A short story by Frank R. Stockton, published in an American magazine in 1882, told of a king who sentenced criminals to choose between two closed doors. Behind one was a ferocious, hungry tiger; behind the other, a beautiful and nubile lady. Which would our hero choose? The story doesn’t tell; it ends abruptly.
Right now, the stock market seems to be offering investors a challenging choice like that.
Invest like crazy – because stocks are down, companies have lots of cash, so the economy should start rebounding soon?
Or move to the sidelines – because the recession may be worse than expected, we may have further problems with credit cards and foreclosures, unemployment is rising, so are health-care costs, oil prices are near all-time highs, and because of the collapse of consumer confidence?
The lady or the tiger?
Peter G. Hagerman, founder of Hallmark Capital Management in Wayne , N.J. , a subsidiary of Valley Bank, thinks it’s a good time to be cautious—to stick with seasoned, high-quality companies at attractive prices. And to keep bonds in your portfolio, but to maintain a neutral duration. In other words, avoid both the lady and the tiger.
But he is certainly no bear – if you will pardon the mixed metaphor. He emphasizes that a nasty first quarter, such as we’ve just experienced, doesn’t necessarily mean the remainder of the year will be bathed in gloom.
Of the six years with losing first quarters since 1986, he notes, the average loss was minus 4.5%. The average for the market over the final nine months was 9.3%, and the average for the entire year was 4.6%. In 2003, the Standard & Poor’s 500 was off 3.2% in the first quarter; in the rest of the year, up 33.0%.
His company evaluates stocks on a variety of measures, mainly (1) earnings-per-share growth over five years, (2) return on shareholders’ equity,
(3) return on total investment, (4) cash flow per share growth over five years, and (5) operating profit margin.
His top recommendation may be a surprise: Annaly Capital, a real estate investment trust that gets a Hallmark value score of 31.31 compared with the average score of 13.62. Its p-e recently was a low 6.01, its yield a high 11.3%. Value Line rates it as above-average in timeliness. But Hagerman notes that if inflation spikes up, Annaly might face trouble.
Other stocks with high Hallmark value scores include Conocophillips, ExxonMobil, Wellpoint, (RR) Donnelly, Reinsurance Group, Ingram Micro, Constellation Brands, Hewlett Packard, and IBM. Still other stocks that the money manager has a special liking for are AT&T and the Carolina Group.
Hagerman, who was formerly director and chief operating officer of Hutton Capital Management, a division of E.F. Hutton, has a way with words, and
emphasizes that his firm “doesn’t do nonsense.” Such as pushing overpriced products onto unsuspecting customers, like technology stocks during the crazy of 2000. “If the public wants too much risk,” he says, disgustedly, “Wall Street will always supply it.” And at high fees, he adds.
Right now, he continues, “We’re entering a recession with a lot of families unprepared for it.” Many people who planned to retire comfortably, he worries, may be disappointed.
As for specific bonds, he notes that municipals seem to be a bargain, paying almost as much as taxable Treasuries. As for bonds in general, he recommends going out no longer than 10 years, and--with corporates—staying with those rated A or higher for tax-exempt accounts.
Hagerman received a BS in business administration from Lehigh University and an MBA in investments from New York University .
Right now, the stock market seems to be offering investors a challenging choice like that.
Invest like crazy – because stocks are down, companies have lots of cash, so the economy should start rebounding soon?
Or move to the sidelines – because the recession may be worse than expected, we may have further problems with credit cards and foreclosures, unemployment is rising, so are health-care costs, oil prices are near all-time highs, and because of the collapse of consumer confidence?
The lady or the tiger?
Peter G. Hagerman, founder of Hallmark Capital Management in Wayne , N.J. , a subsidiary of Valley Bank, thinks it’s a good time to be cautious—to stick with seasoned, high-quality companies at attractive prices. And to keep bonds in your portfolio, but to maintain a neutral duration. In other words, avoid both the lady and the tiger.
But he is certainly no bear – if you will pardon the mixed metaphor. He emphasizes that a nasty first quarter, such as we’ve just experienced, doesn’t necessarily mean the remainder of the year will be bathed in gloom.
Of the six years with losing first quarters since 1986, he notes, the average loss was minus 4.5%. The average for the market over the final nine months was 9.3%, and the average for the entire year was 4.6%. In 2003, the Standard & Poor’s 500 was off 3.2% in the first quarter; in the rest of the year, up 33.0%.
His company evaluates stocks on a variety of measures, mainly (1) earnings-per-share growth over five years, (2) return on shareholders’ equity,
(3) return on total investment, (4) cash flow per share growth over five years, and (5) operating profit margin.
His top recommendation may be a surprise: Annaly Capital, a real estate investment trust that gets a Hallmark value score of 31.31 compared with the average score of 13.62. Its p-e recently was a low 6.01, its yield a high 11.3%. Value Line rates it as above-average in timeliness. But Hagerman notes that if inflation spikes up, Annaly might face trouble.
Other stocks with high Hallmark value scores include Conocophillips, ExxonMobil, Wellpoint, (RR) Donnelly, Reinsurance Group, Ingram Micro, Constellation Brands, Hewlett Packard, and IBM. Still other stocks that the money manager has a special liking for are AT&T and the Carolina Group.
Hagerman, who was formerly director and chief operating officer of Hutton Capital Management, a division of E.F. Hutton, has a way with words, and
emphasizes that his firm “doesn’t do nonsense.” Such as pushing overpriced products onto unsuspecting customers, like technology stocks during the crazy of 2000. “If the public wants too much risk,” he says, disgustedly, “Wall Street will always supply it.” And at high fees, he adds.
Right now, he continues, “We’re entering a recession with a lot of families unprepared for it.” Many people who planned to retire comfortably, he worries, may be disappointed.
As for specific bonds, he notes that municipals seem to be a bargain, paying almost as much as taxable Treasuries. As for bonds in general, he recommends going out no longer than 10 years, and--with corporates—staying with those rated A or higher for tax-exempt accounts.
Hagerman received a BS in business administration from Lehigh University and an MBA in investments from New York University .
