One on One with Ross Margolies, Founder & Portfolio Mgr. at Stelliam Investment Management
Monday, August 11, 2008
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SUSIE GHARIB: Our guest tonight says don't be fooled by today's positive market moves: this is a bear market rally. He's Ross Margolies, founder and portfolio manager at Stelliam Investment Management. Hi Ross.
ROSS MARGOLIES, PORTFOLIO MGR., STELLIAM INVESTMENT MGMT.: Hi, Susie. How you doing?
GHARIB: Why did the bear market rally? I mean what is the missing ingredient that we're not saying that this is a bull market rally?
MARGOLIES: There was two things. There's so much pessimism that things have gotten oversold and secondly, a lot of the bad news is to come. So we think there's going to be another leg down.
GHARIB: So, aren't lower oil prices supposed to be a big positive and driver for stocks?
MARGOLIES: I think they are a big positive driver. But I think that's going to be next year because one month of low oil prices has improved the market sentiment, but it's not necessarily going to fall down to companies' bottom line and the consumers' bottom line unless it stays there for awhile.
GHARIB: So what do you have to see happen before you're more confident and positive on the general market sentiment?
MARGOLIES: I'd like to see the oil prices and the commodity prices, the slow down inflation stick for a little while. And as one of your previous guests were saying, numbers have to come down. I think by the end of this year, people will realize that the bar has to be set lower and that next year isn't going to be as strong. Once they realize that we can build off of that base again.
GHARIB: And yet you're saying that you can still make money in the bear market. You've been putting new money to work buying some beaten down areas. I understand you're putting some significant dollars into airline stocks. Tell us what your strategy is there.
MARGOLIES: We think airlines are an interesting special situation because they're cutting massive capacity because of the high energy prices. That means airfares for everybody are going to go up, but this company -- this industry that is hemorrhaging money right now could become profitable next year just at today's oil prices.
GHARIB: Are there any particular names of airlines that you can tell us about that you think are the slam dunk, good investments?
MARGOLIES: I think, keep in mind I tend to have one to two year I'm horizon, but I think Southwest is relatively safe. They hedge a lot of their energy costs, so you might have volatility, but it's good. Delta is also interesting. They're merging with Northwest and they have lot of good news coming in the second half of the year.
GHARIB: What are some of the sectors that you see have opportunities in this kind of a bear market situation?
MARGOLIES: We think technology is also interesting because the large technology companies are generating a lot of free cash flow. So even if we end up in a recession, you've got a floor to support your evaluation. So the high quality companies like the Microsofts and the Ciscos of the world, if you buy them now and hold them for a couple years you should do very well.
GHARIB: What about financials? A lot of people are trying to guess when is the right time to put some new money to buy financial stocks. What's your view on that?
MARGOLIES: It's the toughest question. We've had financials all along, but we stuck with companies that don't need to raise money. And right now I'd advise other people to do that the same because if they need to raise money, they're going to dilute you and you might not get your appreciation down the road.
GHARIB: Do you have any disclosures on any of these stocks that you've named so far this evening that you own them or your firm has any special relationship with those companies?
MARGOLIES: We own them in our portfolios. We don't have any other special relationships.
GHARIB: Ross, just finally, just to wrap it up, if investors have some new money that they want the put to work, should they put it into the market now, wait and sell into the rally? What is your advice?
MARGOLIES: If I had to time it, I would wait until the fall until we get some numbers from what's going to happen the rest of the year and next year. And I always advise people to dollar cost average. I know it simple but it works.
GHARIB: All right, Ross, thanks so much for coming on our program,, nice to have you here.
MARGOLIES: Thank you.
GHARIB: My guest tonight, Ross Margolies of Stelliam Investment Management.
