Vince Farrell comments (NBR Friday)
08-06-99: "Market Monitor"-Vince Farrell, CIO, Spears, Benzak, Salomon & Farrell
SUSIE GHARIB: Our market monitor guest this evening says that the stock market will continue downward, but he still sees some good stocks to buy now. We're please to have with us Vince Farrell, chief investment officer of the New York money management firm Spears, Benzak, Salomon and Farrell. Nice to have you back on the program.
VINCE FARRELL, CIO, SPEARS, BENZAK, SALOMON & FARRELL: Thanks Susie.
GHARIB: So whatever happened to that summer rally that everybody was talking about?
FARRELL: You know, we had it. It was gone in a second, but when Mr. Greenspan raised rates but went to a neutral bias, remember the market rallied. Then we got great earnings reports. The market rallied a little bit more. We spent all of the money and I think we're in for a little bit of a downturn.
GHARIB: Now almost everybody I'm talking to on Wall Street is saying that it's inevitable that the Federal Reserve will raise rates at its next meeting on August 24. Are you in that camp and what does it mean for the markets?
FARRELL: I think the next raise is probably pretty well built into the market right now. But I 'm wondering, since Mr. Greenspan last fall lowered rates three times because of the international stuff, if he's not going to raise rates three times, because since the lowering, the economy's grown. Profits have moved up nicely in the stock market's advance. So maybe he's going to take all three rate cuts back. I don't know, but we're going to have one for sure, but what's going to happen is we'll be in a period of uncertainty wondering if the next one is going to come and that's going to contribute to market uncertainty.
GHARIB: We sure are getting that feeling on Wall Street. Let me go to our ask the market monitor questions. And the first one that we have for you Vince, comes from California. Vince DeLuci (ph) of San Diego, who watches us on KPBS asks, I would like your opinion of mid and small cap technology stocks.
FARRELL: You know if he said mid to small cap stocks, I'd say go look there because there is more value there. But I would stay away from mid-and small cap tech stocks in favor of the large cap because I think in technology land you need global reach. You need financial flexibility and you don't find those with the smaller companies. I think you ought to stay with the big ones.
GHARIB: All right, let's go to our next one. It comes from Sydney, Australia, which by the way, we get so much e-mail from Australia. We have a lot of viewers in Australia. Jamie Summons, who watches us on SBS network asks, "given the current excessive levels of Internet stock prices, how long until the market says we have waited too long for expected future earnings?" This plays right into your hand, because I know you're not a fan of Internet stocks.
FARRELL: I am not a fan of Internet stocks. I'm certainly a fan of the Internet, but I even know how to use it a little tiny bit. I think they have a long way to go on the downside yet. I think there are some terrific companies like AOL is a wonderful company run by extremely capable guys, but I think the valuations are still way out of line with the reality and I think they have a long way to go. And I think the market is starting to tell you, you know these things are down by more than 50 percent from their recent highs.
GHARIB: So, even at those prices, some of them are down even more than 50 percent. You don't see them as a bargain right now?
FARRELL: Bargain, oh my goodness, no. You and I had a conversation not too long ago where I said the Internet stocks are going to trade for a fraction of their current price and the fraction 8 3/4 and so lower yet.
GHARIB: OK. All right well let's find out, what stocks do you like right now?
FARRELL: Well, I think that you have to look towards maybe lower growth but much lower priced stocks. Last year we had growth stocks do so well because we were afraid of a potential recession. I think the market is broadening out. We like things like CIT Financial at $24 a share. It trades at 9 times earnings. We think earnings will grow 15 percent. Navistar (NAV) is a very cheap stock, at $45 a share. It is a $3 billion market cap, one of which is in cash, one billion in net of all debt, $8 billion in sales, going to earn cash $9 this year. It looks dirt cheap to us.
GHARIB: What else do you see value?
FARRELL: Warnaco (WAC), and you had the chief executive this week, Linda Wachner. Wachner, also an apparel manufacturer is trading eight times what we expect the company to earn next year, and they are buying back their stock by the fist full. And I like that when they have extra cash, they are buying back. They have 57 million shares left outstanding after massive repurchases, and they have an authorization for another $12 million shares. And I think they are going to buy it. So that one looks very good to us.
GHARIB: Interesting because Warnaco's stock was up a point in a down market today.
FARRELL: See? There's proof positive.
GHARIB: You had in your portfolio American Home Products (AHP) and that was in the news today, with this ruling on phen-fen, the stock was down more than 6 points. Well, let me ask you this way. Buy, sell or hold that stock?
FARRELL: Right now "very strong hold." I think very soon a "buy." Just kind of let this news work its way through the market. There's always a solution to these lawsuits. It might be expensive but once it's done, it's past tense. The reason we liked American Home is still the reason we like it, is they have a wonderful flow of new products coming at you and that's going to allow them to grow their earnings significantly the next few years
GHARIB: All right. So, we'll keep a watch on it. Thank you very much.
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