Richard Band: A Crusty Contrarian
02/20/2004 12:00 am EST
Richard Band calls himself a "A Crusty Contrarian." His workshops are always among the best at each Money Show, and this year was no exception. Here's some of his common-sense, conservative, and consistently excellent advice.
"We believe that the unexpected always happens. That's what the theory of contrary investing is based on-that markets never do what too many people expect. In fact, they can't do what too many people expect. What people expect is already embedded in current prices. It's surprises that move the market. So if you want to understand where the market is going to be six months or a year-whether you are talking about stocks or bonds or real estate or precious metals- you need to look for surprises that could upset the consensus. In fact, the closer we come to a unanimous opinion for something to happen, the more likely that the contrary will occur.
"However, it's important to understand some of the false interpretations of contrary opinion. One often hears the phrase that the majority is always wrong. Not so. In fact, the majority opinion in the market is usually right most of the time. So when you hear people say the market can't go up because most people are positive on stocks, well that's not entirely true. The trend is your friend most of the time- until it goes to an extreme. Humphrey O'Neill, an old New England codger like me, put it best. He said, 'The public is right about the trends, but wrong at both ends.'
"One area of the market that is still cheap is bank stocks. First Tennessee (FTN NYSE) pays a nice 3.5% dividend and has a great growth record. This is the kind of company you want to own for the longer term. We'd also note that and bank takeovers are a hot item right now, and this is the kind of bank that a big New York or Florida bank would love to acquire at an appropriate price. We also like Regions Financial (RF NYSE), which is based in Alabama. Like FTN, the stock is also yielding about 3.5%. Both Regions Financial and First Tennessee are on S&P's list of dividend aristocrats- companies that have raised their dividends every year for at least a quarter of a century.
"The retail sector appears to offer value today. Many are growing faster than the S&P, but selling at a lower multiple. My favorite is Target (TGT NYSE), which is a great competitor to Wal-Mart. This is a company that has grown its earnings at a 17% annual rate for the past ten years. That's a tremendous record, which is far in excess of the market average. At the same time, the stock is selling for 17 times earnings, a lower p/e ratio than the market. The best bargain at Target is not the stuff you find on the shelves, but the stock itself
"The next stock is one you can lock away not just for the next 12 months, but for the rest of your life. My top healthcare pick is Johnson & Johnson (JNJ NYSE). Here is a company that has grown at a double-digit rate not just for 25 years, not just for 50 years, but for over 100 years. This is a really great franchise. And they make a lot more than Band-Aids. They have advanced pharmaceuticals and medical instruments. This is the ultimate blue chip. Yet, this stock is selling at roughly a market multiple. This is the safest growth stock in America and probably the finest company in the S&P 500, yet it is trading at no premium to the index. This is a cornerstone stock that you can pass on to your children or grandchildren.
"Finally, for the more speculatively inclined, I'll throw out some real red meat for more speculative piranhas. I see a tempting opportunity in South Korea. KT Corp. (KTC NYSE), formerly known as Korea Telecom, is that nation's dominant phone company. It owns substantially all the network of local telephone lines and exchanges. It also provides domestic and international long-distance calling; wireless; and high-speed Internet access. In a word, the whole telecommunications bundle. What makes KTC such a compelling deal, though, is the price of its stock. Currently, KTC sells for only nine times this year's estimated earnings, well below the typical European or North American telco. Yet analysts predict KTC will grow its profits at a sizzling 21% annual rate over the next five years. A few hardy bargain-sniffers have picked up the scent. The Brandes and Templeton organizations, long respected as among the shrewdest international value investors, own big chunks of the stock (worth about $1.4 billion combined). Sure, there are risks, such as North Korea's saber-rattling. But if Brandes and Templeton can live with that, so can I. If you're going to venture into far-off lands, invest with the best."