"Street Critique"-Paul Larson, Equity Strategist of Morningstar
Wednesday, July 08, 2009JEFF YASTINE: Tonight's "Street Critique" guest says the markets are on edge for a reason. He's Paul Larson, equity strategist of Morningstar and Paul, welcome back to NIGHTLY BUSINESS REPORT.
PAUL LARSON, EQUITIES STRATEGIST, MORNINGSTAR: Thanks for having me again.
YASTINE: There's always a lot of questions as we go through the seasons here about how long does this recession last and when we talk about economic green shoots, are there any real economic green shoots to speak of?
LARSON: Well, I think you can characterize the economy and the economic indicators as being less bad. Things are certainly not as bad as they were back early in the first quarter. But there's a big difference between less bad and good. And we are most certainly still in that less bad phase, still going in reverse, still experiencing economic contraction.
YASTINE: And Paul, what do we make of then the rally we've seen these last weeks and months?
LARSON: Well, I think that a lot of the rally that we've experienced was simply a multiple expansion rally, meaning that the valuations just got so low in the early March lows and that a lot of the rally that we've seen has just been a rebound and not necessarily reflecting any meaningful economic recovery. There has been, you know, some talk of these green shoots, but I don't think that there's a whole lot of substance to the economic expansion theories that are out there right now.
YASTINE: So if we're still looking to put money to work in the markets long-term, you at Morningstar focus on what you call wide moat stocks. What do you define as a wide moat?
LARSON: Well, when we talk about wide moat stocks or companies with wide moats, we like companies that have some sort of protection that is going to protect profits over the long term from competitors. And we think that these are the companies that are the really good place to focus right now. These are the companies that hold the high ground, which is really important as you're going through what you might call an economic flood that we're experiencing.
YASTINE: Paul, let's go on with the first one you have for us. It's Proctor & Gamble (PG).
LARSON: This is a consumer titan with numerous billion dollar products, very strong brands in the portfolio. I also like that this is company that has roughly a third of its sales coming from emerging market sources. And these emerging markets really are not necessarily affected by the ongoing economic malaise that we are experiencing here in the U.S.
YASTINE: Then you have a second one, Novartis, symbol (NVS).
LARSON: Yes, the stock market seems to be painting the entire health care sector with a very broad brush right now, worried about health care reform. But this is a very diverse health care giant, with big businesses in generics, vaccines, consumer products. And we think that it's going to escape any major damage from health care reform. It's a high quality company trading on the cheap and that's a combination that I really like.
YASTINE: The third and final one, the home improvement retailer Lowe's, the symbol (LOW).
LARSON: Yes, this is a little bit different. This is a company that is experiencing some very strong stress right now, negative same store sales at the moment due to the entire situation in the housing market. But the stock market seems to be taking today's very difficult situation and assuming that's going to last in perpetuity. Well, I don't think that economic recovery is imminent. I don't think that this condition is necessarily going to last forever. And if you think that a recovery will eventually come, Lowe's is certainly very, very cheap right now.
YASTINE: Any disclosures to make for us here?
LARSON: Certainly. The cook is most certainly eating the cooking here at Morningstar, and I own all three of these stocks, both personally as a well as in the portfolios I manage for Morningstar.
YASTINE: Thank you, Paul, appreciate your time on the program.
LARSON: Thank you.
YASTINE: Our guest Paul Larson of Morningstar.
