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Get Four
|  | JULY 20, 2004
"Keep Your Eye on the Ball" Money manager Michael Farr advises investors to ignore the many distractions in the market and look for "singles and doubles" "It's a good time to put some money to work long-term," says Michael Farr, president of Washington (D.C.) investment firm Farr, Miller & Washington. The stock market is likely to swing sideways, as many investors wait on the results of the election, Iraq, the possibility of terrorism, the economy, and the Federal Reserve. His advice: Avoid the distractions of the market and focus on finding good stocks for the future. Farr is avoiding commodities and metals outfits, as well as semiconductor stocks such as Intel (INTC ). But he still likes a number of companies, including American Power Conversion (APCC ), General Electric (GE ), Home Depot (HD ), Wal-Mart (WMT ), IBM (IBM ), Cisco (CSCO ), Microsoft (MSFT ), Nokia (NOK ), and Citigroup (C ). These were some of the points Farr made in an investing chat presented July 15 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Karyn McCormack. Edited excerpts follow. A full transcript is available from BW Online on AOL, at keyword: BW Talk. Q: The market has been stuck in this sideways motion lately. Where do you see the market going? A: Sideways. [Zogby International] did a poll a few weeks ago of individual investors. They said that 65% of investment decision-making depended on how they felt. Sideways action indicates that there's not a great deal of confidence. While the numbers are improving, sentiment is not. This 6 1/2-month period of very little progress is historically unusual in its length. We expect that the clouds on the horizon will either lift, as certainties grow, or will sooner or later produce storms. Our guess is that the expanding economy and improved corporate earnings will ultimately drive the market higher. We think there are a number of compelling values available for investors today. Q: Are there any good stocks out there right now? A: Yes. And I'll even name a few. American Power Conversion (APCC ), General Electric (GE ), Teleflex (TFX ), Home Depot (HD ), Wal-Mart (WMT ), Kohl's (KSS ), Wendy's (WEN ), PepsiCo (PEP ), CVS (CVS ), Mylan Labs (MYL ), Pfizer (PFE ), Medtronic (MDT ), IBM (IBM ), Cisco (CSCO ), Microsoft (MSFT ), Nokia (NOK ), Citigroup (C ), Bank of America (BAC ), and Saint Paul's (SPA ) are some that we find appropriate for accounts under our management. They are not recommendations to buy or sell securities to the general public. If these ideas interest you, please do your homework, and seek competent advice. Q: What's your opinion on Nucor (NUE )? Do you like any other commodities stocks? A: I don't like that one, and I don't like any others. It's a cyclical stock that requires two decisions: You have to buy it right and you have to sell it right. I don't see that the stock is overvalued. It might do well in the near term, but it's not the sort of stock you can put your money into for the long term and forget. When that cycle turns, you need to sell those companies. In the long term, there's very little growth in commodity-based stocks, especially the steel stocks. (By the way, Nucor is trading right where it was in 1993.) Q: Are most investors waiting for the results of the November election? A: They're waiting for the results of the election, they're waiting for the results in Iraq, they're waiting on the possibility of terrorism. They're waiting on the economy, they're waiting on the Federal Reserve. So many points of uncertainty build the all-important wall of worry necessary for stocks to advance. Remember that enthusiasm on Wall Street is a very dangerous thing. There isn't much of it now. Valuations appear reasonable. It's a good time to put some money to work long-term. One of my main rules of investing is that "If it feels bad, do it." It feels bad to sell when stocks are making highs, it feels bad to buy them when they've been beaten up. My friend and strategist Don Hayes says you should be in a full body sweat every time you make a decision to buy or sell a stock. Q: Are you getting "full body sweats" from the recent spike in IPOs? A: No. And I'm not buying them. The prices on IPOs look more reasonable, but overall the performance has been quite underwhelming. We're seeing more IPOs beginning to hit the markets -- an encouraging sign.... As sentiment continues to improve, this opportunity for capital formation will also improve, but if stocks with long earnings histories represent risk, these companies with rather murky histories represent a great deal of risk. In my opinion, they're almost never appropriate for the unsophisticated investor.
BW MALL
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