"Street Critique"-Paul Larson, Equities Strategist at Morningstar
Wednesday, September 16, 2009PAUL KANGAS: Tonight's "Street Critique" guest thinks the markets have priced in a "V" shaped economic recovery. He's Paul Larson, equities strategist at Morningstar and editor of "Morningstar Stock Investor." Paul, welcome back to NBR.
PAUL LARSON, EQUITIES STRATEGIST, MORNINGSTAR: Thanks for having me again.
KANGAS: If the markets are looking for a "V" recovery, what happens if that letter changes?
LARSON: Well, if the letter changes to something like a "W" and we get an economy that doesn't recover immediately and sort of recovers in fits and starts, I think that stocks look like they're mildly overvalued today. It does indeed look like the market is expecting a "V"-shaped recovery, given the prices that are out there at the moment.
KANGAS: Well, the market has come a long way in a short time. What do you think of the current fundamentals?
LARSON: Well, right now we are indeed recovering, but whether or not we are going to get a "V" or not, I think is really the $64,000 question right now. Things look pretty good right now, but are they going to be sustained? I'm not so sure.
KANGAS: You like what Morningstar calls wide moat stocks, meaning companies with clear strategic advantages in the marketplace. Give us some recommendations of wide moat stocks.
LARSON: Sure. One company with a wide economic moat that I like is Apollo Group (APOL). This is a company that owns the University of Phoenix, a for-profit education company, very high quality company, exceptionally high returns on invested capital, a lot of free cash flow and right now this is a company that is actually benefiting from the recession. With high unemployment and under employment there are a lot of adults who are interested in going back to school and upgrading their skills. This is a company that's actually growing while the rest of the economy is contracting.
KANGAS: We just have a minute. How about another choice?
LARSON: Sure. Another one, Paychex (PAYX). This is a payroll processing company and this is a company very entrenched with companies around the country. Also as employment rebounds and interest rates rebound, I think this company is going to get a pretty strong tailwind in terms of earnings.
KANGAS: PAYX is the symbol and one more, quickly.
LARSON: Sure, Johnson & Johnson (JNJ) I think right now that the market is painting the entire health care sector with a very broad brush. But I think that volumes are going to go up if we get more people insured and this one is a top flight company that's trading on the cheap in our view.
KANGAS: OK, JNJ on the big board. Paul, do you own any of the stocks mentioned or have other disclosure to make?
LARSON: Absolutely, the cook is eating the cooking here. I own all three of the stocks I mentioned.
KANGAS: OK, very good. I want to thank you for sharing your views with us once again Paul.
LARSON: Thank you.
KANGAS: My guest, Paul Larson of Morningstar.
