|
|
Get Four
|  | OCTOBER 19, 2004
It's Quality Time for Stocks Loring Hedge Fund's Pat O'Neil says right now good, long-term plays beat a hedging strategy -- and he sees the Dow at 11,000 by Jan. 1 Pat O'Neil is a hedge-fund manager who doesn't think now is the right time to hedge. Rather, he believes a more appropriate move is to invest in quality stocks for the long term. O'Neil, who manages Loring Hedge Fund and is president of Loring Investment, says the current market reflects preelection instability. But once voting is out of the way, he thinks stocks will move again, and he expects the Dow Jones Industrial average to reach 11,000 by Jan. 1, 2005. Among the names O'Neil considers quality stocks are some Internet issues -- eBay (EBAY ), Yahoo! (YHOO ), and Digital River (DRIV ). In the Internet-security field, he points to Symantec (SYMC ). He also likes educational specialty stocks Apollo Group (APOL ) and Corinthian Colleges (COCO ), as well as pharmaceutical and medical supply giant Johnson & Johnson (JNJ ). "I think the fact that the market hasn't collapsed under $50 oil is a great sign of underlying strength in stocks," O'Neil says. But he says he wouldn't advise any short-term trading until things stabilize after the election. These were some of the points O'Neil made in an investing chat presented Oct. 14 by BusinessWeek Online on America Online, in response to questions from the audience and from Jack Dierdorff and Karyn McCormack of BW Online. Following are edited excerpts from this chat. A full transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Q: Pat, the Dow wound up below 10,000 again -- what's your view of this depressing situation? A: The Dow is 1% above 9,800, and we expect it to hold in this area until the election is over. Q: What's holding back the market? A: The markets are a perfect reflection of the election instability. The last week indicates to me that the market is no longer predicting a Bush victory -- now all bets are off (see BW Online, 10/18/04, "The Street Gets Comfortable with Kerry"). Q: To what extent are the high oil prices a factor? A: I think the fact that the market hasn't collapsed under $50 oil is a great sign of underlying strength in stocks. The market is bouncing with oil prices, but I expect it to stabilize after the election. Q: Is this the kind of market in which an investor should be hedging? A: I think that, right now, investing in long-term, quality stocks is the best move, and not trying to hedge and predict a change in the market. Q: Are you finding stocks to buy at this point? If so, what are they? A: We're buying stocks with a long-term view, and this includes Internet stocks such as eBay, Yahoo, and Digital River. Q: What makes you so optimistic about those Internet names you just mentioned? A: The Internet stocks that have survived the bear market and emerged as profitable companies all have factual sales and profit records to stand on. We like to invest in proven numbers, and these stocks, having been through difficult times, are great opportunities. Q: What have been some of your success stories with long-term, quality stocks? A: We did buy Internet stocks that were profitable back in 1999 and 2000. Some failed during the bear market, but eBay, as an example, we did buy at $20 a share. We've owned Yahoo for about two years and Digital River since 2000. The fact that stock values have recovered quickly shows us that long-term investing in profitable companies is sound. The smaller stocks, such as eBay or Yahoo, vs. General Electric (GE ) or General Motors (GM ), have a better chance to go up because they have fewer shares trading. It's the classical limited supply meeting growing demand [theory] that pushes these stocks up faster than the large companies. Q: Beyond the Internet, what do you see as quality stocks to buy and hold? A: The educational stocks that specialize in job-training specialties are sound investments. Right now, many have sold off during this last year in the market. Apollo Group and Corinthian Colleges are a couple that we like. Q: When do you decide to sell? A: Right now we have 30% cash and will not do any short-term trading until the market has firmed up. We sell some of our holdings as they advance, and eBay is an example of a stock that we hold and sell periodically. I wouldn't do any short-term trading in this market because of all the uncertainty around the election. We want to sell when we feel we have a stable market underneath us. Q: What do you think of GM, Ford (F ), Merck (MRK ), and Pfizer (PFE )? A: I think the car companies and the airlines are a bad bet right now. The drug companies, in general, are good long-term investments -- most [are] paying dividends. I like Pfizer, but remember that these large companies with many shares trading tend to rebound slowly. Both Merck and Pfizer are buy-and-hold, and I would add to them anytime on a pullback. Merck has a ton of money in the bank and is certainly able to regroup and attract new investment money. It just takes time to recover after a big sell-off. The stock is now back to a 1996 price and should hold in this $30 area.
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
