Article from Stockhouse:
StockHouse.com Interview - June 2, 1999
Interview with Art Hogan, Chief Equities Strategist, Jefferies & Co.
• • •
In this interview, Mr. Hogan gives StockHouse a few of his top picks including Burlington Resources and Providian Financial and believes that Knight/Trimark could still hit his previous prediction of $220 ($110 after the share split). Hogan remains bullish on Internet and oil stocks.
StockHouse: The Dow was down 241 points [Thursday], and tech stocks took a beating. What's going on here?
Art Hogan: Well that was [Thursday's] action, and today is today. That was a continuation of, unfortunately, that sad thing we have had for the last five weeks. The investment community believes that valuations matter now, and we have started to sell technology, which we started about six weeks ago. Unfortunately that theme remains the same - you sell all things related to tech, you worry about valuations, the likes of the AOLs and the DELL computers of the world, and you buy the stocks that have been underperforming.
Unfortunately, when those days happen and there are not very many people playing, the action is very, very marked. Like [Thursday's] low volume and huge point sell-offs. Today is a classic example of that again, we are buying, but there is nobody to play so we got the Dow up 100 points. The Internet index is up 2%, the Nasdaq composite index up 30 points, Nasdaq top 100 up 30 points.
StockHouse: It's a good day to play when no one is around?
Art Hogan: Well, you've got to be careful on days like this, though. There's just a lot of volatility, a lot of action, and it doesn't take much to move stocks. We have really had lackluster volume for the last two weeks. Last week was lousy. We waited for [Federal Reserve Chairman Alan Greenspan] on Thursday, then we waited the rest of the week for no apparent reason. And this week, obviously the weekend in front of a holiday, we had a Europe holiday on Monday and it has just been real lackluster volume. The volumes have been much lower than the four week moving average and it's difficult to get a real handle. I think, unfortunately, that just means that the Fed, if we're on the Fed watch [market reaction to comments by Charman Greenspan], for monetary policy moves, then a lot of investors are going to remain on the sidelines until we see a move one way or the other.
We had some economic data that came out tonight, it didn't push us one way or the other in terms of our outlook for inflation and because we beat them up so much yesterday, we are going to bargain hunt today, and this is what happens.
StockHouse: The Bloomberg US Internet Index has their stocks down 30% from mid-April …
Art Hogan: Yes, but the 52 week moving averages would have the correction. If you wanted to get to the lows, you would have to have another 80% on the downside. Typically, the Internet stocks correct between 25% and 40%, so if we are down 30%, perhaps that correction is over, and when they finish the correction stage they make new highs. There have been five of those, this was the fifth. Did today signal the bottom? It's tough to bottom pick these things, but that's the way the action has been on the Internet stocks, that said, for the last three years. There have been five market corrections in dot com world. They have all been of the magnitude of 25% to 40%, and they have all made new highs after they bottomed out. I'm a buyer; I say you buy them. I think they are overdone.
What happens is we get hysterical. When we buy these things we get hysterical and when we sell them we get manic. It's just the way they overreact. If valuations are to come into question, then people are going to start to focus on the spectre of a higher interest rate environment and think they need to change the fair market multiples for stocks. Then what happens is you have to sell stocks. We have been chugging along very nicely for the last couple of years on a very low interest rate, high employment, strong economy, but very low interest rates and very low signs of inflation. If that universe is going to get rocked, well then people change their models and their valuations for equities, and that's what's been overhanging the market for the last four to six weeks.
StockHouse: So you are not panicking, looking at any big sell recommendations?
Art Hogan: No. As a matter of fact, I think that a lot of the worst is behind us. Historically, we have had a summer sell-off, especially in technology. I think this market is moving so fast that we have just gotten it behind us now. I think that things have sped up so much that we either have gotten, or we are well on the way to getting, rid of our summer sell-off, and we can start platforming these things and buying them again.
StockHouse: Looking a bit ahead, where do you see the Dow at the end of the year - 10,000 or 15,000?
Art Hogan: Well, certainly higher than here. I think we will have no trouble taking out the highs we have made already; [the] 11,500 to 12,000 range would be reasonable. The S&P has a valuation gap to make up. The S&P is the real lagger here. The Nasdaq and the Dow have been making nice percentage gains, whereas the S&P are sort of lackluster at best in terms of returns. I think the S&P is where the move is going to be and we are going to see that try to fill that Dow Jones Industrial gap. You've got a Dow that's up 16% to 18% on the year, depending where you market, and you have the S&P up 8% to 9%. That's a market difference and I think that is where the real movement is made.
StockHouse: I know you like Knight/Trimark. That's down in the mid-fifties now after the split.
Art Hogan: We still like the stock. It's a safe Internet play, if you will.
StockHouse: Are you still looking north of $100 on that?
Art Hogan: Yes definitely.
StockHouse: Where do you see oil going?
Art Hogan: Price per barrel of oil, we've ratcheted up our expectations. There are two reasons for that. We see that we are doing a good job rationing down the supply and there has been a whole lot less drilling. OPEC seems to be sticking to their guidelines, but the real lynchpin here is the demand side. We are seeing a pick up in Asian economies, pick up in Latin-American economies, and that's what is really going to drive that. This is a great percentage move from its lows, and we see this as being a sustainable hold and moving closer to an $18 barrel by year end.
StockHouse: What about the Euro - is that crisis going to continue?
Art Hogan: Well, it seems to be, yes. That was one of the biggest theories, that the Euro was going to crush the dollar when it first came out with all the fanfare and the tickertape parades and it seems as though that has not become the case. There hasn't been a rush to change the currency. We haven't had a lot of investors who want to trade everything in Euros and not in dollars anymore. It is interesting. It is much like the media, the hype about the Y2K or the hype about extended trading hours. You've really got to look at the parts that make up the whole, and the economies of the parts, the economies of the countries that make up the Euro … not necessarily as strong as the whole is going to be, or expressed to be when it first came out. I think that continues to be the case. Obviously we are domiciled in the strongest economy in the world and we are the edge that drives the global economy and probably not the combination of European countries.
StockHouse: It seems politics plays such a big role there.
Art Hogan: It really does. We've actually had a lot of data with a great deal of focus on geopolitical events this year, but I don't think domestically, we have certainly had our share of political turmoil, politics have certainly played a role in the news in the US this year. I certainly wouldn't say it has been a quiet news year for politics here, but you are right, there is a much larger role in European countries and all European countries tend to have a much better handle on their domestic political events than we certainly do. I think if you woke someone up in the middle of the night and asked them to name the three branches of the government, the members of the Supreme Court, domestically you might have a much lower score than you would in most foreign countries.
StockHouse: Can you give us a few of your picks?
Art Hogan: We are big fans of, because of the price per barrel of oil, Burlington Resources. I see that as one of those that has not made a move yet in the drilling sector. I continue to like Knight/Trimark. A great pick for us is Providian Financial. [It's a] buy recommended stock, $130 target price. It got a San Francisco Chronicle story last week, that knocked it off its highs, about a customer complaint with abusive credit card practices, and I think it presents itself as great bargain down here. [You] should take advantage of any weakness to buy Providian Financial.
StockHouse: Thank you, Mr. Hogan.
|
