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Get Four
|  | FEBRUARY 28, 2005
Bowing to "Dividend Aristocrats" These outfits have increased their payouts for 25 years or more, and S&P's Joseph Lisanti says they're a good bet in the current market Look for stocks of companies that regularly increase their dividends -- that's one bit of advice in the current market from Joseph Lisanti, editor of Standard & Poor's newsletter, The Outlook. Over the history of the S&P 500-stock index, he notes, about 40% of the total return to shareholders came from dividends and their reinvestment. That general approach should continue to hold, Lisanti thinks, even though the current yield on the S&P 500 remains below 5%. S&P maintains a list of "dividend aristocrats" -- companies that have upped their dividends for 25 or more consecutive years -- and this list is available at www.standardandpoors.com, Lisanti says. As for S&P's current recommendations on stocks with potential, with oil prices rising Lisanti says S&P has a strong buy on oil majors ChevronTexaco (CVX ) and Total ADS (TOT ) and on oil and gas drillers Nabors Industries (NBR ) and Patterson-UTI Energy (PTEN ). These were a few of the points Lisanti made in an investing chat presented Feb. 22 by BusinessWeek Online and Standard & Poor's on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. AOL subscribers can find a complete transcript at keyword: BW Talk. Note: Joseph Lisanti has no ownership interest in or affiliation with any of the companies under discussion in this chat except as noted. Q: Joe, the stock market took a real plunge today [Feb. 22] -- what went wrong? A: Well, two factors are being blamed for much of the decline today. The first was the jump in oil prices to more than $51 a barrel on colder weather in Europe. The second was an announcement by South Korea that they would shift their foreign exchange reserves to a basket of currencies. This implies, to most people, that they will be selling dollars. Consequently, the dollar fell, oil prices rose, and investors got nervous. Q: Did some parts of the market suffer more than others? Any bright spots? A: It was a bad day for most parts of the market. New York Stock Exchange breadth was 27 to 7 negative. Nasdaq breadth was 23 to 9 negative. And 29 out of the 30 Dow components fell. With oil prices up, some of the oil stocks gained today, and gold prices also were higher, making gold-mining stocks among the few winners. Q: Which gold-mining stocks does S&P favor? A: We currently don't have buy recommendations on any of the gold stocks. The reason is that they have, for the most part, not participated in the advance that physical gold made in 2004. Many of the stocks had run up well in advance of physical gold, and we expect they will have to tread water for a little while longer before they will be attractive. Q: Why is S&P's outlook on Payless Shoesource (PSS ) so bright? A: We upgraded the shares of PSS to strong buy (5 STARS), from buy (4 STARS), in early February, based on our opinion that the company's restructuring was progressing nicely. The restructuring included closing 8% of their stores, which had generated a $29 million operating loss in fiscal 2004 (January), as well as a reduction in their overall expense structure. Q: Why does Home Depot (HD ) decline when it made its estimated profits for the quarter? A: Home Depot was under pressure today. It reported January-quarter earnings of $0.47, vs. $0.42 in the same period a year earlier. Those results were a penny shy of our estimate, and we assume a number of investors were disappointed. Standard & Poor's, however, maintains a buy opinion on the shares even though we expect organic sales growth to slow modestly in fiscal '06 (ending January), due to a projected slowdown in the domestic housing market. We believe HD's strong free-cash-flow generation, sound balance sheet, and prospects for international growth make the shares attractive. Q: Why does ChevronTexaco (CVX ) fall in the face of increasing crude prices? A: We like CVX and have a strong buy recommendation on it. Recently, hydrocarbon production fell 8.5% in the fourth quarter, in line with our forecast, on asset sales and weather-related disruptions in the Gulf of Mexico. We expect the shortfall will be short-lived. Some people, however, may be more worried about that and therefore are selling the shares. Q: How about other energy stocks, especially Big Oil? A: Among the largest companies, in addition to CVX, we favor Total ADS (TOT ), which we rank 5 STARS. We also favor Exxon Mobil (XOM ), which we rank 4 STARS (buy). The other largest players are BP (BP ), Royal Dutch Petroleum (RD ), and Repsol YPF (REP ). We rank BP, RD, and REP as holds (3 STARS). In part, this is a valuation call, since we believe the shares of the stocks we currently recommend are more attractively priced. Q: What do you think of housing? Hovnanian (HOV ), D.R. Horton (DHI ), Toll Brothers (TOL ), et al.? A: We currently have strong buy or buy recommendations on the following homebuilding stocks: Beazer Homes USA (BZH, 5 STARS); Lennar (LEN, 5 STARS); Standard Pacific (SPF, 5 STARS); and D.R. Horton (4 STARS). In general, we believe the homebuilding sector will do very nicely because interest rates, though rising, remain fairly low. We believe Toll Brothers is currently fairly valued, as is Hovnanian. We rank both TOL and HOV as 3 STARS and would hold current positions.
BW MALL
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