Thursday, November 02, 2006
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Financial Columnists
The Rangel Factor
Kenneth L. Fisher, 11.13.06, 12:00 AM ET
pic
Divorce Dirty Tricks
Gadgets We Love
Giuliani Inc.: Strange Company
Real Estate's Richest Racket
The Plot Against Small Cars
Complete Contents
Related Quotes
AZ 18.58 + 0.00
DA 31.62 - 0.02
DB 123.75 - 0.93
DG 13.84 - 0.11
HSY 53.02 + 0.52
KFT 34.41 + 0.05
MO 81.36 - 0.09
SFD 26.35 - 0.41
SFD 26.35 - 0.41
Suppose I'm wrong. I've been bullish for a long time; I've been on the right side of the global market as it has risen year after year since 2003, beating bonds or cash. For all the reasons I've rattled off over the last two years I still think there is a big bull move ahead. But suppose I'm wrong.
Bears think the consumer is tapped out, the economy about to crumble, corporate earnings at an unsustainable share of national output, the commodity boom snapped, the housing bubble burst and the Federal Reserve trapped between rising inflation and a wobbly world economy. You might have that nightmare in which the Democrats sweep Congress and you wake up one morning to find Charles Rangel sitting at your kitchen table filling out your 1040. The New York liberal might be the next House Ways & Means Committee chairman. Suppose, that is, that my last column, predicting that the GOP would hold both houses, is just wrong. (For which I can thank Mark Foley.) How bad will a Democratic win be for investors?
Not bad enough, I submit, to sell stocks now. Market timing is a dangerous game, best limited to the rare occasions when you have good reason to expect a significant bear market--meaning a decline of 20% or more. This column has gone truly defensive only on a few occasions, in 1987, 1990 and 2001. But I just can't justify the cost of in-and-outing to sidestep small corrections.
Could we have a big bear market now? I don't think so. Bear markets come from a combination of positive sentiment with bad surprises virtually no one anticipates (like the 1973 oil crisis). Today too many gloomsters and not that many big-time boomsters (like me) are around for this combination to occur.
I also know I always may be wrong. CXOAdvisory.com, a site (owned by market research firm CXO Advisory Group LLC) that ranks 33 public prognosticators, puts me at the top with a 69% accuracy since 2000 on 58 market-timing calls. That means I've been wrong 31% of the time. So I always plan to own some stocks that will do well if what I expect to happen doesn't happen. Right now that means stocks that would do relatively well in a slightly bearish market, stocks that have some defensiveness to them. These five should fit the bill.
Germany's Allianz AG (nyse: AZ - news - people ) ( 18, AZ)is simply too cheap compared with its insurance peers: Most sell at 1 to 1.5 times revenue. This giant sells at 60% of its projected 2007 revenue of $125 billion and 10 times 2007 earnings. It spans the main insurance markets in 60 countries, mostly outside America and Asia, so if you primarily fear an economic downturn limited to the U.S., this company should not be hurt. (Its North American operations, less than 20% of revenue, include Pimco, Oppenheimer Capital and Fireman's Fund.) The company is 50% larger than where it was six years ago, yet the stock is trading for half its price then.
In a general market meltdown the consumer staples sector usually performs relatively well. You have to keep buying food, drugs and soaps. Kraft Foods (nyse: KFT - news - people ) ( 36, KFT), America's largest food manufacturer and the world's second largest behind Nestlé, has an endless stable of great brands (Jell-O, Nabisco, Post, Maxwell House, etc.). At 18 times 2007 earnings it's cheaper than Hershey (nyse: HSY - news - people ) or Groupe Danone (nyse: DA - news - people ). The dividend yield is 2.7%. The 85% stake owned by Altria (nyse: MO - news - people ) Group precludes a hostile takeover, but it's still a good investment.
Another food company is Smithfield Foods (nyse: SFD - news - people ) ( 26, SFD), the world's largest pork processor (27 million hogs a year). Not terribly exciting, and the profit margin is thin (1.3% aftertax). But for Smithfield to shrink in the next recession the world would have to stop eating lunch. This could easily be taken over in a hostile bid. It sells at 30% of revenue and 13 times 2007 earnings.
Germany's Deutsche Bank (nyse: DB - news - people ) ( 124, DB) is 60% an investment and institutional bank, 40% a wealth-management firm. If db sold off banking, the remaining firm would have $1.2 trillion under management and be worth more than the whole company is now. So you'd get the bank for free. At ten times 2007 earnings, it should grow moderately.
Dollar General (nyse: DG - news - people ) ( 14, DG) operates 8,000 discount general merchandise stores in 32 states. Catering primarily to middle- and low-income customers, it thrives in all economic climates. When things go well, their customers spend more. When things slow, they attract more customers who trade down to lower prices. Speaking of lower prices, shares are selling for half of annual revenue and 15 times earnings.
Kenneth L. Fisher is a Woodside, Calif.-based money manager. Visit his homepage at www.forbes.com/fisher.
Subscribe to Forbes and Save. Click Here.
1 of 1
Financial Columnists
The Rangel Factor
Kenneth L. Fisher, 11.13.06, 12:00 AM ET
pic
Divorce Dirty Tricks
Gadgets We Love
Giuliani Inc.: Strange Company
Real Estate's Richest Racket
The Plot Against Small Cars
Complete Contents
Related Quotes
AZ 18.58 + 0.00
DA 31.62 - 0.02
DB 123.75 - 0.93
DG 13.84 - 0.11
HSY 53.02 + 0.52
KFT 34.41 + 0.05
MO 81.36 - 0.09
SFD 26.35 - 0.41
SFD 26.35 - 0.41
Suppose I'm wrong. I've been bullish for a long time; I've been on the right side of the global market as it has risen year after year since 2003, beating bonds or cash. For all the reasons I've rattled off over the last two years I still think there is a big bull move ahead. But suppose I'm wrong.
Bears think the consumer is tapped out, the economy about to crumble, corporate earnings at an unsustainable share of national output, the commodity boom snapped, the housing bubble burst and the Federal Reserve trapped between rising inflation and a wobbly world economy. You might have that nightmare in which the Democrats sweep Congress and you wake up one morning to find Charles Rangel sitting at your kitchen table filling out your 1040. The New York liberal might be the next House Ways & Means Committee chairman. Suppose, that is, that my last column, predicting that the GOP would hold both houses, is just wrong. (For which I can thank Mark Foley.) How bad will a Democratic win be for investors?
Not bad enough, I submit, to sell stocks now. Market timing is a dangerous game, best limited to the rare occasions when you have good reason to expect a significant bear market--meaning a decline of 20% or more. This column has gone truly defensive only on a few occasions, in 1987, 1990 and 2001. But I just can't justify the cost of in-and-outing to sidestep small corrections.
Could we have a big bear market now? I don't think so. Bear markets come from a combination of positive sentiment with bad surprises virtually no one anticipates (like the 1973 oil crisis). Today too many gloomsters and not that many big-time boomsters (like me) are around for this combination to occur.
I also know I always may be wrong. CXOAdvisory.com, a site (owned by market research firm CXO Advisory Group LLC) that ranks 33 public prognosticators, puts me at the top with a 69% accuracy since 2000 on 58 market-timing calls. That means I've been wrong 31% of the time. So I always plan to own some stocks that will do well if what I expect to happen doesn't happen. Right now that means stocks that would do relatively well in a slightly bearish market, stocks that have some defensiveness to them. These five should fit the bill.
Germany's Allianz AG (nyse: AZ - news - people ) ( 18, AZ)is simply too cheap compared with its insurance peers: Most sell at 1 to 1.5 times revenue. This giant sells at 60% of its projected 2007 revenue of $125 billion and 10 times 2007 earnings. It spans the main insurance markets in 60 countries, mostly outside America and Asia, so if you primarily fear an economic downturn limited to the U.S., this company should not be hurt. (Its North American operations, less than 20% of revenue, include Pimco, Oppenheimer Capital and Fireman's Fund.) The company is 50% larger than where it was six years ago, yet the stock is trading for half its price then.
In a general market meltdown the consumer staples sector usually performs relatively well. You have to keep buying food, drugs and soaps. Kraft Foods (nyse: KFT - news - people ) ( 36, KFT), America's largest food manufacturer and the world's second largest behind Nestlé, has an endless stable of great brands (Jell-O, Nabisco, Post, Maxwell House, etc.). At 18 times 2007 earnings it's cheaper than Hershey (nyse: HSY - news - people ) or Groupe Danone (nyse: DA - news - people ). The dividend yield is 2.7%. The 85% stake owned by Altria (nyse: MO - news - people ) Group precludes a hostile takeover, but it's still a good investment.
Another food company is Smithfield Foods (nyse: SFD - news - people ) ( 26, SFD), the world's largest pork processor (27 million hogs a year). Not terribly exciting, and the profit margin is thin (1.3% aftertax). But for Smithfield to shrink in the next recession the world would have to stop eating lunch. This could easily be taken over in a hostile bid. It sells at 30% of revenue and 13 times 2007 earnings.
Germany's Deutsche Bank (nyse: DB - news - people ) ( 124, DB) is 60% an investment and institutional bank, 40% a wealth-management firm. If db sold off banking, the remaining firm would have $1.2 trillion under management and be worth more than the whole company is now. So you'd get the bank for free. At ten times 2007 earnings, it should grow moderately.
Dollar General (nyse: DG - news - people ) ( 14, DG) operates 8,000 discount general merchandise stores in 32 states. Catering primarily to middle- and low-income customers, it thrives in all economic climates. When things go well, their customers spend more. When things slow, they attract more customers who trade down to lower prices. Speaking of lower prices, shares are selling for half of annual revenue and 15 times earnings.
Kenneth L. Fisher is a Woodside, Calif.-based money manager. Visit his homepage at www.forbes.com/fisher.
Subscribe to Forbes and Save. Click Here.
1 of 1
