the game? I think so. The dividend is now $1 a share, and it is probably going to $1.20 or $1.25 a year. Perry predicts that in 2005, IndyMac will make $4 per share. With a normal p/e based on those earnings, you'd expect the stock to be at $48-$50. Perry says the corporate goal for IndyMac is 8-8-08- to be the eighth largest mortgage banking company in the US, making $8 a share, by 2008. If he makes that, we'd have a triple in the stock price.
"Nokia (NOK NYSE) is just a fantastic company. This company is well followed by Wall Street, but not well understood. The team at Nokia is doing some dramatic things that are going to impact results in the future. It plans on buying back 230 million shares and paying a dividend of $0.38 a share per year. These are signs of a very healthy company. Demand for hand-held phones is accelerating, especially in giant, emerging economies like India and China. In Europe and the US, the replacement market is reviving, due to new phones with features like digital pictures and e-mail. Nokia expects to boost its market share of cell phones to 40% this year. Nokia is the world leader in cell phones. Trading at 18 times current earnings, Nokia is a buy. Before this year is over, I expect it to be at $30 a share.
"Rite Aid (RAD NYSE) reported results for January, and I see some numbers that I really, really like. Sales from the pharmacy operations were good, but the real kicker is the sales on the front-end, where they sell everything other than pharmacy products. Same-store front-end sales were up 6.7%, a significant improvement. Management is practicing 'retail 101' and doing it well. The company is also considering buying some Eckerd units from JC Penney, which could turn out to be a long-term positive. In my opinion, Rite Aid is a classic turnaround stock. Turnarounds always try your patience, but they can also deliver outstanding gains. After all the good news released, I am raising my 2004 target from $8 to $10."