Joe on the 3-tiered market and other stuff.[Joe Battapaglia-Gruntal & Co]
Drew:
Here is little something I found which may be of interest to you.
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(Courtesy:Multex Investor Netwrok)
Top Tier
Joe Battipaglia, Chairman of Investment Policy, Gruntal & Co.
The following transcript was taken from a live event held on April 22 on AOL's MarketTalk, hosted by Sage Online, Inc. via keyword: AOL Live.
Please join Sage Online in welcoming Joe Battipaglia, chairman of investment policy at Gruntal & Company and analyst for the Multex Investor Network. He will give his Sage predictions for the Dow and offer insight on recent market happenings.
Question: Mr. Battipaglia, can you explain the "Three Tiered Marketplace" and its significance to investors?
Joseph Battipaglia: Good afternoon, pleased to be here today. The 3 tiered market is what we are confronting today as investors. The top tier consists of what I call "The Nifty One Fifty" which are global giants in their field. They typically have proprietary technology and have demonstrated success in their business models and those include Intel (INTC), Microsoft (MSFT), Merck (MRK), Pfizer (PFE), Proctor and Gamble (PE), and GE (GE) to name a few. These stocks are disproportionately significant because of their size to the S&P 500, Dow Jones, and the Nasdaq Composite Index. They are widely held stocks and will serve as a barometer of investor expectation.
The second tier is comprised of 4000 companies that are in similar categories to the tier one companies, but are not as big or well known. And in order for those stock prices to work, managements must beat expectations, aggressively pursue their business plans, and focus on building shareholder value.
The 3rd tier are what I call "the commodity product companies" that are subjected to heavy foreign competition, are unable to raise prices, and have very sluggish business conditions. These companies are in sectors like steel, energy, papers, chemicals, utilities and restaurants. Now this sector, from an investment point of view, will be driven by merger and consolidation and will have a fairly narrow set of companies that can actually provide a decent investment return over the next 12 months. So it is not a question in my mind of value versus growth "When will value come back" and not a question of small stocks versus large stocks rather where you are in these 3 tiers and I would hope investors are heavily invested in tier 1 and tier 2. And only special situations into tier 3.
Question: Would you describe the top tier as being representative of the new economy?
Joseph Battipaglia: To a great extent the top tier does represent that. And what is that? First it's global, second it's oriented toward the adoption of and utilization of new technologies and thirdly, it is an economy where the desire to lift living standards in the third world along with progress in developed countries and ongoing growth in mature economies spurs ever increasing levels of consumption. So the sectors that comprise this first tier include leading consumer product companies, technology innovators, telecommunications, pharmaceuticals, financial services, and transportation companies.
Question: What are your three favorite top tier companies?
Joseph Battipaglia: 3 favorite top tier companies include Cisco (CSCO), Pfizer (PFE), and Intel (INTC).
Question: How heavily weighted, in Internet stocks, is the top tier?
Joseph Battipaglia: The top tier has a small but rapidly growing presence of online companies. The two that come to mind are Yahoo (YHOO) and AOL (AOL). We feel that the internet has very powerful potential in the years to come but we are still in the early stages of coming to understand the winners and losers and there is a time that must pass for a company to demonstrate that it belongs in this top tier as opposed to being one heck of a flash in the pan. And since the internet is relatively new technology few of them will be in that top tier. Most fit into the 2nd tier. Which is where you would find up and comers and their stock prices can indeed outperform those in tier 1.
Question: What is your view on the current valuation of Internet stocks?
Joseph Battipaglia: It is next to impossible to properly analyze internet stock valuations. My sense is that internet stock prices represent the most speculative expectations on behalf of investors. Because the gap between what potentially they could become and the amount of actual business they are doing now is enormous. I think having said that, companies that would make an attractive long term investment would be those that built loyal subscriber base such as AOL and those that have a site that commands dominance in the field they are looking to dominate, we call those vertical portals. An example might be iVillage (IVIL) and 3rd would be tech companies that serve the internet. And I believe you'll see that with companies such as IBM (IBM) in terms of how they direct their business plans to participate in the business of ecommerce. Or an Oracle (ORCL) on the database side or a Cisco on the networking side or an MCI Worldcom (WCOM) in terms of the telecommunications backbone.
Now this is not an all inclusive list and we will see more companies becoming public that will have great potential. You also have by the way, some special tech situations like Real Networks (RNWK) that are going to enable the internet to become even more robust.
So although prices will be all over the place, there is still potential for ever-increasing values overall in time. I would add that dollar cost averaging is a good investment tactic when involving yourself in highly volatile securities and investors should bear in mind their risk tolerance and their ability to withstand potential losses when investing in such an exciting but emerging new arena.
Question: What is the single most-important variable to consider when evaluating a stock?
Joseph Battipaglia: I think in the end the single most important variable in evaluating a stock or company is the management. Now I know it's typical to talk more on earnings and cash flow but I think in the end it's managements' decisions on how to deploy shareholders assets that will determine the ultimate value of a company.
Two recent examples is Johnson & Johnson (JNJ) had a public scare regarding Tylenol and management action turned it around and the company went on to do better and better. More recently, Compaq (CPQ) was unable to deal with competition from Dell (DELL) and unable to take advantage of their acquisition of Digital and the stock has languished more recently.
We are in an era today where managements have all the tools necessary to closely guide their businesses and take advantage of what market opportunities around the world present to them. They have the ease of acquiring and disposing companies they buy their own stock back with regularity, and the stature of business people and leaders on a global stage is at it's highest level as we close the 20th century.
Question: Is there a Web site we can visit to learn more about your views concerning the market?
Joseph Battipaglia: Our website is Gruntal.com. We are also highly visible on The Multex Investor Network, multexinvestor.com and we would welcome any and all visitors to our full research and services profile.
Thank you, Joe Battipaglia, chair of investment policy at Gruntal & Company! |
