"Street Critique" -Patrick O'Hare, Chief Market Analyst for Briefing.com
Wednesday, July 30, 2008PAUL KANGAS: Tonight's "Street Critique" guest says he's not in the gloom and doom camp when it comes to the current stock market. He's Patrick O'Hare, chief market analyst at the financial information website briefing.com. Pat welcome back to NBR.
PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Hi, Paul, nice to be back with you.
KANGAS: Before we get to your stock picks, let's talk about this market. We've seen some sharp spikes higher. Is there a real chance for lasting strength here or is it just a trap for impatient bulls?
O'HARE: Well, we think, you know, you likely to see a couple of traps along the way here, but overall, we think the market is in store for better performance over the next year. Valuations are reasonable. Economic growth as we'll see in the Q2 GDP report Thursday is better than feared. And earnings growth is going to pick up noticeably in 2009 if the financial sector continues to cycle some really ugly results that began in the third quarter of last year.
KANGAS: Good reasons to have kind of a positive outlook, correct?
O'HARE: We think so.
KANGAS: All right.
O'HARE: And I'd add, too, there are about $3.5 trillion sitting in money market funds right now just ready to be put to work.
KANGAS: Good point. You write the bargain hunting column at briefing.com where you take a contrarian point of view finding beat-up stocks with strong fundamentals. That brings us to your first pick. Name and ticker please.
O'HARE: Right, it's Jack-in-the-Box. The symbol is JBX. The stock has really fallen on hard times, but we think a lot of the negative factors affecting its operating performance, namely, its exposure to hard-hit real estate markets in California, Arizona and Nevada, a slowdown in consumer spending and escalating food and packaging costs have been factored into the stock which is down about 50 percent from its high last May. At the current price, it trades about a 20 percent discount to its projected earnings growth rate which we think exposes a nice value-based idea for the patient investor.
KANGAS: And you prefer this over its larger peers, McDonald's and Burger King.
O'HARE: We do. On a relative basis, we really do like McDonald's, but on a relative basis we think right now that the upside return potential for Jack-in-the-Box is greater.
KANGAS: OK, now while your next pick is not a fast food operation, it does depend on consumer spending. Tell me more about this one.
O'HARE: Sure, It's American Express. The symbol is AXP and of course, American Express came off just really a lousy second quarter, took a $600 million increase to its U.S. lending reserves to account for some deteriorating credit conditions in the U.S. and the stock took quite a hit after that. It's down about 44 percent from its high, but it trades at about 12 times trailing 12-month earnings, which is about 40 percent discount its 10-year historical average. It's important for your readers to remember that it's been in business since 1850. It's seen its share of business cycles. It will get past this and we think it provides a nice opportunity here for the long-term investor.
KANGAS: Rival Visa reported this afternoon strong results and Mastercard is due out tomorrow. Are they all in the same boat?
O'HARE: No, actually, they actually have some different business models. Visa and Mastercard, they do the transaction processing so they don't have the credit exposure that American Express does. We saw after Wednesday's close that Visa reported a really strong number, stock was trading up and it set a nice tone for Mastercard ahead of its report on Thursday.
KANGAS: Very good. Pat, do you own American Express or Jack-in-the-Box shares or have any other disclosure to make?
O'HARE: No, I do not.
KANGAS: All right, I want to thank you very much for sharing your insight with us, Pat.
O'HARE: Thank you, Paul.
KANGAS: My guest, Patrick O'Hare, chief market strategist at briefing.com.
