SMARTMONEY ONLINE: On Trading Floor: Time to Buy, Not Panic
April 27, 1998 5:41 PM
By David Geracioti
SmartMoney Interactive
NEW YORK (Dow Jones)--The Nasdaq is down
2.6%, the Dow Industrial average off nearly 2%. Is it
time to panic? No, said the professional investors we
spoke to Monday. Some were shopping for bargain
stocks and others were buying stocks to cover short
positions.
Behind Monday's plunge was The Wall Street Journal
story, "Fed Ponders Rate Boost in Months Ahead,"
which reported that Fed policy makers had agreed that
a "rate increase is more likely than a decrease." The
market responded in a heartbeat with each of the major
indexes falling, while the long bond poked through the
psychologically important 6% level. Since low interest
rates are one of the central support beams of this
long-lived bull market, some investors naturally decided
to take profits.
Still, the few money managers we polled didn't seem too
concerned. They see Monday's decline as a continuation
of last week's weakness, which they describe as
overdue, even needed. As evidence, they point to the
exuberant runup of Internet stocks and some frothy
companies, such as Market Guide Inc. (MARG), a
provider of financial data, and K-Tel International Inc.
(KTEL), the late-night TV vendor of popular music
compilations. Whatever the merits of these two
companies, most would agree that they were
overbought: MarketGuide shares were up by 248% in a
week and K-Tel shares, although down last week, are
nevertheless up by nearly 290% in a month.
Sam Tobias, a trader at hedge fund Circle T Partners in
New York, took Monday's turbulence in stride. "It's not
uncontrollable selling or anything," Tobias said. "People
are just lightening up on some positions, taking some
profits off the table and looking to put some of that into
defensive names."
Billy Geffon, a general partner of the Circle T
Opportunity fund, is "selectively nibbling" around some
drug stocks, such as American Home Products Corp.
(AHP). At 89 1/2, or 24 times estimated earnings, "it's
the least expensive of the drug stocks and it's got a really
strong pipeline," Geffon said. The stock was down by
nearly a buck Monday. He also likes US Airways
Group Inc. (U), down by nearly 3%; Fleet Financial
Group Inc. (FLT), off by nearly 6%; and Mellon Bank
Corp. (MEL), which received a 4% haircut Monday.
Russell Anmuth, the manager of Gotham Holdings, a
New York hedge fund, took advantage of the
downswing to make money on his "protection" - industry
shorthand for hedges, such as short positions and puts
on the S&P, Russell 2000 and Nasdaq composite
indexes. "But I'm operating on the assumption that this is
still a bull market," Anmuth said. "I'm playing this for a
bounce. After all, nothing has really changed."
Pfizer Inc. (PFE), down by 4 13/16, or almost 4%, is a
buy, he said, as is America Online Inc. (AOL), which
was also off by 2.5% Monday. He also likes the small
cap sector. "For the past 15 years, big caps have beaten
small caps," Anmuth contended. "That is going to revert
to historical patterns." Over the last 60 years, small caps
have outperformed their larger counterparts, he said. He
like s Gemstar International Group Ltd. (GMSTF),
which is best known for its VCR Plus+, for recording
TV shows with a few button pushes, and Fuisz
Technologies Ltd. (FUSE), a drug delivery system firm.
At 34 3/8, Gemstar's shares were off as much as 6%
Monday; the company's market cap is $1.8 billion. Fuisz
shares at 13, were lower by 3.7%; that company's
market cap is a tiny $300 million.
"We've had a great run so far this year," said Tobias.
"It's better for the market to retreat a little, to blow off
some of the froth." |
