"Street Critique"-Michael Farr, President of Farr, Miller and Washington
Wednesday, July 01, 2009PAUL KANGAS: Tonight's "Street Critique" guest says he's still cautious on this stock market, despite the second quarter's solid gains. He's Michael Farr, president of Farr, Miller and Washington and author of "A Million Is Not Enough." Welcome Michael.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, nice to be here.
KANGAS: The financial sector dominated in the second quarter. Do you think that leadership will continue?
FARR: I really don't see how that leadership can continue, Paul. We've seen about 100 percent gain, of course, since the lows in March from the financial sector. I think that has not been based on fundamental improvements at those banks. They're surviving, but I think that that's probably got to shift to companies and sectors that have improving fundamentals and improving earnings.
KANGAS: We'll get to that in a moment, but how about the overall market? Where is it headed in the second half?
FARR: I think that it can claw its way higher but probably not as dramatically as in the second quarter. There is a lot of, still, risk and red flags out there. I think that some of the sectors like consumer staples and perhaps health care can do better, but again, the valuations look good on health care because we have policy risk here from the world financial center in Washington still overhanging that.
KANGAS: Other red flags?
FARR: I think other red flags, certainly, continue to be the increasing unemployment and the consolidating consumer.
KANGAS: OK. Now, at the beginning of the year, you gave our viewers 10 stock picks. Let's see how they have been doing in that portfolio versus the Standard & Poor's 500 and I congratulate you. You're doing much better, 8.8 percent plus, versus 2.2 for the S&P, very good indeed. Incidentally, viewers can look for the learn box, learn more box on our website for Michael's full list of picks. Among that group, Microsoft (MSFT) and Cisco (CSCO) have performed the best, up double digits this year. Are they going to continue that, Michael?
FARR: Paul, I think that they will continue. They've done very well as all of the technology stocks, a growth year sector for the market has really outperformed. It was the top-performing sector in the second quarter but I think if you're going to commit new dollars, I would probably look again at some of those with strong balance sheets that might not have done as well. Colgate is on my list, Colgate-Palmolive is on this list. I also like Procter & Gamble (PG), a similar kind of a company and in health care where we can't seem to avoid this cloud, I like Johnson & Johnson (JNJ).
KANGAS: OK, now which ones are in the portfolio of 10?
FARR: I own them in all portfolios at the company, but in the 10, I have Johnson & Johnson and Colgate.
KANGAS: And do you personally own any of these stocks or have any other disclosure to make?
FARR: I own every one of them. I'm going to hang with them. I like them. They performed very well for us as the market was going down. They were defensive and as you can see, they've kept us nicely as we have been moving higher.
KANGAS: Michael, we have nearly a minute left. How about sharing some other thoughts with our viewers.
FARR: Paul, I'm seeing -- I'm kind of bothered by this urgency toward optimism that I'm seeing so much as I go around and talk with various investors. We have been through a very difficult and horrible period in the markets and in the economy. I don't believe it's over. The economic data don't show that it's over or behind us, so therefore, I would be very cautious about investing new dollars. I would be very deliberate about doing my research and making sure that balance sheets are solid so that you know that there is some there, there, underneath those investments if this drags on longer than any of us would like.
KANGAS: So you're saying that the economic situation really doesn't support stock prices at these levels?
FARR: I think it probably supports something around these levels, but I do expect, still, a continued pullback. What we're hearing from the Federal Reserve is that the economic decline is slowing. It hasn't stopped dropping. It's slowing. That's good, but there's some values out there if you look hard enough.
KANGAS: Understood. Michael, thanks for sharing your insight with us.
FARR: Thanks Paul a lot, great to be here.
KANGAS: My guest, Michael Farr of Farr, Miller and Washington.
