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Get Four
|  | JANUARY 5, 2005
Investing's "Next Big Thing" Author and strategist Peter S. Cohan is looking for this decade's bright new development in technology to fuel exciting opportunities The best investment opportunities these days are outside the U.S., suggests Peter S. Cohan, author, investment strategist, and president of Peter S. Cohan & Associates. While the U.S. stock market was up 9% in 2004, as measured by the Standard & Poor's 500-stock index, that of Austria was up 68%, notes Cohan. And South Africa's was up 50%, Mexico's up 46%, and Norway's up 46%. "When we have a weak currency, like we do now, looking outside the U.S. makes a lot of sense," concludes Cohan, who recommends putting money into a diversified international mutual fund. He also notes that some of the most successful initial public offerings of 2004 were of Chinese e-commerce and e-content stocks. Cohan says he's looking for the "next big thing" to fuel investing. He notes that in the '80s it was the PC and in the '90s the Internet -- but that so far in this decade nothing analogous has yet appeared. On one leading-edge niche, satellite radio, he notes wryly that the contract Sirius Satellite Radio (SIRI ) signed with Howard Stern "vastly exceeds their yearly income." Despite the popularity of Sirius' stock, he's skeptical of the outfit's ability to attract enough paying customers to generate profits. These were some of the points Cohan made in an investing chat presented Dec. 30 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff and Amey Stone. Edited excerpts follow. AOL subscribers can find a full transcript at keyword: BW Talk. Q: Peter, does the holiday rally in stocks have legs to carry it into the new year? A: I think it does have legs. I think one of the things that happens is that big investors are trying to take advantage of something called the January Effect, which is this notion that for some reason stocks have unusually high returns in January, and these returns are often highest in the smaller-cap stocks. So investors and institutions pour money into the market, placing their bets on this, and do so in December. They'll probably try to ride those bets out through January, which should sustain the market through at least the end of that month. Q: The financial sector -- do you like it? Thoughts on Bank of America (BAC )? A: In general, I think the sector is somewhat hurt by rising interest rates. They can usually keep the rates they pay on deposits at a pretty low level as rates rise, but eventually they have to raise rates on deposits, and they usually can't raise rates on the loans quite as quickly. But there are some very agile businesses that have more fee-based income, which allows them still to maintain their course. State Street (STT ) is one of those. I'm not quite as sanguine on BAC. STT has been doing very nicely -- it has gone from $43 to $49 in the last three months. Bank of America is still digesting the Fleet acquisition, and their stock has not been quite as good, bouncing around a bit. Q: Peter, you had a lot of pre-election thoughts about the market impact of the results. We're not into Bush's second term quite yet, but what's your thinking now on this topic? A: Well, at the risk of tooting my own horn, right before the election I talked about this W industrial complex index, which I put together earlier this year. I said the stocks in that group would do well if Bush were elected. The last chat I did was a few days before the election, with my WIC up 53% since his inauguration. Since the election, the index has gone up an additional 19%. So it's up quite a bit since his first election. The WIC consists of coal, gas, oil services, defense, and selected entertainment and retailing companies. Of that index, the best-performing companies are Arch Coal (ACI ) (based in St. Louis), up 154%; Valero Energy (VLO ), (the largest oil refiner), up 179%; and United Defense Industries (UDI ), up 141%. The interesting thing about that is that UDI is 29%-owned by Carlyle Group, which counts among its senior advisers the senior George Bush. Going forward, I expect this index to continue to do well. Q: What are your current thoughts on the Internet sector? Any new favorites? A: I've put together something called the e-stocks index. I started this in 1998, actually, when I had a book that analyzed these things. I just updated this index from the post-9/11 low to today, and since then the index is up 367%. It has been a spectacular year for e-stocks in general, and there are some real standouts here of companies that are both successful financially and have had their stocks do extremely well. Some are not huge surprises. Amazon (AMZN ) is up 723%. Another that's up a lot is Juniper Networks (JNPR ), which has done very well in the infrastructure sector, up 205%. There have been some really big gains in the Web content area, due primarily to acquisitions. I believe there could more mergers and acquisitions here, too. MarketWatch (MKTW ) went up about 1,600%. Another that did very well is the Meta Group (METG ), which was recently acquired by Gartner (IT ), also with around an 800% gain. Companies like CNet (CNET ) are also potential acquisitions. There has also been some really strong performance in the security-software area, particularly Symantec (SYMC ), though they did take a hit after they announced the acquisition of Veritas Software (VRTS ). On a split-adjusted basis, it has gone from $6.25 to $25 a share, or around 300%. In the Web-tools area, there's a company I own called Macromedia (MACR ), which has gone from $11.30 to $31 a share. The last one I'll mention is Yahoo! (YHOO ), which has risen from $8.02 to $38 a share. In retrospect, if you had had the good luck and nerve to purchase these e-stocks, you would be doing very, very well right now.
BW MALL
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