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PUNDIT WATCH
Abby Cohen
Edward Kerschner
Edward Yardeni
David Jones
Elaine Garzarelli
Byron Wien
Ralph Acampora
Elizabeth Mackay
Edward Hyman
Charles Clough
Barton Biggs
Elliott Platt
THE U.S. ECONOMY and stock market received
another vote of confidence from Goldman
Sachs' Abby Joseph Cohen. In a conference
call Friday, our No.1-ranked pundit reiterated
her opinion that the stock market is
undervalued and that the U.S. economy is
not heading into a recession.
Cohen told investors that back in April she
believed the stock market was fairly valued and that equities
would trade within a range. "We sadly underestimated just how
volatile that range would be," she says. But in Cohen's world
view, that volatility has turned out to be a good thing for
anybody with cash on hand. According to her earnings model,
equities are now undervalued by 12% to 15%.
At this point even our most bullish guru admits that the U.S. is
not immune to the troubles facing the global economy. She
now expects U.S. exports to slow down as a result and GDP
growth to be affected as well. But she is still optimistic about
the earnings picture next year. "Nineteen ninety-nine will be
another year of economic and corporate profit growth," Cohen
says.
Cohen is now adjusting her earnings estimates for 1998 and
1999. She says she needs to increase the level of writeoffs,
particularly for banks that have experienced trading losses and
for the General Motors (GM) strike. "My assumption is that
any changes we do make to the 1999 profit forecast will be
fairly modest," she explains.
So if stocks are so cheap, what is Cohen buying? She
continues to like the financial services, even in light of trading
losses associated with the currency crisis in Russia.
"However, we expect most of these losses to be transitory
events," Cohen says. Bank stocks now trade at the lowest
relative P/E ratios seen in several years, she adds. Out of the
group she is particularly bullish on Citicorp (CCI), Chase
(CMB) and Providian Financial (PVN). In addition to these
picks, on August 28 she also recommended clients buy
NationsBanc (NB), MBNA (KRB) and high-risk credit card
lender CMAC (CMT).
The technology sector is also a favorite. She says recent data
suggests PC demand is strong and that the U.S. technology
companies enjoy strong competitive advantages through
proprietary products, services and good distribution. She is
recommending Intel (INTC), Microsoft (MSFT) and Dell
(DELL). On August 28, she also recommended chip equipment
maker Applied Materials (AMAT), Compaq (CPQ), America
Online (AOL) and Sterling Commerce (SE).
Cyclical stocks that will benefit from strong U.S. demand
(including retailing and airlines) should also do well in this
environment, Cohen says. Her favorites in this area include
Federated Department Stores (FD) and Gap (GPS). Again,
back in August she mentioned cruise ship operator Carnival
(CCL), as well.
During the conference call Cohen did make one change to her
sector recommendation. Previously, she told clients to
underweight energy; now she is recommending investors
modestly overweight the sector since energy prices are near a
bottom. She likes Texaco (TX) and British Petroleum (BP).
And while she didn't mention it on Friday's call, back in August
she also liked what she called "reliable growth" companies
including Automatic Data Processing (AUD), General
Electric (GE) and Millennium Pharmaceutical (MLNM).
All of Cohen's stock picks are long term in nature, but you can
track them day-by-day on this page. In the meantime, we'll be
checking with her next week to see if she changes her
earnings outlook for 1998 and next year.
-- By Stacey L. Bradford
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