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Get Ready for Rising Prices

September 14, 2008

David Dreman latest Forbes column: If I’m right, then once financial markets stabilize and the mortgage debacle is brought under control, the Fed will have to make up for lost time by significantly hiking interest rates.

This is one of the toughest times we’ve been through in a generation, but it is also one that presents some very good opportunities for those who can stick it out. Those adding equities to their portfolios should start with oil producers. Many are trading at low price/earnings ratios and will present good value when business activity picks up again. Anadarko (59, APC) is an explorer and producer whose trailing multiple of 29 is the result of one-time charges; it’s going for 9 times likely 2009 earnings. Chesapeake Energy (44, CHK) is a natural gas producer with a trailing multiple of 12. ConocoPhillips (78, COP) is an integrated giant. It goes for 7 times earnings and yields 2.4%.

Metals and industrial commodities have also been knocked down sharply by fears of prolonged recession. Two I like are BHP Billiton (63, BHP), which trades at 11 times trailing results and yields 3%, and Freeport-McMoran (80, FCX), with a P/E of 9 and a yield of 2%. Finally, two more good values at current prices: United Technologies (67, UTX), trading at 14 times earnings and yielding 1.9%, and Lockheed Martin (115, LMT), at 15 times earnings and yielding 1.4%.

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