Jan 30/04-Nightly Business Report - Market Monitor
FP - The name sounded familiar (I like to know the people making calls).. sob
01/30/04: "Market Monitor"- John Dorfman, President, Dorfman Investments
PAUL KANGAS: My guest market monitor this week is John Dorfman, President of Dorfman Investments. This is John`s first visit with us, but he comes with impeccable credentials. He wrote the "Wall Street Journal`s" Heard On The Street column for years and he`s the author of nine books on investing. Welcome to NIGHTLY BUSINESS REPORT, John. Great to have you.
JOHN DORFMAN, PRESIDENT, DORFMAN INVESTMENTS: Thank you so much for having me.
KANGAS: Please give us your assessment of the U.S. stock market`s current level in relation to the condition of the economy and the outlook for corporate earnings.
DORFMAN: Well, the outlook for earnings, I think, is pretty good, and it better be because stocks had gotten ahead of the earnings for quite a while. I think now the earnings are beginning to catch up with stock prices and that`s what we want to see. I actually have a radical prediction for you. I think we`re going to have the first normal year in 13 years.
KANGAS: Really? The first normal year. We could -- yes, what is normal?
DORFMAN: Well, I define five percent to 15 percent up is normal, since 10 percent up is the average. And we haven`t had a year in that range. You know, there have been 12 years that were either heartbreak or delight.
KANGAS: Aha. Well, an interesting and a very good prediction that we want to hear, naturally. But I have to ask you, did the sell-off in stocks on Wednesday, was that whole thing overdone in reaction to the mere possibility of an interest rate hike?
DORFMAN: I think so. My feeling is that the Fed will keep a lid on rates until after the election so as not to be seen as interfering with the election, as the saying goes. And then I`m worried about 2005, that rates may pop up then.
KANGAS: But not until then, it`s not likely?
DORFMAN: I don`t think they`ll rise very much. And the very early stages of interest rate hikes have not been very dangerous in the past.
KANGAS: Well, because you`re basically positive on the market, let`s have some of your suggestions as to what you`d buy at this level.
DORFMAN: Well, we like very much the defense industry, Paul. We think there`s a bipartisan consensus that defense spending needs to be increased. And one of my favorite names there is Alliant Tech Systems (ATK). They make rocket motors, munitions, explosives.
KANGAS: In the mid $50s, I see by the chart here?
DORFMAN: Yes, correct, today.
KANGAS: And it`s had a pretty good run, but that doesn`t care you scare you off?
DORFMAN: No. It, that stock is usually too expensive for cheap stake like me, but we were able to pick it up around 16 times earnings.
KANGAS: OK. All right, let`s move to another one.
DORFMAN: OK, well, another industry we like very much is energy. We think there is a genuine shortage of natural gas in the United States that will become increasingly apparent to everyone over the next five years.
KANGAS: What`s your favorite there?
DORFMAN: I like St. Mary`s (SM) very much. It`s a small pure play in natural gas, a domestic play.
KANGAS: But do you think that recent flare up in the price is justified?
DORFMAN: Well, the price will bounce around with the weather and, you know, perceptions about storage levels. But it was quite cheap before and it`s still pretty cheap now.
KANGAS: OK. And in other area do you like something?
DORFMAN: We have been emphasizing high dividend stocks, Paul, for about 13 months, first in anticipation of Congress doing something about dividend taxation and then the reality. We like Allied Domecq (AED), for example, a British company that`s the parent of Baskin Robbins and Dunkin` Donuts. Now, looking at my waistline, I think you can see that I never go into those places but --
KANGAS: I think they`re in the spirits business, too, are they not?
DORFMAN: Very much so.
KANGAS: Beefeater`s gin, to be exact.
DORFMAN: Yes, that`s correct, and a number of well known liquor brands, which gives a considerable steadiness to that stock.
KANGAS: OK. Let`s have a look at perhaps another of your long recommendations.
DORFMAN: We like Invision (INVN), which makes luggage screening devices for airports. I think people know that they had a big boost when all the airports were required to put in such security. They won`t have another year that good for a while, but it`s so cheap that we think it`s a good long-term investment.
KANGAS: All right. And anything that would you sell here?
DORFMAN: Well, we do a little short selling at my shop. About half our clients do have some short sell bets and surprisingly, perhaps, we`re short Fannie Mae (FNM).
KANGAS: Oh, boy.
DORFMAN: We think that it`s more interest rate sensitive than it ever was because it keeps a lot of mortgages and we`re worried about the security of its massive hedging structure to try and protect itself there.
KANGAS: So you would short Fannie Mae, which has been a long time favorite?
DORFMAN: Correct.
KANGAS: All right. Now, do you own these stocks personally or are you short Fannie Mae, for example?
DORFMAN: Yes, I am personally short Fannie Mae and my clients and I are long all of the stocks that I mentioned on the long side. So I definitely have a rooting interest in the stocks we`ve been discussing.
KANGAS: All right. We have about 15 seconds for just a last minute thought from you, John, if you have any.
DORFMAN: My last minute thought is buy that which is unpopular. That`s the best way to make money in the market.
KANGAS: There you go. I think we all learned a little bit of that from Sir John Templeton, didn`t we?
DORFMAN: Definitely.
KANGAS: Yes. Thanks very much for being with us, John. It`s a pleasure to have you.
DORFMAN: Great.
KANGAS: My guest John Dorfman, President of Dorfman Investments.
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