Transcript of Abby Cohen's appearance on NBR last night
--------------------------------------------------------------------
PAUL KANGAS: Joining us now from New York City, my guest market monitor this week is Abby Joseph Cohen, U.S. stock market strategist and chair of Goldman Sachs' Investment Policy Committee. And welcome back, Abby.
ABBY JOSEPH COHEN, U.S. INVEST. STRATEGIST, GOLDMAN SACHS: Thank you, Paul.
KANGAS: Now that about two-thirds of the first quarter corporate earnings reports have been released, do you feel the figures are good enough to support a stock market well above the Dow 10,000 level?
COHEN: Paul, absolutely. And it's not just a function of the first quarter results, but also the indications we are getting from companies that this quarter is not a fluke. We expect 1999 overall to be a good year for corporate profit growth.
KANGAS: So that takes care of my question about second quarter. It will be even better.
COHEN: The second quarter may be a little bit better or a little bit worse. It's really hard to forecast with precision those sorts of numbers. What really matters for the stock market is whether profit growth continues through this year into 2000. Investors pay for what they think will be happening over the next 12 to 24 months. We think the news from companies will be good.
KANGAS: Abby, does the 60 price rise in U.S. crude oil futures in just the last two months concern you with regard to inflation and won't it undermine corporate earnings somewhere down the line?
COHEN: Paul, we were taking a very careful look at this possibility before it happened. Indeed, we thought that when oil prices were at very low levels just a few months ago they were not sustainable at those levels. And so the increase that we have seen is something that we think is more in line with economic reality, but we don't think it continues. Unlike the 1970's, where it was one 20 percent increase after another, we expect oil prices to stabilize around these levels.
KANGAS: OK. Now, do you feel that the Asian contagion has run its course? Are those economies really recovering?
COHEN: There are many different independent economies within Asia. The largest ones we think have stabilized. Japan seems to have pulled itself out of recession. Growth is by no means rapid there, but at least real GDP doesn't have a negative sign in front of it anymore. And China, the world's most populous nation, has also now avoided recession through a combination of public works spending and so on. That is also an economy with positive GDP growth. And we think that's good news for the stability of the whole Asian region.
KANGAS: All right. Now back on the home front, do you see the smaller capitalization stocks coming out of their bear market anytime soon? And what sectors in that small cap arena if any look attractive?
COHEN: Paul, yes, I do think the small cap stocks will perform better going forward. In fact it began several weeks ago. The small cap stocks have been cheap for a long period of time. For the last two years investors have preferred large cap stocks. We've been so worried about Asia, Russia, Brazil and so on, that there's been a tendency to focus on large cap and very liquid securities. Now that there's less concern about the global economy, investors are branching out. We think small and mid-cap stocks will benefit.
KANGAS: All right, now, your last visit with us as a market monitor was July 17, last summer. The Dow was at 9337. It's going to go much higher, you said. And a leading market bull at that time. Your old recommendations like IBM, Microsoft, Intel, Citicorp at that time, and Travelers which linked together, and AFLAC (AFL) American International Lexmark, all way up. Are you taking some profits finally?
COHEN: Paul, no I am not. I think the mistake that some investors make is they cut the flowers and they water the weeds. This in my view is still an ongoing economic and profit expansion. If there are good companies in your portfolio, you should hold on to them.
KANGAS: Let the profits run. OK. Any new suggestions at this stage?
COHEN: Well we have been looking in the small to mid-cap area and of course looking for new value opportunities. A few months ago, we began to look at some energy names and some basic materials names, ALCOA (AA) being one example. Of course in the small cap area, we see many opportunities among the financial services names. One name would be AFLAC (AFL) which I think we've mentioned.
KANGAS: Still like it, yeah, OK.
COHEN: And then a smaller cap technology stock is Lexmark (LXK), the company that makes printers.
KANGAS: You liked that last time. You staying with the winners.
COHEN: Yes we are.
KANGAS: All right, so 11,000 no problem for you on the Dow apparently.
COHEN: Well, we have not upgraded our forecast at this point Paul. When we have more information on the companies, we will do so.
KANGAS: All right, thanks very much, Abby. We appreciate your sharing your ideas and thoughts with us.
COHEN: Thank you.
KANGAS: Our guest monitor, Abby Joseph Cohen of Goldman Sachs. |
