"Market Monitor"-John Dorfman of Thunderstorm Capital
Friday, August 28, 2009PAUL KANGAS: My guest "Market Monitor" this week is John Dorfman, chairman of Thunderstorm Capital, an investment advisory firm based in Boston, Massachusetts. Welcome back to NBR John, great to see you again.
JOHN DORFMAN, CHAIRMAN, THUNDERSTORM CAPITAL: Thank you very much, Paul, good to be here.
KANGAS: Do you think Wall Street's strong advance in recent months has made stocks overpriced in relation to the strength of the economic recovery?
DORFMAN: Overall, no, Paul. Every spring in baseball, the pitchers are ahead of the hitters. Every time the country comes out of a recession, the stock market advances a lot before the economy ever really start to show upward momentum. So that's exactly what's happening here and it's kind of to be expected.
KANGAS: What about these huge percentage gains in some of the financials like Citigroup, Fannie Mae, AIG, Freddie Mac? Is this speculation at its peak or what?
DORFMAN: The so-called headless horseman. Those I do believe are overvalued. I think considering the delusion that has already occurred and will occur with those stocks, if I'm going to be in financials, I'd much rather be in some of the smaller ones.
KANGAS: So you'd stay clear of these?
DORFMAN: I really would.
KANGAS: Now if the economy is recovering, will interest rates soon be heading higher?
DORFMAN: Soon, I don't think so, but in a year or so, I think they probably will. The voracious demand that the government's going to have for raising money to finance these deficits may tend to push the interest rates higher.
KANGAS: Back in March, you said the Obama economic stimulus seemed to be working. How about now?
DORFMAN: I think it is helping. I think it's helping in two ways. It's helping financially to a degree and I think it's helped psychologically. There's less panic among the investing public and the public in general. There's way more confidence.
KANGAS: You recommend four stocks to buy and one to sell short in March. Let's see how they've done since then. Berkshire Hathaway (BRKB) up a little over 20 percent and Merck (MRK) up 21 percent, two good calls. Are you still with these stocks?
DORFMAN: Yes, I am, Paul.
KANGAS: Let's have two more. General Dynamics (GD) up almost 60 percent and Overseas Shipholding (OSG) up 47, boy you are really on all burners there. Are you still with these?
DORFMAN: Yes, I'm still with those as well.
KANGAS: And you had one stock you said to sell short, Star Scientific (STSI), to sell short at $4.32. It is now less than a dollar, so that's a profit of over 77 percent. You hit on all five burners. Congratulations, John, great call.
DORFMAN: Thank you very much. And we have covered that Star Scientific short now at around a buck.
KANGAS: OK. Do you have any new recommendations?
DORFMAN: I sure do and I'd like to start right out with General Dynamics again, even after rising 60 percent. It's still at nine times earnings. Unfortunately, we're in a world where we need military equipment and I think that's still a good buy.
KANGAS: GD is the trading symbol on the big board. OK, number two selection.
DORFMAN: Number two I'd like to go with a small energy company called Boots and Coots (WEL), named after two of the three fellows who started it, their nicknames. And Boots and Coots puts out oil well fires and deals with oil well blowouts. IT also does preventive maintenance. The founder (INAUDIBLE) was played by John Wayne in the movie in the 1960s.
KANGAS: Oh, that's right. I remember that. This is a cheapy, $1.29 and WEL is the symbol for trading. OK, now. Let's go ahead with another one.
DORFMAN: I would pick Humana (HUM) because no one likes health care stocks these days. People think they're too defensive and they're also worried about what the Obama administration is going to do in the health care area but Humana is a seasoned company and it's selling for seven times trailing, six times estimated earnings and those are my kind of market ... and I think it's a bargain.
KANGAS: Good. Another selection.
DORFMAN: I'd like to go outside the U.S. to China Construction Bank (CICHY.PK). It's one of the four big banks in China. It is, of course, in bed with the government, as many companies are there. But China has good growth, especially relative to the rest of the world.
KANGAS: This is a three-month chart on the pink sheets, incidentally. OK, go ahead. Go ahead, John.
DORFMAN: For my fifth and final recommendation I would like to do another short sale as I traditionally do with you, Paul. And this time I would short Talbot's (TLB), the women's clothing retailer. Really two reasons, one, I think they're a little out of touch with fashion and two, their balance sheet is in a bit of a shambles. Their net worth currently is negative.
KANGAS: OK. TLB on the big board. John do you personally own any of these securities mentioned or have other disclosure to make?
DORFMAN: Indeed. My clients are long and short respectively the stocks I mentioned and I personally am long and short those same stocks.
KANGAS: Very good. Thanks for sharing your views with us once again.
DORFMAN: You bet.
KANGAS: My guest John Dorfman of Thunderstorm Capital.
