"Market Monitor"-John Manley, Managing Director of Global Wealth Management at Citi
Friday, September 07, 2007SUSIE GHARIB: Despite today's sharp sell off, our "market monitor" guest says the stock market will still do well for the rest of this year and into 2008. Joining us now John Manley, managing director of global wealth management at Citi Smith Barney. Hi John.
JOHN MANLEY, MANAGING DIRECTOR, GLOBAL WEALTH MGMT., CITI: Hi Susie.
GHARIB: As you heard, economists are talking more and more about recession in view of today's employment report. How can stocks do well in that kind of economic environment?
MANLEY: I actually disagree with Mr. Dwyer a little bit because I think that negative earnings comparisons aren't necessarily bad for stocks when they happen. Federal Reserve liquidity, liquidity for the system is generally the thing that drives the market. And while there's no question housing is having some impact beyond itself, we still don't think that's out of control and I really wouldn't read too much into today's numbers.
GHARIB: So what's your investment strategy in this climate?
MANLEY: Well, we're still investing. We haven't changed our equity mix at all. We're haven't changed our target. We're still using 1600 for the S&P and 14,400 for the Dow.
GHARIB: That's pretty bullish, actually.
MANLEY: As it gets closer and closer, it gets more bullish, but I don't think this is necessarily the big one as Fred Sanford used to say. There are a lot of issues here. There are two main problems. One is the short-term liquidity seizure in the capital markets. The other one is the effect of housing. The first one I think the Fed can deal with fairly easily. The second one will take a while to work out. The very thing the Fed would use to sort of offset that potential weakness is the thing that in the past has been a pretty positive thing for stocks.
GHARIB: OK, let's go over some of your recommendations. You have Metlife (MET) at the top of your list. What is the attraction there?
MANLEY: I think the story here basically is changes in pension laws, changes in GAAP accounting that really make the granting of the fund benefit pensions sort of a volatility increaser for corporations for their earnings. We think that as this year progresses into next year, you're going to see more and more corporations farming out their pension plans in various self-financing forms. We think Metlife picks up a lot of that business.
GHARIB: Financial stocks have not been very popular with investors. Why should they take a fresh look at Metlife?
MANLEY: First of all, I don't think Metlife, if it's been tarred, it's been tarred with too wide a brush. I think you still have a very strong story here in terms of an individual bottoms-up. We got exposure to a lot of things that people have talked about as being specific problems for financial companies.
GHARIB: Let's look at the next one on your list. (TJX) TJ Maxx. It's been struggling recently. Why do you like this one?
MANLEY: Here again we think we have a couple things going on. From the bottom up, we think we have a very good cost-cutting story. They have a new CEO in there. What she's done is to really focused on the bottom line. We think they're going to increase their margins going into next year as they cut back on their supply chain. They make it tighter. They watch employment levels. They more rationally source. They have more feedback on what they're selling and what they're not selling. We think that all helps get to the bottom line. From the top line, I think it's number one a bet the American consumer doesn't go away but it's also an acknowledgement that if times get difficult, because they're an off-price name, they may actually pick up clients or pick up customers as people trade down a little bit.
GHARIB: Let's move along so we can get in all of your recommendations. Give us your analysis on Marriott International (MAR).
MANLEY: Well I think two things are happening here. Number one, we think it doesn't have the big property exposure that other hotels had, so it didn't run up as much. Number two the story out of Marriott, we think, really comes down to improvements in (INAUDIBLE) acceleration of (INAUDIBLE) and from the top down, they're actually -- the hotel stocks are actually a beneficiary of tighter capital markets. It keeps the shortage of hotel rooms in place longer, discourages building.
GHARIB: OK, International Game Technology (IGT). This is a company I guess that makes slot machines, (IGT).
MANLEY: Right. I think it's a phenomenal story if you really look at it the right way. It's product cycle upgrade. Basically what they've done, they're applying the technology that was developed and paid for five or six years ago. They're in a new product cycle as far as introducing new slot machines that are much more interactive, that give the casino owners much more control and much more feedback as to what's happening on the floor and the ability to do more to adjust more quickly, to actually recognize clients in some cases and give them individual treatment. I think it's a phenomenal story. They add value to the people who buy from them.
GHARIB: John, do you own any of these stocks or do you have any other disclosures to share with us?
MANLEY: I do not.
GHARIB: Thank you so much for coming on the program, a lot to examine here that you've given us. Thank you so much.
MANLEY: Thank you, Susie.
GHARIB: My guest tonight, John Manley, managing director of global wealth management at Citi Smith Barney.
