"Street Critique"-Patrick O'Hare, Chief Market Analyst at briefing.com
Wednesday, April 23, 2008PAUL KANGAS: Tonight's "Street Critique" guest looks at stocks and the markets from a contrarian's point of view. He's Patrick O'Hare, chief market analyst at briefing.com and author of the site's "Bargain Hunting" column. And Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Thank you, Paul. Nice to be back with you.
KANGAS: Tell me a little bit more about how you pick stocks and what you're seeing in the current market environment.
O'HARE: I think we're emphasizing two approaches. One is value oriented and the other the contrarian minded. The price to earnings growth ratio, a peg (ph) ratio as it's called, is one of my favorite value oriented metrics and it helps identify stocks whose P/E multiples are trading below the company's projected earnings growth rate which is often a sign that there's a value opportunity there. In terms of the contrarian selection, simply look at stocks that have fallen out of favor with the market for one reason or another but whose business remains fundamentally sound and suggests that there will be better returns down the road.
KANGAS: Very good. The last time you were with us on February 27, you liked General Electric (GE) because you thought it was undervalued. The conglomerate had a big earnings miss as you know. Do you still see value here? GE is down a little less than 5 percent since you were last with us.
O'HARE: We do. GE got caught up with the credit market dislocation but really it's a victim to its own fault. The company over promised and under delivered and got hit hard as there was a credibility issue that arose there. But that's not in GE's nature and we think that its conservative forecasting now should help rectify that situation in short order. And we remind investors that GE is just one of a handful of companies with a triple-A credit rating that pays secure and steadily rising dividends and has a strong presence in a number of growth markets.
KANGAS: All right. Now you also liked retailer Kohl's (KSS) back in February. That was a recovery (INAUDIBLE) and do you still like it? It's actually up 1.6 percent.
O'HARE: We like it and it would appear that the market likes it too. Despite all of the gloom and doom reports surrounding the consumer, Kohl's is actually up 4 percent for the year. So it's handily outperforming the market, so we think investors are catching on to this recovery idea.
KANGAS: Now you've brought our viewers one new recommendation. It's the other Cisco, Sysco Corporation (SYY), the big food distributor. What caught your eye on this one?
O'HARE: That's right. Sysco, stock symbol is SYY. It's headquartered out of Houston and because it is the largest food distributor in North America, we like its industry-leading position. It's in a fragmented industry and it really has some great scale there. Yet it's still only owns about 15 percent of a $225 billion market, so there's still a lot of room for growth there. The stock has been knocked down on concerns that relate to discretionary spending and the slowdown in the U.S. economy as well as rising food and fuel costs, but at its current price it trades at a 40 percent discount to its 10-year historical P/E multiple and we think given how well managed this company is, the secure dividend it pays and its industry-leading position, we think it really offers a nice opportunity here for the patient-minded investor.
KANGAS: Patient-minded meaning long-term investment.
O'HARE: Right. I mean you have to have about a three- to five-year outlook here, but we think it will be worth your while if you can wait that long.
KANGAS: Very good. Do you own any of the stocks we've talked about or have any other disclosures to make, Patrick?
O'HARE: No, I do not, Paul.
KANGAS: OK, want to thank you for being with us once again, very interesting.
O'HARE: Thank you.
KANGAS: My guest, Pat O'Hare of briefing.com.
