03/23/01: Market Monitor-Elaine Garzarelli, Chair of Garzarelli Capital, Inc.
PAUL KANGAS: My guest market monitor this week is Elaine Garzarelli, Portfolio Manager of the Forward Funds and Chair of Garzarelli Capital, Inc. And welcome back, Elaine.
ELAINE GARZARELLI, FORWARD GARZARELLI U.S. EQUITY FUND: Nice to be here.
KANGAS: In the past two days buyers have rescued the Dow Industrial Average a number of times from closing in bear market territory, leading a lot of investors to believe we've seen a major bottom to the recent blue chip bludgeoning. What do you think?
GARZARELLI: Well, we should be, that's for sure, because my indicators are in bull market territory. This is the highest they've been since the bottom in 1998.
KANGAS: How high?
GARZARELLI: Well they're at 81 percent and anything above 65 percent is a bull market signal. So they're above the critical level and they were bearish last year. So this should definitely be bottoming.
KANGAS: What if the Dow did close maybe even just slightly in bearish ground? Would that make any difference in your investment strategy?
GARZARELLI: Not at all. Oh, no, not at all.
KANGAS: Not at all.
GARZARELLI: Just give you another gift to get in.
KANGAS: A gift, OK. What makes you so positive?
GARZARELLI: Oh, my goodness. Well, the Fed is easing, and every time-this is interesting. We went back to 1933 and checked, after the Fed eased three times. The Dow has always gone up over the next 12 months and the average gain is 30 percent. So It's never failed.
KANGAS: So your outlook for the economy is equally as positive, even though we're seeing signs of recession?
GARZARELLI: Well, the reason we had the last leg down in the stock market beginning in late January is because earnings came out and were reported at the end of January for the fourth quarter. It surprised the Street because the S&P earnings were down 22 percent and that was a shock. So the markets plummeted. But I think that in the second half of this year and into 2002 we should have a recovery. But the first half will probably see S&P earnings down 10 to 15 percent. And maybe we're in a recession, but that doesn't matter either because the average recession is 11 months and assuming it started last October and ends this September, the market should bottom sometime in March or April, six months before.
KANGAS: Right. Well, speaking of Last October 20th, you were with us then. The Dow was at 10,002 and you allowed that, you know, we were sort of bullish, not super. Your indicators were at 60. And we did get to the 11,000 area before we went down. But some of the stocks you liked, Texas Instruments (TXN), Intel (INTC), McDonald's (MCD) sort of look like a who's who on the new yearly low lists now. Did you lighten up when it got to 11,000 on down?
GARZARELLI: Well, the two stocks, Intel and Texas Instruments, dropped further, but they were-they didn't drop as much as the NASDAQ. Actually, they outperformed the Nasdaq by two times.
KANGAS: Yes, true. And what do you think about those now?
GARZARELLI: Oh, boy, they're really great now. If I liked them then, I sure like them now. But we were still in the bear market then. My indicators hadn't gone to bullish.
KANGAS: And in all honesty, some of your recommendations did very well through this period. Occidental (OXY), Chevron (CHV) are up. Bank of America (BAC) nicely higher. Centex (CTX) is up nicely. Are you still with those?
GARZARELLI: Yes, I am.
KANGAS: OK.
GARZARELLI: And actually, the stocks that I mentioned to you last time, excluding the two techs, were down less than one percent, where the S&P was down over 20.
KANGAS: You also liked Comerica (CMA) and Chase Manhattan (JPM).
GARZARELLI: Right.
KANGAS: Both of them were bought out.
GARZARELLI: Right.
KANGAS: And I'm sure you did well. What do you like in the way of new recommendations here?
GARZARELLI: Well, I like a lot of them. First of all, the techs and Intel, definitely. And two more stocks that are in technology would be a Adobe Systems (ADBE) and Oracle (ORCL). They're way down. I still like Philip Morris (MO), a good yield and has a very strong outperformance potential. Masco (MAS), which is in building materials, does very well at this stage of the cycle. I like Lehman Brothers (LEH) and Bear Stearns (BSC) and Citigroup © and a more cyclical type industry, in the more cyclical area, Liz Claiborne (LIZ) and Hilton Hotels (HLT).
KANGAS: What would you avoid here? Not much by the sound of it.
GARZARELLI: No, I would. I would avoid a lot. I would avoid the groups that did well last year, a lot of the defensive areas, and those would be the soft drinks, the alcoholic beverages, electric utilities. Anything that's considered defensive and held up very well last year, there's going to be a complete switch because the earnings for those industries will only grow maybe nine, 10 percent in 2002 and the S&P is going to recover 14 percent. So you want to get in those sectors and you'll have earnings grow superior to 14.
KANGAS: Right. So here we are, very selective again, right Elaine?
GARZARELLI: Well, you go with consumer cyclicals and you go with financials. That's basically it.
KANGAS: OK. Very good. Elaine, thanks very much for being with us again.
GARZARELLI: It's my pleasure. Thanks.
KANGAS: My guest, Elaine Garzarelli, Portfolio Manager of the Forward Funds. |
