10-28-2004, 02:22 PM
I hope you find this article relevant and helpful. If so, would it be better to post just a link? Is this an article that most would be finding and reading on their own? I am new in this forum, so I’m not sure.
Business Week Online OCTOBER 22, 2004 INVESTING Q&A
Where Politics and Portfolios Meet
S&P's Kenneth Shea sees the Street ending 2004 on a solid note, but the prospect of a Kerry victory makes it a tough call
"Moderately bullish" is the phrase used by Kenneth A. Shea, managing director of Standard & Poor's Equity Research Services, to describe the current market outlook. Although Shea notes that "it's difficult to determine the point in time when the markets will rally," he adds that S&P is predicting a gain of around 10% in the S&P 500 index over the next 12 months.
On a very near-term issue, the Presidential election, Shea points out that, historically, the stock market has done worse when an incumbent loses. In the 60 years since 1944, the S&P 500 has declined an average of 3% over the ensuing 12 months, vs. a 13% gain with an incumbent's victory.
As for stocks that look good now, Shea provides a list of names in S&P's Top 10 portfolio, culled from among more than 100 issues ranked 5-STAR or buy. That list now consists of Amgen MBNA, Burlington Northern), Ingersoll-Rand, BJ Services, Chattem, Guitar Centers of America FMC, Qualcomm, and Landstar System
Note: Kenneth Shea is a Standard & Poor's Equity Research Services analyst. He has no ownership interest in or affiliation with any of the companies under discussion in this chat. All of the views expressed in this chat accurately reflect the analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this chat. For required disclosure information and price charts for all S&P STARS-ranked companies, go and click on "Investment Research" and then on "Required Disclosures & Standard & Poor's STARS vs. Closing Prices Charts."
Q: Ken, the market keeps backing and filling. Any hope for an end to this seeming paralysis?
A: S&P is moderately bullish on the U.S. equity market in light of what we believe are good economic and profit backdrops. S&P sees a solid second half for the economy, with 2004 likely to experience a fairly robust 4.5% gain in GDP growth. Operating earnings are seen rising at an impressive 21% rate this year, and projected to rise 10% more next year.
Given this favorable backdrop, the S&P 500 Index trades at a reasonable 15 times next year's projected earnings. So while it's difficult to determine the point in time when the markets will rally, it is reasonable to state that the equity markets can achieve an approximate 10% gain over the next 12 months or so.
Q: How much impact would the election of Kerry have on the markets?
A: From a historical standpoint, the S&P 500 does relatively worse when the incumbent loses. Since 1944 the S&P 500 has declined approximately 3% on average in the 12 months after an election when the incumbent loses. In contrast, the S&P 500 has risen on average by 13% in the 12 months after an incumbent's victory.
From a more fundamental point of view, the two sectors worth watching near-term are energy and health care. While energy policy will likely benefit more under a Bush Administration, due to less restrictive environmental policies, both candidates understand the need for an energy policy that encourages new discoveries and alternative energy options.
In health care, both candidates understand the need to control medical costs, but it is reasonable to say that the Bush Administration will likely be more favorable toward pharmaceutical pricing flexibility. S&P continues to recommend investors overweight energy stocks and market-weight health-care stocks. Many health-care stocks have come under pressure in recent months leading up to this election, creating an opportunity in some areas for long-term investors.
Q: ChevronTexaco is down today, along with the price of crude. What's your outlook for this and other big oil companies?
A: S&P continues to view the major integrated oil companies favorably. Energy prices are likely to ease from their current record levels over the next 12 months or so, but they are likely to remain at levels that will still provide strong opportunities for the integrated oil and gas companies to continue their generation of cash flows and strong earnings growth. What's more, S&P views these firms as having relatively conservative accounting practices and earnings of relatively high quality, meaning minimal dependence on stock-option compensation and pension-accounting-derived gains.
The current fiscal discipline exhibited by these "super majors," such as ChevronTexaco and Exxon Mobil is being applauded by investors through higher valuation multiples. Combined with above-average dividend yields, these stocks still look quite attractive. S&P has 5-STAR (buy) recommendations on ChevronTexaco and Exxon Mobil, and 4-STAR (accumulate) recommendations on Marathon Oil and Occidental Petroleum.
Q: How about those pharmas? And specifically, what is your opinion on Pfizer? Buy or sell?
A: S&P's investment outlook for pharmaceuticals is neutral. In our view, recent weaknesses in these stocks have reflected the possibility of a win by Senator Kerry in November. Kerry has called for ending certain patent-extension strategies employed by the major pharmaceutical companies; implementing measures to help states negotiate discounts from drug companies; sanctioning the reimportation of drugs from Canada and allowing the federal government to directly negotiate pricing discounts on drugs to be paid for under the Medicare drug-benefit program.
Despite these near-term uncertainties regarding pricing and patent expirations, longer-term prospects are enhanced by demographic growth in the elderly (accounting for about 33% of industry sales) and new therapeutic products from discoveries in genomics and biotechnology. S&P recommends investors accumulate the shares of Pfizer in spite of its recent weakness, owing to arguably the strongest R&D pipeline in the group.
Q: What would you advise investors who hold insurance companies like Aetna given today's debacle?
A: S&P downgraded the entire HMO group today on concerns about a combination of election uncertainty and the realistic possibility of a probe of industry practices by New York State Attorney General Eliot Spitzer. These companies have benefited in recent years from significant premium rate hikes, which could come under pressure in the near future. S&P recommends a cautious stance on this group.
Q: Back on insurance and Spitzer's probes into bid-rigging and more, how does S&P view prospects for American International Group
A: S&P continues to recommend investors accumulate the shares of American International Group. S&P's outlook for AIG, as well as for most other major insurers, is tempered by the uncertainty surrounding Spitzer's investigation. Beyond this uncertainty, however, S&P notes that AIG has two distinct competitive advantages -- namely, its financial strength (AAA S&P credit rating) and its relatively low cost structure. S&P believes that these two factors position AIG well long-term....
Q: Are you at all bullish on tech for the medium term?
A: S&P recommends investors market-weight the information technology group. Since a sell-off earlier this year, the sector has made several comeback attempts but has been unable to sustain them despite what we see as relatively good earnings growth potential, reflecting, in part, a replacement cycle for technology bought in 1999 for Y2K compliance, as well as a generally strong U.S. economy.
Q: What is your recommendation for Fannie Mae stockholders?
A: S&P continues to recommend investors avoid the shares of Fannie Mae. In a recent 8-K filing, FNM disclosed that it has been informed of eight shareholder lawsuits against the company, its CEO, and CFO. It also announced a preliminary inquiry by Ohio's attorney general on behalf of its public pension funds. After a recent report by FNM's regulator, which found violations in accounting, the shares have been poor performers. S&P believes that these serious concerns pose sufficient risk for investors to stay clear at this point.
Q: Is John a buy here?
A: S&P recommends investors accumulate the shares of Deere, as we believe that favorable conditions in many of DE's end markets will persist over the next 6 months to 12 months. As in prior industry cycles, however, S&P expects DE's shares to trade at lower p-e multiples during peak or near-peak EPS years. The shares offer above-average capital gains here.
Q: Ken, does S&P still maintain its Top 10 portfolio? If so, what stocks are in it now?
A: Yes, S&P continues to provide investors with a Top 10 portfolio, which reflects their 10 best 5-STAR recommendations from the more than 100 current 5-STARs. The stocks are as follows: Amgen, MBNA, Burlington Northern, Ingersoll-Rand, BJ Services, Chattem, Guitar Centers of America, FMC, Qualcomm and Landstar System.
http://www.businessweek.com/bwdaily/dnflash/oct2004/nf20041022_8825_db006.htm (http://www.businessweek.com/bwdaily/dnflash/oct2004/nf20041022_8825_db006.htm)
Business Week Online OCTOBER 22, 2004 INVESTING Q&A
Where Politics and Portfolios Meet
S&P's Kenneth Shea sees the Street ending 2004 on a solid note, but the prospect of a Kerry victory makes it a tough call
"Moderately bullish" is the phrase used by Kenneth A. Shea, managing director of Standard & Poor's Equity Research Services, to describe the current market outlook. Although Shea notes that "it's difficult to determine the point in time when the markets will rally," he adds that S&P is predicting a gain of around 10% in the S&P 500 index over the next 12 months.
On a very near-term issue, the Presidential election, Shea points out that, historically, the stock market has done worse when an incumbent loses. In the 60 years since 1944, the S&P 500 has declined an average of 3% over the ensuing 12 months, vs. a 13% gain with an incumbent's victory.
As for stocks that look good now, Shea provides a list of names in S&P's Top 10 portfolio, culled from among more than 100 issues ranked 5-STAR or buy. That list now consists of Amgen MBNA, Burlington Northern), Ingersoll-Rand, BJ Services, Chattem, Guitar Centers of America FMC, Qualcomm, and Landstar System
Note: Kenneth Shea is a Standard & Poor's Equity Research Services analyst. He has no ownership interest in or affiliation with any of the companies under discussion in this chat. All of the views expressed in this chat accurately reflect the analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this chat. For required disclosure information and price charts for all S&P STARS-ranked companies, go and click on "Investment Research" and then on "Required Disclosures & Standard & Poor's STARS vs. Closing Prices Charts."
Q: Ken, the market keeps backing and filling. Any hope for an end to this seeming paralysis?
A: S&P is moderately bullish on the U.S. equity market in light of what we believe are good economic and profit backdrops. S&P sees a solid second half for the economy, with 2004 likely to experience a fairly robust 4.5% gain in GDP growth. Operating earnings are seen rising at an impressive 21% rate this year, and projected to rise 10% more next year.
Given this favorable backdrop, the S&P 500 Index trades at a reasonable 15 times next year's projected earnings. So while it's difficult to determine the point in time when the markets will rally, it is reasonable to state that the equity markets can achieve an approximate 10% gain over the next 12 months or so.
Q: How much impact would the election of Kerry have on the markets?
A: From a historical standpoint, the S&P 500 does relatively worse when the incumbent loses. Since 1944 the S&P 500 has declined approximately 3% on average in the 12 months after an election when the incumbent loses. In contrast, the S&P 500 has risen on average by 13% in the 12 months after an incumbent's victory.
From a more fundamental point of view, the two sectors worth watching near-term are energy and health care. While energy policy will likely benefit more under a Bush Administration, due to less restrictive environmental policies, both candidates understand the need for an energy policy that encourages new discoveries and alternative energy options.
In health care, both candidates understand the need to control medical costs, but it is reasonable to say that the Bush Administration will likely be more favorable toward pharmaceutical pricing flexibility. S&P continues to recommend investors overweight energy stocks and market-weight health-care stocks. Many health-care stocks have come under pressure in recent months leading up to this election, creating an opportunity in some areas for long-term investors.
Q: ChevronTexaco is down today, along with the price of crude. What's your outlook for this and other big oil companies?
A: S&P continues to view the major integrated oil companies favorably. Energy prices are likely to ease from their current record levels over the next 12 months or so, but they are likely to remain at levels that will still provide strong opportunities for the integrated oil and gas companies to continue their generation of cash flows and strong earnings growth. What's more, S&P views these firms as having relatively conservative accounting practices and earnings of relatively high quality, meaning minimal dependence on stock-option compensation and pension-accounting-derived gains.
The current fiscal discipline exhibited by these "super majors," such as ChevronTexaco and Exxon Mobil is being applauded by investors through higher valuation multiples. Combined with above-average dividend yields, these stocks still look quite attractive. S&P has 5-STAR (buy) recommendations on ChevronTexaco and Exxon Mobil, and 4-STAR (accumulate) recommendations on Marathon Oil and Occidental Petroleum.
Q: How about those pharmas? And specifically, what is your opinion on Pfizer? Buy or sell?
A: S&P's investment outlook for pharmaceuticals is neutral. In our view, recent weaknesses in these stocks have reflected the possibility of a win by Senator Kerry in November. Kerry has called for ending certain patent-extension strategies employed by the major pharmaceutical companies; implementing measures to help states negotiate discounts from drug companies; sanctioning the reimportation of drugs from Canada and allowing the federal government to directly negotiate pricing discounts on drugs to be paid for under the Medicare drug-benefit program.
Despite these near-term uncertainties regarding pricing and patent expirations, longer-term prospects are enhanced by demographic growth in the elderly (accounting for about 33% of industry sales) and new therapeutic products from discoveries in genomics and biotechnology. S&P recommends investors accumulate the shares of Pfizer in spite of its recent weakness, owing to arguably the strongest R&D pipeline in the group.
Q: What would you advise investors who hold insurance companies like Aetna given today's debacle?
A: S&P downgraded the entire HMO group today on concerns about a combination of election uncertainty and the realistic possibility of a probe of industry practices by New York State Attorney General Eliot Spitzer. These companies have benefited in recent years from significant premium rate hikes, which could come under pressure in the near future. S&P recommends a cautious stance on this group.
Q: Back on insurance and Spitzer's probes into bid-rigging and more, how does S&P view prospects for American International Group
A: S&P continues to recommend investors accumulate the shares of American International Group. S&P's outlook for AIG, as well as for most other major insurers, is tempered by the uncertainty surrounding Spitzer's investigation. Beyond this uncertainty, however, S&P notes that AIG has two distinct competitive advantages -- namely, its financial strength (AAA S&P credit rating) and its relatively low cost structure. S&P believes that these two factors position AIG well long-term....
Q: Are you at all bullish on tech for the medium term?
A: S&P recommends investors market-weight the information technology group. Since a sell-off earlier this year, the sector has made several comeback attempts but has been unable to sustain them despite what we see as relatively good earnings growth potential, reflecting, in part, a replacement cycle for technology bought in 1999 for Y2K compliance, as well as a generally strong U.S. economy.
Q: What is your recommendation for Fannie Mae stockholders?
A: S&P continues to recommend investors avoid the shares of Fannie Mae. In a recent 8-K filing, FNM disclosed that it has been informed of eight shareholder lawsuits against the company, its CEO, and CFO. It also announced a preliminary inquiry by Ohio's attorney general on behalf of its public pension funds. After a recent report by FNM's regulator, which found violations in accounting, the shares have been poor performers. S&P believes that these serious concerns pose sufficient risk for investors to stay clear at this point.
Q: Is John a buy here?
A: S&P recommends investors accumulate the shares of Deere, as we believe that favorable conditions in many of DE's end markets will persist over the next 6 months to 12 months. As in prior industry cycles, however, S&P expects DE's shares to trade at lower p-e multiples during peak or near-peak EPS years. The shares offer above-average capital gains here.
Q: Ken, does S&P still maintain its Top 10 portfolio? If so, what stocks are in it now?
A: Yes, S&P continues to provide investors with a Top 10 portfolio, which reflects their 10 best 5-STAR recommendations from the more than 100 current 5-STARs. The stocks are as follows: Amgen, MBNA, Burlington Northern, Ingersoll-Rand, BJ Services, Chattem, Guitar Centers of America, FMC, Qualcomm and Landstar System.
http://www.businessweek.com/bwdaily/dnflash/oct2004/nf20041022_8825_db006.htm (http://www.businessweek.com/bwdaily/dnflash/oct2004/nf20041022_8825_db006.htm)