US Stks Outlook:M. Stanley Strategists See Opportunities
30 Oct 16:15
By Karen Talley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Morgan Stanley's (MWD) top strategists might be
considered something of Wall Street's Ebenezer Scrooges - loathe to spend money
on stocks in a big way, especially during bad times.
That's why it might be noteworthy that some of the firm's power hitters have
gotten together and agreed some stock buying may be in order. These market
trackers represent Morgan's council of investment strategists who set broad
tone and they are generally quite critical. They differ from individual stock
pickers, like Internet analyst Mary Meeker, whose bullish leanings prompted a
suit - thrown out last month - by investors who felt she had been overly
positive in her calls.
The Morgan market strategists came to their conclusions about doing some
buying after searching through nooks and crannies - those in geographic locales
and those of spread sheets fed esoteric data.
Their conclusions?
"We have started putting cash back to work," say chief investment strategist
Byron Wein, global strategist Jay Pelosky and European equity strategist
Richard Davidson, in a new report.
Dow Chemical (DOW), Korea Telecom (KTC), Citigroup (C), Honda (HMC) and ASM
Lithography (ASML) are among the strategists' selections. The recommendations
do come with a warning, though. Expect "a low return environment," the
strategists say, one in which "sector and stock selection are likely to pave
the way for performance."
In other words, selections may remain few and far between. Still, the
strategists do say their approach mixes cyclicals "to ensure exposure to the
economic recovery we expect and a more defensive, or stable growth element."
When considering U.S. equities, "we believe terrorism will be with us for a
while and the recovery will be muted," the report states.
Opportunities - not oversized ones - may lie with beaten-down issuesin
technology, retailing, basic materials and capital goods.
To U.S. investment strategist Steve Gailbraith, who contributed his own
section to the 96 page report - the conundrum remains technology. "While
investors have a pretty good idea of how to think about normal earnings for
Ford or Dow Chemical, what the heck are Cisco's normal earnings?" he said.
"A reason I think investors blanch at the sight of current tech multiples are
that they are every bit as high as they were during the apex of the Nasdaq
bubble," Gailbraith said. "What changed are the earnings. This year's earnings
in the technology sector will be roughly 60% below their peak level."
The earnings fluctuations make technology stocks tough to approach in the
same way that investors might approach cyclicals, which is a label they carry
in many quarters. "The tech sector has had it both ways recently, trading at 44
times what appear to be both peak earnings ($80 billion in 2002) and trough
earnings (roughly $30 billion this year)."
Gailbraith's solution is a spreadsheet that culled out buy-rated tech stocks
that are trading at the lowest multiples of their of peak earnings. His screens
turned up National Semiconductor (NSM), Computer Associates (CA), Teradyne
(TER) and Compaq (CPQ).
Gailbraith also ran a spreadsheet on stocks that are rated neutral, but still
trading at the highest multiples of past peak earnings. This group includes
Veritas (VRTS), Electronic Data Systems (EDS) and Ciena (CIEN).
Chief quantitative analyst Joseph Mezrich also ran some numbers, taking a
fresh look at companies that are big capital spenders - anathema to investors
during down times because of concerns about bloat, waste and market saturation.
But in the aftermath of Sept. 11, Mezrich said these stocks may in fact be
appealing.
What changed?
Well, now these spenders are building for the future. "When sizable liquidity
is applied to budding expectations for economic recovery, it can alter
attitudes toward capital spending and help render stock market recoveries
sustainable," Mezrich said. "What's important is the level of sales growth gets
back above the growth rate of capital spending."
Companies such as Cendent (CD), Calpine (CPN) and Charter Communications
(CHTR) are worth keeping an eye on, according to Mezrich.
The Morgan report, while something of a switch from past positionings, is not
a sweeping stock fest by far.
"There is no refuge in this amazingly synchronous global recession," says
Morgan Stanley economist Stephen Roach, just back from a visit to clients in
Asia.
"There's an air of trepidation in official circles, with many of the more
experienced leaders now calling this Asia's second full blown crisis in three
years," Roach said. "Japan, of course, is back in its fourth recession in a
decade."
And then there is Barton Biggs, the firm's chief global strategist and a
renowned stock market bear.
"The new euphoria now looks overdone," is Biggs' contribution to the outlook.
"Investors who still have cash should cherish it."
-By Karen Talley, Dow Jones Newswires, 201-938-5106;
karen.talley@dowjones.com
(END) DOW JONES NEWS 10-30-01
04:15 PM |
