Phil Dow
Phil Dow
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The trading activity has a negative bias. The news has been negative and it's frustrating for investors and traders alike.
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We're trying to take advantage of value where we can see it, and there are some obvious places. Computer Associates ( CA : Research , Estimates ) is the third-largest independent software company. It trades at a P/E multiple on forward earnings. It's about a third of Microsoft's today. It's growing at about 16, 17 percent, trades for about 13 times earnings. We think it's a very attractive asset. We think it's a great one and could go up as much as 30, 40 percent in the coming year.
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They have the best of breed kinds of companies in two really good industries. They have a natural gas pipeline company. In addition, a fiber optic network which will be 33,000 miles. Each have the wind at their back and we think the combined businesses conservatively are worth 60. Right now the stock trades for around 45. The company just announced a way to unlock that value with a spin-off of their Williams Communications Group. So we think it's just a matter of time before that stock reaches 60.
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This is the first evidence that things might be better than they thought, and I think traders don't quite know what to do. I think we've been conditioned to bad news -- it's like a beaten-up prize fighter. I think it's a dangerous time to look for more of the same, meaning looking for more negative.
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I think a productive economy is the main thing people should take home with them. This is a unique period in American history. I think we'll look back on it as a time you wanted to own stocks rather than trade stocks. I think, secondarily, corporate America is showing good earnings reports. The second half of this year may be lower than the second half of last year, but they're still robust, probably in the high teens. I think if you focus on financial guide posts, that eventually will drive prices. I think you'll see the market in general do better as the year wears on.
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These software warnings have got people thinking that companies aren't spending their wads of cash. There may have been some unrealistic expectations, so I'm waiting to see how the rest of the tech sector does.
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We like Waters Corporation, ... It's a company that specializes in equipment for biotech research, great balance sheet, firm fundamentals. In financials, we would throw in Wells Fargo, TCF Financial Corporation, and Citigroup.
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Bit by bit we are seeing the pieces of the economic mosaic come together that could support a sustained stock market rally, at least in the short term ... But in the longer term, there are still significant questions, no doubt about it.
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We think Nokia is clearly going to be the leader in handsets, ... And we think they've got a great shot at infrastructure as well.
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I think if you're looking for immediate gratification, there's probably no place that's real safe to buy,
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I think most folks are under-diversified, and I'd like to see more names in a portfolio,
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We've got to get through that and it's probably several months before we get a turnaround in any sectors,
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From a cash flow standpoint and a value standpoint, the stock is quite attractive, ... I think those are all compelling arguments for long-term ownership.
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If we have a series of big moves up, that would be a shock to the system, ... but, considering where are from a historical perspective, they could go up more gradually and not be a terrible headwind for the market.