|
|
Get Four
|  | APRIL 27, 2004
"Pay Attention to the Price of Fish" That's Michael Farr's way of urging investors to heed the fundamentals and ignore emotional distractions The stock market will be on an emotional seesaw into the middle of summer, according to the predictions of Michael Farr, president of investment firm Farr, Miller & Washington. He urges investors to watch the fundamentals despite such distractions as the 9/11 Commission, the war in Iraq, and the Presidential election. "At the fish market," he says, "ignore the yelling and pay attention to the price of fish." Farr thinks a hike in interest rates is necessary but doubts it has been priced into the market. "Somehow, the market is determined to be surprised when it happens," Farr comments. "I'm reminded of my grandfather, who dropped dead of a heart attack at age 101 and shocked us all." When interest rates do rise, he points to pharmaceuticals and financials as two sectors that could benefit. Among the pharmas, he likes Pfizer (PFE ) and Johnson & Johnson (JNJ ), and in financials Citigroup (C ) and Bank of America (BAC ) -- both of the latter partly because of their dividend yield. These were some of the points Farr made in an investing chat presented Apr. 22 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff and Karyn McCormack. Edited excerpts follow. A complete transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Q: Michael, so far it has been a dramatically seesaw week for the market, thanks partly to Fed Chairman Alan Greenspan. What's your outlook? A: I think the seesaw will continue into the middle of the summer. The seesaw strikes me as an emotional one. Fundamentally, we're seeing significant strength in corporate earnings and the economy. The 9/11 Commission, the war with Iraq, and the Presidential election will continue to cast uncertainty in the minds of would-be investors. It's an important time to ignore the noise and watch the fundamentals. At the fish market, say, ignore the yelling and pay attention to the price of fish. That would be good advice for investors now. Q: Do you think an interest rate hike by the Federal Reserve is priced into the market? A: No. Greenspan's comments on Tuesday proved that. Interest rates are at 60-year lows, the economy is picking up, and everyone knows that rates have to move higher. But somehow, the market is determined to be surprised when it happens. I'm reminded of my grandfather, who dropped dead of a heart attack at age 101 and shocked us all. I do think a hike in rates is necessary, and [the Fed] shouldn't wait too long. Q: Which stocks will best weather a rise in interest rates? A: Believe it or not, the pharmaceuticals should do well. The financial stocks historically do well in a rising-rate environment -- any company or industry that is not capital- or commodity-dependent. All are, to some degree, so you have to look for those that are relatively less dependent. Q: Which sectors in your opinion will fare better in the third and fourth quarters? A: I probably could answer this sort of the same way. I would add technology, but look for some sort of slowing from the consumer sector. The consumer has been very strong for several years, and while I don't anticipate a slowdown, there's not a lot more upside to consumer spending that can be reasonably forecast. Q: Would eBay (EBAY ) be a buy at this point? And what do you think of Net stocks generally? A: I think Net stocks in general continue to be expensive and as a group are counting on good news. If that good news doesn't come through, overpriced stocks are therefore vastly overpriced. As a concept, a company, as a business model, eBay is great, but the valuation is too high for my blood. It's not so much a price issue alone or an earnings number alone, it's the growth in those earnings. Q: What are some of the better stock choices in your view? A: In technology, I like Dell (DELL ), IBM (IBM ), First Data (FDC ), and Microsoft (MSFT ). I'm starting to nibble with Nokia (NOK ). Q: What do you think of Citigroup if the Fed raises rates? A: I like it a lot. I think the valuation is compelling, the lines of business are strong, they have pricing power, and Citigroup runs a balanced loan portfolio. I think that they will benefit from international growth. I love the 3.25% dividend. I own it, and I will buy it at these levels. I also like Bank of America. Q: What will be the range of the major indexes at the end of the year? A: Higher. Q: That's as specific as you can get? A: That's as specific as anyone reasonably can get, really. The next eight months is a very short period to forecast. Short-term markets are irrational, unpredictable, and any number of unforeseen events could have a great impact in the short term that won't matter in the long term. While I think we could see the markets 10% higher from here, more or less than that number wouldn't disturb my long-term investment philosophy at all. Q: Are you making any changes to your portfolios? New buys or sells? A: I think in small ways. We're trying to maintain our exposure to technology without paying too much for shares we like. I'm taking a look at some new companies that we may or may not buy in here. Donaldson (DCI ) is one. If I'm adding in the consumer sector, I think the sell-off of Kohl's (KSS ) has been overdone. I continue to like CVS (CVS ), as earnings will drive it higher. In pharmaceuticals, I find myself focusing on Pfizer and Johnson & Johnson. I think the pharmaceutical sector is very much a stock-picker's sector, and those two I like. Q: Any selections for great dividend-paying stocks? A: General Electric (GE ), Kimberly-Clark (KMB ), Procter & Gamble (PG ), Merck (MRK ), Nokia, Citigroup, Bank of America, Freddie Mac (FRE ), St. Paul Travelers (STA ).
BW MALL
SPONSORED LINKS
Buy a link now! | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
