"Market Monitor" -David Darst, Chief Investment Strategist at Morgan Stanley Smith Barney
Friday, November 06, 2009SUSIE GHARIB: Our "Market Monitor" guest tonight says we're in a quote multi-year bull market. He's David Darst, chief investment strategist at Morgan Stanley Smith Barney. David, welcome to NIGHTLY BUSINESS REPORT.
DAVID DARST, CHIEF INVESTMENT STRATEGIST, MORGAN STANLEY SMITH BARNEY: Susie, thanks for having me. All of my colleagues at Morgan Stanley Smith Barney, we love your show and congratulations on the show and congratulations to the world champion New York Yankees, Susie.
GHARIB: Well, we're happy about everything you just said. Now, let's talk about the market. So you're bullish, even though some of the numbers on the economy today, like those jobs numbers, were not very good.
DARST: Well, you're right and this has been expected. Everybody knows that house prices have been under pressure. Jobs have been under tremendous pressure and also toxic assets on the banks' balance sheets. These things have been known by the market. What we see as positive influences, Susie, are stimulus. That's the low interest rates, also the government actions to extend the first-time home buyer tax credit, things like that. Secondly, leading economic indicators. These are advanced indicators of how the economy is likely to perform. They're up 5.7 percent in the last six months. And you mentioned at the top of the show, how the unemployment numbers are the worst since way back in the 1980s. The lead economic indicators are the strongest since back in 1983, 26 years ago. Number three, Susie, outside the United States, economies are growing. Big economies -- Canada, Australia Japan, Russia, Brazil. The employment is actually expanding there. You had yesterday John Chambers of Cisco talking about their outlook and how much better it looks to him because of the international aspect. The last three things, four, five, and six, retail sales numbers look OK to us for October, the retailers, that is. The -- there's a lot of liquidity out there and inflation remains low. It remains subdued. The individual investors put about $215 billion out of money market funds into bond funds and not into stock funds, Susie.
GHARIB: All right. So now let's take those scenes (ph) and look at the stocks that you're recommending. This is your first time on NIGHTLY BUSINESS REPORT as a "Market Monitor" so tell us. You have Bank of America (BAC) at the top of your list. Ticker symbol BAC. Why do you like it? How does it fit into everything you just told us?
DARST: We see gradual improvement of the financial system. They manage to buy and to take over very, very prized assets, the Merrill Lynch franchise -- not only in the United States but globally in investment banking franchise. Countrywide, the mortgage there, we see that company able in a couple of years' time -- 2011, let's say -- able to earn $27 billion after taxes. This is the estimate Morgan Stanley researched. (INAUDIBLE) Our lead banking analyst, $27 billion, Susie. You divide that by nine billion shares outstanding, put a 10 multiple on it, that stock ends up being 30 which is roughly double where it is today. That's one reason we like Bank America.
GHARIB: OK. Let's move around. Your other stock pick you told me about, Microsoft, ticker symbol MSFT up a bit today. What's the attraction there, David?
DARST: Microsoft we see as entering a brand new cycle with this Windows 7, also in their server business, Susie and in their operating system business. We see this -- we just raised, Morgan Stanley research raised earnings estimate from $0.85 per share up to $1 a share. We see this as entering a huge growth cycle. The early reports on Microsoft are very positive. The numbers three and four reasons there is cost cutting. They've really managed to keep their expenses under control there. We've seen that add to the bottom line and also-- also, buying back stock. We see a tremendous stock buyback program of around $7 billion per year annualized for Microsoft.
GHARIB: Let me see if we can squeeze in. You made a very good case for Microsoft. Give us your case for WIP, these are inflation-protected bond ETFs. How does this fit in?
DARST: Susie, thank you so much. I would say I own Microsoft personally. I do not own Bank of America right now, personally. I got plenty of Morgan Stanley stock. So that's the reason why not. The WIP, that's world inflation protection, is the symbol of an exchange-traded fund, Susie that invests in inflation-protected securities outside the United States -- England, Canada, Australia, Brazil. There are 17 countries in that portfolio that follows the index and we think you get a currency play plus an inflation play and that becomes..
GHARIB: They're telling me we got to go. I hate to interrupt you because you got really good stuff. David, thank you so much. Hope to get you back on the program.
DARST: Thanks, Susie, thanks for having me.
GHARIB: Our "Market Monitor" tonight, David Darst, chief investment strategist at Morgan Stanley Smith Barney.
