Special Edition
>> ok. welcome back to this special edition. let’s get specific now. if we got everything in the markets that our guests have been speaking of, maybe the potential for higher rates down the line, some concern about housing, certainly growth out there in the markets as defined by a number of different economic indicators with some would argue the job growth out there, michael, where do we go, what do we buy?
>> you want to be diversified here. some of the groups that have had the biggest runs, for example, technology, are still good investments because the economy is expanding.
>> all of technology, the qqq?
>> no. you have to be selective and the lesser-quality stocks, with high valuation levels, with no earnings have gone up the most. barbara and i were talking about hewlett-packard. that’s an interesting play here. i would also point out possibly activision in the video game software.
>> why hewlett-packard? very widely own. a lot of our viewers probably own it or are thinking about buying it. why?
>> the printer division is their most profitable division. lexmark came out with good results and they had a high exposure to the printer division, so that speaks well to the segment of hewlett-packard’s earnings. p.c. spending has been rising and the company is priced at about .5 times sales versus other companies in the industries which are trading at one to two or more than that.
>> is the integration of compaq, it’s been a while, but they want to model themselves after i.b.m., is that working?
>> last quarter they had good numbers and that was the first clean quarter since the company merged with compaq. this quarter’s earnings, which i haven’t looked at yet, will be very important in determining whether the trend is starting to take hold. and if they can string together two or three quarters in a row, i think the street will warm up towards the stock over time.
>> you like hewlett-packard as well.
>> yes. i think―i can’t really add much to what michael said. ice still a little wait-and-see for the quarter, but carly fiorina has done a very good job of positioning the company and it will have an expanding multiple over time.
>> we know if the next quarter looks solid, that strengthens your view. what if it doesn’t? how many quarterly chances are you willing to give not just hewlett-packard but any company?
>> well, that’s interesting -- that’s a very important part of investing, really, when do you say i got the story wrong? certainly, hewlett-packard is inexpensively valued and depending on what the next quarter looks like i don’t think it can really change my mind on that, but it’s possible. cendant, which i’ve owned for a few years --
>> they’re involved in everything, avis rent-a-car, real estate, hotels.
>> 2003 it was up about 80%, but the previous two or three years, it just sat. as the earnings continued to expand, the market wouldn’t give it a higher valuation.
>> why not?
>> i kept saying to myself over and over, what am i missing here? the reason the market wouldn’t give it a better multiple and still doesn’t is because it was giving it somewhat of a quality discount, and it’s still a show-me story because the company made that disastrous acquisition in 1998. so, that’s still a show-me stock. they said in this quarter they will declare their first dividend. they’ve posted notice on that. and i think this will finally start to convince people of the strength and stability of their cash earnings, which are very big. still looking for good performance there, but for that company the―for two years put one foot in front of the other.
>> david, where are you investing?
>> we’re primarily long gold and silver mining companies. as i mentioned, my macro view is that the dollar will continue to decline, there will be higher rates. you look at the ratio of the dow jones industrial average to the gold price, typically when financial assets don’t do as well, the gold price does very well. and we think we’re an asecular bull market in the gold and silver mining area. we think there are some companies in this industry that are still cheap.
>> such as?
>> even at a flat gold price. we like some of the bigger ones, the intermediates, and the smaller ones. we can’t really talk about some of the smaller names, but newmont is a good value, plasser dome, anglo american, as well as a little company by the name of umonigold.
>> do you want to be overweight to those less hedged to the price of gold or go with the full hedge book?
>> no. in our opinion, you want to invest in the companies that you are bullish on the gold metal, you don’t want to be long on a company that has a big hedge book like a barrett gold because if the gold price rises a lot, the companies can really be hurt.
>> do you think that gold and silver are different rated right now, or would you simply buy the companies both equally?
>> we would buy them equally. they’re certainly better managed companies than others. there are companies that are better priced than others. in the silver area, we like a company by the name of cardero and think there are great values there as well.
>> if i could step in, i would agree with david about the fact that gold is in a bull market and the correlation, interestingly, between the dollar and gold in the last two years is 88%. if the dollar continues to go down, gold should be included in a lot of portfolios. however, it is somewhat speculative, so you may want to limit it to 10% to 15% of a portfolio.
>> we’ll talk about everybody’s favorite subject in america, the housing stocks and the housing market . next.
