Turning over a new leaf in stocks
Taking his cue from a famous Peter Sellers film, this Canadian analyst looks at which stocks are growing again and which are withering away.
It’s been a while since we’ve seen Being There with Peter Sellers.
(The last classic we sat down and watched was much older, but not entirely dissimilar. A youthful Jimmy Stewart was propping up American democracy against the forces of greed and corruption in Washington.)
Mr. Ken McCord thinks Mr. Sellers’ second-last film — made 30 years ago — is worth multiple viewings. And he thinks its off-the-garden-wall wisdom can be applied to the fitful market we find ourselves in today.
CEO and an active portfolio manager at Webb Asset Management, Mr. McCord puts the comparison to the test in The MoneyLetter.
As he takes us down this cinematic garden path, he explains which sectors are liable to start growing again and which are still fallow. He finds two stocks to like and one to avoid. And he has some thoughts on the Canadian banks and whether or not they’re getting there.
But first, let’s get down to the roots.
Some lose their leaves
If you’re not familiar with Being There, Peter Sellers plays a simple man who has lived in the same house and tended the same garden all his life. When he is let loose on the world, his banal utterances are taken for incisive wisdom in official Washington.
Thus “there will be growth in the spring,” the simplest possible statement about a garden, could be taken as a bold economic prediction.
The President of the United States asks Chance (Sellers’ character): “Do you think we can stimulate growth through temporary incentives?” The reply — “As long as the roots are not severed, all is well and will be well in the garden” — is treated as a flash of blinding insight.
Mr. McCord likes the following Chance statement in light of a possible market recovery. “In a garden, things grow — but first some must wither; some trees lose their leaves before they grow new leaves.”
When the market hit the skids last fall, most of the trees in the garden got shaken down to their roots. Some very good stocks got dragged down with a lot of overvalued ones, the analyst says.
Then came the rally and some very undeserving stocks got pulled back up — along with some strong stocks.
So how do we sort the good growth from the bad?
A hard-working name
This analyst expects “deep cyclicals” in industrials, energy and materials to go higher as the U.S. economy searches for a bottom.
Deep cyclicals are those stocks that rely heavily on economic trends. They start to droop at the first sign of a slowdown and snap back quickly when demand picks up.
One of these stands out for this analyst. This company once had the hard-working name of Pittsburgh Paint and Glass. Now it’s PPG Industries (NYSE-PPG) and Mr. McCord likes it for what may seem an odd reason.
The company has moved much of its business away from automobiles and into housing. “That may sound like an ‘out of the frying pan into the fire’ sort of scenario,” admits the analyst, “but PPG stands to benefit smartly from a renovation boom in the existing home market.”
PPG has also done some cost paring and worked through its inventory, which bodes well for the immediate future. It is also picking up a lot of business in Asia.
The stock went from $67 last September to $28 on March 5 and is now planning back upward at $43. This “one of the stocks we can expect to grow materially from here,” says Mr. McCord. It’s a buy.
Growing in Canada
That sad, leafless tree over in the corner is KeyCorp (NYSE-KEY), a big American bank. “I hate to pick on KeyCorp specifically,” says Mr. McCord almost apologetically, “since I can’t find a large cap U.S. bank I like right now, but this one is particularly vulnerable.”
This stock has been on a continuous slide since the financial crisis began. And the crisis still has legs, in this analyst’s opinion. Sell.
Let’s leave that one behind and see what’s growing in Canada.
Mr. McCord likes deep cylical stocks in Canada, as well. But he adds technology and consumer stocks to his list. Especially technology.
And especially Research in Motion (TSX-RIM). Admittedly, the CEO’s relentless pursuit of the Phoenix Coyotes has been making more headlines than the company itself lately.
But look at the stock, he says, and you see “a great company that got hammered in the crash.” From $150 the stock plunged to $46 in early March. It has doubled from that low (indeed it opened today at $92.15 — and is getting bumped around again, sitting around $87).
But why should it be kicked around, asks this analyst. “Has its business been cut in half in the past year? Is business expected to drop so terribly for RIM in the near future? Not a chance. RIM still boasts one of the brightest futures in the world.” It’s a buy if you haven’t guessed.
Canada’s banks are not. Not for this analyst. When he turns to the financial corner of the garden he sees trees whose growth will be stunted “until financial planners can spread a little more fertilizer on them to stimulate growth.”
Nor would you be at fault if you decided to accumulate cash and watch how things grow over the summer, the analyst tells his readers in The MoneyLetter. We’re not out of the woods yet.
But as long as some good stocks are growing in the garden, all will be well.
|
E-mail this article
Printer-Friendly
