Local stock experts guarded about recovery


POSTED: Sunday, April 12, 2009

Barry Hyman thinks the equities market has bottomed out. But the Kahului-based stock expert cautions investors not to get too giddy because he said that poor corporate earnings and continued weak economic data could cause headwinds for both earnings estimates and stock prices.

“;I think it is likely that we reached the bottom in early March and that carefully chosen securities will do well going forward, but I still remain cautious about the overall market,”; he said.

Hyman, vice president-managing team for the Maui branch of FIM Group Ltd., was the only one of four local stock experts to post a first-quarter gain in his hypothetical $20,000 portfolio in the Honolulu Star-Bulletin's eighth annual contest of best investment ideas.

Riding the strength of Tree.com, an online lending exchange that soared 77.7 percent, Hyman eked out a 0.3 percent return as his portfolio increased to $20,065.74.

He was followed by Norm Caris, managing director-institutional sales for Caris and Co. (down 6.1 percent at $18,784.27); Dwight Melton, co-founder of the Hawaii Stocks and Options Group (off 10.9 percent at $17,819.05); and Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC (down 18.4 percent at $16,317.09).

“;I am concerned that rising unemployment, continued housing market weakness and tight credit will keep consumers tightening their belts and producers worldwide adjusting capacity for this reality,”; Hyman said.

Hyman believes that consumer staple and health-care sectors, now shunned for their volatility, will come back into favor this year. He also said that beaten-up, high-quality industrial conglomerates and infrastructure companies offer good value at current prices.

Besides Tree.com, Hyman had one other winner — barely — with investment adviser U.S. Global Investors, which eked out a 0.9 percent gain. But Hyman was hurt by the performance of diversified chemical company Dow Chemical, which tumbled 43.2 percent.

Melton, a three-time contest champion, is sticking with iShares Barclays 20+Year Treasury Bond Fund for his lone selection even after it declined 10.9 percent in the first quarter.

The normally aggressive Melton is playing it conservative with the bond fund because he says “;at best”; that the second quarter will be “;moderately better”; than the first three months of the year.

“;Any economic recovery at this time should be kept in perspective,”; Melton said. “;Multiyear lows are in sight for consumer confidence and manufacturing, while the troubled auto industry's problems continue to mount. Finally, earnings are falling noticeably for many companies, with some cutting their dividends in order to prop up balance sheets that have been hurt by the worsening profit problems.”;

Three of Caris' five picks were winners in the first quarter as the defending champion in the Star-Bulletin contest continued his mantra that it is a “;stock picker's market.”;

He took a gamble with beaten-down Ford Motor and was rewarded with a 14.8 percent gain. Caris also rode Research In Motion, maker of the BlackBerry, to a 6.2 percent return. And Pimco High Income Fund, which invests in high-yield bonds, rose 6.1 percent during the quarter.

“;While I still believe it is a stock picker's market, I still think we may see a rotation into technology,”; Caris said. “;Corporate bonds are still trading at extremely attractive valuations, so that is another area to which I would look for high returns.

Caris also said airlines will be a strong sector this year, as capacity reductions and lower fuel prices take effect.

“;Specifically, Hawaiian Airlines (a Caris pick that fell 41.5 percent in the quarter) looks like a great bargain,”; he said.

Caris said the lowering of interest rates to a range of zero to 0.25 percent was necessary by the Federal Reserve, but he said the Obama administration “;has some disastrous policies that serve to hurt the economy, specifically with regards to taxation and its willingness to use the tax code to dis-incentivise some of America's most productive workers and innovators.”;

“;I think it is clear that this administration is floundering, and it comes out in the form of contradictory and internally inconsistent policymaking,”; he said.

Hyman also is concerned about aggressive moves taken to bolster the economy.

“;With the equivalent of nearly a year's worth of GDP already borrowed or committed by the Treasury and the Fed, good-intentioned policy moves could interfere with and prolong the cleansing needed in financial markets,”; he said. “;I am concerned about the future consequences of such heavy borrowing. On the other hand, many inadequate financial regulations, or lack of them, absolutely needed to be addressed.”;

Meanwhile, Dole's lone first-quarter winner, engineering firm Shaw Group (up 33.9 percent), wasn't enough to rescue his portfolio from a double-digit loss. His remaining four picks were down 21 percent or worse, with Bank of America bringing up the rear with a loss of 51.4 percent.

Yet, when the market recovers, Dole says that banks and financials will be the first sector to rebound “;as some bad loans become good.”;

“;Infrastructure should also benefit from the (Obama) administration's policy of rebuilding America, as the emerging markets try to catch up with America,”; he said.

Dole said liquidity from the Fed and the administration that has flooded the marketplace should benefit the economy once the money starts circulating. However, “;longer term,”; cautioned Dole, “;the actions are likely to be inflationary.”;

2009 year-end forecasts

Hawaii stock experts greatly overestimated how the major indexes would fare last year.

Norm Caris9,7001,7651,000
Caris and Co.
Richard Dole9,2001,735950
Dole Capital LLC
Barry Hyman8,5001,500850
FIM Group Ltd.
Dwight Melton10,0001,8101,040
Hawaii Stocks and Options Group
2008 close8,776.391,577.03903.25
March 31, 20097,608.921,528.59797.87
2009 consensus9,350.001,702.50960.00