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Get Four
|  | JANUARY 24, 2005
A Year for the Choosy Buyer With no one sector likely to be the standout star of '05, S&P's Kenneth Shea urges the greatest care when picking individual stocks "Solid positive momentum" -- that's the prospect for the economy and the market in 2005, according to Kenneth A. Shea, managing director of Standard & Poor's Equity Research Services. S&P expects an approximate 9% increase in the S&P 500-stock index this year, to 1,300, plus roughly a 2% dividend yield, he says. Still, it will definitely be a stockpicker's year, Shea predicts, with no sector or stock type showing leadership. S&P currently gives an overweight ranking to only one sector, the industrials, with consumer staples rated underweight and all other sectors at market weight. With financial stocks representing some 20% of the S&P 500 by market capitalization, however, that means market results will be strongly influenced by that sector's performance, Shea adds. Plus, investors are cautious about financials because of rising interest rates. These were a few of the points Shea made in an investing chat presented Jan. 18 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 full transcript at keyword: BW Talk. (Kenneth Shea is a Standard & Poor's Equity Research analyst. He has no ownership interest in or affiliation with any of the companies under discussion in this chat. All views expressed accurately reflect the analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this chat. For required disclosure information and price charts for all S&P STARS-ranked companies, go to spsecurities.com. Click on "Investment Research" and then on "Required Disclosures & Standard & Poor's STARS vs. Closing Prices Charts.") Q: Ken, we're into the third week of the New Year. How does the market look to you? A: Although the market has gotten off to a sluggish start, S&P remains of the opinion that both the economy and the equity markets are poised for solid positive momentum throughout the year. S&P sees the S&P 500 rising to 1,300 at the end of the year, for an increase of about 9% from where we're at. Tack on roughly a 2% dividend yield, and that's not a bad return. Q: What about Lucent Technologies (LU )? A: S&P recommends investors hold the shares of Lucent. S&P sees signs of recovery in the overall telecommunications market, with pockets of opportunity in areas such as services, metro optical, voice over Internet protocol (VOIP), broadband access, and high-speed wireless data. However, we believe the company may continue to lag behind its competitors -- those carriers that are deploying GSM and UMTS wireless systems. Given some execution risks and an indebted balance sheet, S&P recommends hold. Q: Please list some of the top stocks you like for 2005. A: S&P maintains a Top 10 model portfolio, which is intended to capture what it believes are the 10 stocks poised for superior gains over the next 12 months. All of the stocks in the model portfolio are ranked 5-STARS [strong buy in the S&P Stock Appreciation Ranking System] by S&P equity analysts, and are reviewed by the staff's research director and myself as well. The current stocks are: Cooper (COO ); MBNA (KRB ); Burlington Northern Santa Fe (BNI ); Ingersoll-Rand (IR ); Amgen (AMGN ); Chattem (CHTT ); Guitar Centers of America (CGTR ); FMC (FMC ); Qualcomm (QCOM ); and Landstar System (LSTR ). Q: I have General Motors (GM ) at 51.588 -- buy, sell, or hold all, or part? A: S&P recommends selling the shares of General Motors, as last week we lowered our operating margin and net income estimates on the company for this year. Our cautious outlook reflects our expectations of higher raw materials costs, weakening profitability in Asia, losses in Europe, increased pension and health-care expense, and greater margin pressure from increased competition in the U.S. Our 12-month target price is $34. The stock's 5%-plus dividend yield is considered secure and attractive relative to other S&P 500 companies. Q: How about Manitowoc (MTW )? A: S&P recommends investors buy Manitowoc, as our forecast of economic growth through 2008 has become more positive on industrials, and we now see the company's business cycle lasting longer than we had previously expected. Its gains are being driven almost entirely from its crane division, which we believe should benefit from increased global-distribution efforts, healthy demand in foreign markets, contributions from acquisitions, and an expected improvement in U.S. commercial-construction activity. Q: Your opinion of Vishay Intertechnology (VSH ), please. A: S&P recommends investors hold the shares of Vishay . We expect the company's revenues to grow about 11% this year, as we expect good momentum to continue for the global electronics industry. However, recent bookings did not show the strength needed for us to have sufficient optimism or confidence that the shares will outperform near-term. Our 12-month target price is $13. Q: Your opinion on AFLAC (AFL ), please. A: S&P recommends investors hold the shares of this provider of supplemental health and life insurance in the U.S. and Japan. Our neutral stance on the shares reflects recent slowing sales growth and the likelihood that earnings growth may not get the same boost from currency translation this year as it did in 2004.
BW MALL
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