Street Critique - Michael Farr, President of Farr, Miller, and Washington
Wednesday, August 27, 2008This interview originally aired in the NBR Nightly Broadcast on Wednesday, August 27, 2008.
SUSIE GHARIB: Tonight's "Street Critique" guest says U.S. stocks are a lot more attractive than the economy suggests. He's Michael Farr, president and chief investment officer of Farr, Miller and Washington. Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, very much.
KANGAS: This is your first time as a "Street Critique" guest, so tell our viewers a little bit about your investing philosophy.
FARR: It's a very nervous, humbling experience, too, I want you to know. Farr, Miller and Washington is a core conservative manager. We tend to buy large cap stocks with solid balance sheets, experienced management and above average earnings growth.
KANGAS: Fair enough. Why do you think stocks are presently weaker than you think they should be?
FARR: Well, you know, it really is a sector by sector sort of a decision. But we were trading at the peak somewhere around 26 times earnings. We're now 13 times earnings. Warren Buffett said last week that if you're going to buy a farm and you know that they're going to be two years of drought and eight good years, buy the farm during the two years of drought. So, what I would say is, you know, things are down at this point, they may go a little bit lower. The worst of the drought may not be over. But this is an opportunity for those with a good bit of intestinal fortitude to make some pretty good purchases I think that will leave them in very good stead over the long term.
KANGAS: The economy is coming out of a deep recession, do you feel, is the dollar going to continue strong? Let's start with that.
FARR: I'm not sure if we are coming out of the recession or still going in to the recession. Certainly the economy is slowing and doesn't look very good. The good news here is that Europe is following us down, as is Asia, beginning to follow us down and I think other developed markets will. I think they will continue to be a flight to quality into the dollar. It really has gone well down into the depths. I think it's coming back. It's certainly getting stronger. I think it's going to be good for oil and other areas of our markets.
KANGAS: OK, now with these factors in mind, what sectors and types of stocks are you favoring here?
FARR: I'm still playing defense with good quality names. I like healthcare, but I tend to favor more of the equipment-type of stocks rather than those that are subject to greater regulatory approval, names like Striker (ph), Zimmer, Medtronic, Paterson Dental (ph). I also like the consumer staples side, not the discretionary, but the Staples like Colgate Palmolive, Procter & Gamble, Sysco Foods. I think these are good solid companies that'll see you through this.
KANGAS: That's a good summary and some very defensive stocks. Do you personally own any of these stocks or have other disclosures about them to make?
FARR: I own all of those stocks personally. And we own them in accounts that we're managing and we think that they're attractive for the accounts that we're managing. We don't make general recommendations to the public.
KANGAS: OK, any last minute thoughts for our viewers? We have a few seconds.
FARR: I think that it's a good time to be opportunistic and make sure that you don't get swayed by all of those emotional fears and hopes. See the terrain as it is and know that Warren Buffett has been through markets like this before as have many other successful investors. You'll make it through this one, too. But you have to stay the course and understand that you're going to be here for the long term.
KANGAS: Encouraging words indeed. Michael, thanks so much for sharing your insights with us.
FARR: Thank you, Paul, very much for having me; it's an honor.
KANGAS: My guest Michael Farr, president and chief investment officer at Farr, Miller and Washington.
