Barton Biggs
Barron's: Rumor has it you've turned bullish. Why?
Biggs: Things have worked out much as we thought since January. But we're either at or close to an important bottom, and the selling has gotten overdone. Sentiment has gotten too depressed. Valuations have become somewhat more attractive both in the U.S. and around the world. So I think we're setting up for a rally that lasts for a couple of months and takes the S&P up roughly 15% and the Nasdaq up 30%. And it takes a lot of these busted stocks up 50%.
Q: But the market overall is not out of the woods, is it?
A: No. There are still a lot of problems. But there are some fundamental reasons to think the market will rally, not just the fact that valuations are cheaper and the market is oversold. We've got at least three, probably four, quarters of favorable earnings comparisons ahead. Inflation is still very low. The Federal Reserve is still very easy. The U.S. and world economies are not going to fall apart. Is it going to be a slow, sluggish recovery? Yes. But real growth will be 3% in the second half of this year, and S&P earnings will be up 20%-25%.
We are not into a new bull market, but we may well have hit the bottom of the trading range. Beyond this rally the market will just mill around, but within an environment of 2½%-3% inflation, because the Fed errs on the side of ease. To a certain extent it's a stagflation-type environment of relatively sluggish growth, a little increase in inflation and Treasury rates rising one-half to three-fourths of a percent.
Byron Biggs
Short term:
Rally in technology, media, telecommunication and pharmaceuticals:
Company Symbol Recent Price
AOL Time Warner AOL $16.00
Nokia NOK 12.43
EMC EMC 6.42
Cisco CSCO 14.08
Abbott Labs ABT 37.67
Merck MRK 52.20
Pfizer PFE 36.08
Schering Plough SGP 23.70
Bristol-Myers Squibb BMY 25.90
Tyco TYC 15.35
Q: So no new lows for stocks?
A: A lot depends on whether there is another bolt from the blue, be it a terrorist attack that disrupts the economy or some kind of financial accident. If not, we're close to the lows.
Q: Investors aren't acting that way.
A: Individuals probably will sell into the rally. The institutions don't know what to do. They are trying to figure out how to justify 9%-return-on-asset assumptions. There aren't any big, liquid financial alternatives to get you there. They are going to have to be more aggressive asset allocators, selling stocks on strength and buying on weakness.
Q: What should they be selling and buying now?
A: Technology, media and telecom are all going to do pretty well, particularly names like AOL Time Warner, Nokia, EMC and Cisco. The same with some other busted stocks, like Tyco International, and groups like pharmaceuticals around the world. Abbott Laboratories, Merck and Pfizer are the good ones, and Schering-Plough and Bristol-Myers Squibb are the troubled ones. But the drugs are starting to look like value. I still like natural gas -- Burlington Resources and Phillips Petroleum. The financials will rally, but should be underweighted in the future. There are still more bodies to come up from the depths. All the losses haven't been recognized yet.
Q: Some foreign markets are putting the U.S. to shame. Will this continue?
A: International markets are going to outperform the U.S. Once you add in a declining dollar, foreign markets provide the American investor with 7%, 8%, 10% more per year than the U.S. That's probably the strongest trend of all. The dollar will fall another 5% before the end of the year and another 5% in the first half of next year. So we'll see the dollar down 20% over the next three years. Non-Japan Asia is the best place to be. I would invest in funds that specialize in Asia and the emerging markets. There's nothing the matter with Japan, either, though the turnaround is very slow.
Q: That's for sure. Thanks, Barton.
Roundtable Scorecard
The members of the Barron's Roundtable, for the most part active money managers, take no pledge to stick by the stocks and opinions they offer up at the start of each year. Markets continually evolve, requiring constant buy and sell decisions, something especially true this year. Nonetheless, for those who care to keep score, here's an interim look at how our panelists' 2002 picks and pans have performed since the January 7 Roundtable.
Biggs | Black | Cohen | Faber | Gabelli | MacAllaster
Neff | Samberg | Schafer | Witmer | Zulauf
BIGGS
Price Price Percent
Company Symbol 1/7/02 6/14/02 Change
Regeneron REGN $26.77 $14.96 -44.12%
Bristol-Myers BMY 50.07 26.80 -46.47
Wyeth* WYE 62.50 51.95 -16.88
Abbott Labs ABT 55.40 36.75 -33.66
Schering-Plough SGP 34.49 24.32 -29.49
Novartis NVS 34.82 38.67 11.06
Nestle (ADR) NSRGY 53.23 58.25 11.53
Danone BN FP €134.00 €138.00 2.99
Unilever UN 55.79 62.20 11.49
Fannie Mae FNM 76.15 76.40 0.33
Freddie Mac FRE 63.00 62.68 -0.51
Plum Creek Timber PCL 28.72 30.30 5.50
Burlington Res BR 36.19 37.94 4.84
Anadarko APC 54.44 49.17 -9.68
Index 1/7/02 6/14/02 Percent Change
Biotech Amex Bio 559.54 354.75 -36.60%
Emerg Mkts MSCI Em Mkt 335.57 336.24 0.20
Short
Technology
Financial Services
Fixed Income Yield
Hi-Grade Corporates 1/7/02 6/14/02
Merrill Lynch Corporate 6.21% 5.56%
Municipals Yield
Bond Buyer Municipals 5.58% 5.35%
10-year TIPS 3.50 3.04
Zero Coupon 10-yr STRIPS 5.56 5.17
* Name changed from American Home Products |
