"Street Critique"-Paul Larson of "Morningstar Stock Investor"
Wednesday, April 15, 2009PAUL KANGAS: Tonight's "Street Critique" guest says the recent powerful market rally is helping turn both consumer and investor sentiment. He's Paul Larson, equities strategist at Morningstar and editor of the "Morningstar Stock Investor" newsletter. Welcome Paul.
PAUL LARSON, EQUITIES STRATEGIST, MORNINGSTAR: Thanks for having me.
KANGAS: How do you view the condition of the current market?
LARSON: Well, the market is definitely a lot more calm than it was just a couple of months ago where we saw the extreme volatility. Now volatility is still above the long-term trend, but it is much better than the extreme days that we saw in late 2008 where the market was moving 2-3 percent day in and day out.
KANGAS: How much of a negative factor do you believe General Motors' woes are overhanging the market?
LARSON: If you have to pick overhangs, General Motors definitely has to be your number one potential overhang on the market right now. It's not the potential bankruptcy I think people are worried about. It's the reverberations that a bankruptcy could have. It's like Lehman Brothers. When they went under, the pain at Lehman Brothers itself was fairly isolated, but it was the reverberations in the credit markets and the money markets that really caused a lot of the problems in the credit freeze that we experienced.
KANGAS: Now your strategy is to invest in only really high quality companies with what you call a strong economic moat. Explain please.
LARSON: What we call an economic moat is what other people outside of Morningstar might call a strong competitive advantage. And we like these companies because we think that they are protected from competition. They should be able to retain their profits in times of stress like we're experiencing now and they tend to generate a lot of free cash that they can use for things like dividends and stock buy-backs.
KANGAS: Paul, in late January you gave our viewers three long-term buys. Let's see how they're doing these days. Berkshire Hathaway (BRK.B) is up 1.5 percent. General Dynamics (GD) down about 18 percent and there was one other that, Novartis (NVS) down 19 percent. Are you still with all three? These are long-term, correct?
LARSON: Yes. These are all long-term recommendations. If I liked them three months ago, I like them that much better now. These are all wide moat companies trading at very inexpensive valuations.
KANGAS: We just have a few seconds left. Any new picks?
LARSON: Sure. One wide moat stock that we think is undervalued is Johnson & Johnson (JNJ), very high quality stock and it's trading at the lowest multiple of earnings in a very long time. We think that Johnson and Johnson is worth $80.
KANGAS: That would be a nice gain. OK. Incidentally, do you own any of these stocks personally or have other disclosure?
LARSON: Yes. In fact, the cook is eating the cooking with all of these stocks I own all of them personally as well as in the portfolios that I run for Morningstar.
KANGAS: Paul, thanks for being with us again.
LARSON: Thank you.
KANGAS: My guest, Paul Larson, equities strategist and editor of "Morningstar Stock Investor."
