Sonny, here's another "upset". Michael Metz is "metza metz" (not too bad) about semiconductors and semi equips. The ultimate bear may be recommending semis, believe it or not.
NEW YORK (CNNfn) - With
doomsayers walking Wall Street with
apparent impunity on Monday as the
Dow fell more than 200 points during
the session, longtime bear Michael Metz
added his voice to the chorus by
warning investors against large-cap
consumer stocks.
Instead, he counseled investors to
take another look at the oil and utilities
sectors -- and the chipmakers -- in what
he called a "vulnerable" and
"overvalued" market.
A partial transcript of his "In Play"
comments follows.
VALERIE MORRIS, CNNfn
ANCHOR: Let's get your view on this.
In your opinion, this is a clearly
declining market?
MICHAEL METZ, MANAGING
DIRECTOR, CIBC
OPPENHEIMER: In my opinion, yes.
Actually, if you look at the vast
population (of) stocks, most are down
over 20 percent. I guess the
trillion-dollar question is whether the
big caps will join them with comparable
declines. My guess is they will.
MORRIS: So the investor then
should be avoiding the large-cap
consumer kind of stocks?
METZ: My feeling is they're the most
vulnerable in the sense that they
incorporate the highest expectations,
they have the most over-ownership. Of
course, stocks are never homogeneous.
There are always exceptions, but
generically I think the index strategy is
going to fail for the next six months.
MORRIS: The market in your
opinion remains very overpriced?
METZ: In my opinion, the market is
overpriced. And I think the expectations
are too optimistic. Going back about
three or four weeks ago, everybody
assumed earnings would rise about 10
percent year over year in the second
half, and maybe 12 percent in 1999. I
think the message from the American
management is they have no visibility
about the second half, so they wonder
why Wall Street is so complacent.
MORRIS: Let's talk about your
opinions of what would be, let's say,
some appealing sectors, if you will.
METZ: I think the most interesting
area today is really oil and natural gas.
I'm not talking about the big integrated
companies, but those who hold large
reserves and do exploration
development. In my opinion, oil prices
have hit bottom here. And I think they
rise. If they don't rise from here, there's
no sense in owning any stocks in my
opinion.
MORRIS: So then the worst is really
over, in your opinion, for energy?
METZ: That's my guess, yes.
MORRIS: All right. Moving on to
look at this, let's do a "what if." If, in
fact, oil prices remain in the range that
they have been, could this contribute to
some destabilization?
METZ: Yes. I think if the oil prices
stay down here, the house is at risk.
Former Soviet Union, Mexico,
Venezuela, Indonesia are all political
risks. And if that's true, I don't think you
want to own stocks anywhere.
MORRIS: What about utilities?
They've been undergoing some
restructuring. How do you feel about
that sector?
METZ: Utilities offer the most value,
perhaps the least volatility, but I think
it's certainly an area that has some very
compelling values.
MORRIS: And there's another area
-- semiconductors. They've begun to
look a little better.
METZ: You've had a major
protracted bear market in the
semiconductor producers and
semiconductor capital equipment
companies. If you look at a lot of these,
they have very strong balance sheets,
excess cash, they sell low relative to
sales and relative to normalized
earnings. You may be a bit early, but I
think it's an interesting place to go
shopping.
MORRIS: We've talked about those
sectors that are appealing to you. Are
there some that people should absolutely
avoid?
METZ: Well, the others, perhaps, I
didn't mention.
MORRIS: In other words, the few
that you mentioned are the only places
people should go?
METZ: Well, let's put it this way. I
think bias is downward. I think the
market is a better buy later -- higher or
lower, but not now. But if you are
looking for values, I would go in those
areas that I mentioned.
MORRIS: As I was introducing you,
I said, "And by the way, he is bearish."
That's nothing new for you. You've been
bearish for a very long time.
METZ: I think the market has been
overvalued for the last two or three
years. I still think it's overvalued. I think
expectations are too high. If that makes a
bear, then I'm a bear.
MORRIS: And with that in mind
then, are you kind of looking at other
people's reactions to today's free fall in
the market?
METZ: Well, the interesting thing
about the market now is they think the
psychology of trend following has
changed. Until the last week or so,
everybody bought the rallies. They
chased them. Now, unfortunately, I think
traders will sell the rallies, which
means that you have lower to go. That's
my guess.
MORRIS: Are you seeing any
change in investor psychology, if you
will?
METZ: I think the complacency that
you buy momentum stocks regardless of
valuations is giving way to at least some
question marks.
That's why I think this area of the
market -- the high momentum, high
valuation area -- is the most vulnerable.
I think the ownership has, let's say, the
least formidable rationale.
MORRIS: So there's strength in the
small caps, and investors should look to
small caps?
METZ: Let's put it this way. If you
want to find value, I'd look in the small
and medium-cap area, not necessarily
(because) they're the bottom now, but
my guess -- famous last words -- is the
era of indexing is over. The real
performers will come from the non
big-cap universe over the next two
years.
MORRIS: Asia is always part of the
conversation these days. With regard to
what's happening now and as we go
looking short term forward, how much
impact are we going to continue to see
from Asia?
METZ: An impact in a sense that I
think is not good news for corporate
profit margins. I think it means a
slowdown in economic growth. You
know, the whole bull market is
premised on continued expansion of
profit margins. I think that's unrealistic.
Actually, if you're looking for
bargains, I'd begin to look in Southeast
Asia. It may not be (at) the low, but the
valuation of that whole region is less
than General Electric (GE). I think it's
interesting now.
Michael Metz
CIBC Oppenheimer
"I think if the
oil prices stay
down here . . .
you don't want
to own stocks
anywhere."
|
