Preannouncement season
Interview: Armada Funds---Thomas, Crit---Portfolio Manager
>> welcome back. as we always like to do, nice run-through of the closing numbers on wall street today. the nasdaq, the lone red soldier there today, down a small decline, only three points, but .1%. but the dow and the s&p finishing at their best levels of the day, each up just about .1%. really not huge moves if you look at it as a whole in any direction. new york stock exchange volume, if we can get it there, we go, 1.4 billion shares, rising stocks outpacing those on the slide. nasdaq volume also a little bit on the light side here today, 1.4 billion shares, much below the two billion average. wilshire 5000 little changed, up .1%. and if we take a look at the bond market, interesting action there today. continued followthrough on that surprisingly low inflation data yesterday. the 10-year note and the five-year note both on the rise. similar moves earlier in the day in the three and two, but they finished unchanged. currencies, these are current quotes, folks, unchanged, the yen. the euro and the pound both little changed now as well, but the action during the day saw the euro rising to an all-time high versus the dollar. well, better than expected earnings reports from both bear stearns and lehman brothers are painting an encouraging picture of the impending earnings season, at least for brokers. and our next guest says the strong fourth quarter earnings season could actually drive stocks in general higher for 2004. crit thomas, director of growth equities and a portfolio manager of the armada large cap growth fund, joins us now from his office in cleveland with his views on stocks . thank you very much for joining us. let’s not waste time. let’s talk about this growth. the earnings season, i believe, we like to call it the preannouncement season in december, has been a bit of a disappointment for you, no?
>> yes, it has been a disappointment. we at the armada funds really thought that we’d see a bit of a much stronger earnings preannouncement for the season, and we’re just not seeing it at all. so really, we’re going to have to wait for january to see the actual numbers come through. but we do anticipate that it’s going to be a pretty positive picture that’s going to be painted by the company. in fact, we’re seeing some confirming evidence of that as you mentioned today with bear stearns. also, we’re seeing some confirming evidence out of economic data.
>> and yet you told our producers that you say the market is running into a lot of resistance despite this confirming data.
>> yeah, i think, well, first of all, we’re in december, so this is kind of a weird month. you’re dealing with a lot of calendar issues as opposed to fundamental issues. but as we look out in 2004, as you see more and more positive data on the economy, on companies, in the back of investors’ minds, there’s going to be what’s the fed going to do, and that’s always going to be sort of the limiter to what we can get out of the marketplace. but at the armada funds, you know, we on the growth side look for three things―growth prospects, sustainability, and valuation. and the things that are meeting those criteria tend to be the more cyclically exposed industries. something recently we added to was dodge, which is really a copper play. but if you think about in the last peak of the cycle, this company earned more than $10. this year they’re going to break even, if that. so there’s a whole lot of pent-up earnings in this company, and we think the back drop is very positive.
>> it’s always interesting to our viewers not only to see what you’re buying, but what you’re selling. i understand that you’re reducing your semiconductor holdings and trading in the software, as well as some of those industrial names like a phelps dodge.
>> yeah, we’re taking some nice gains on the semiconductor side, also lightening up on some of our consumer positions. but again, still want to have exposure and leverage to an economic recovery.
>> and you had also said you think the fourth quarter is going to be better than expectations.
>> i believe so. and really, the analysis that we’ve done at the armada funds is looking at the sequential growth that’s expected between the fourth quarter and the third quarter. and it’s actually quite small, where it would suggest it should be much larger, especially if you’re in the midst of a recovery economy. so we do think there’s definitely room for upside. oracle was an example of, you know, they were expected to be 11 cents, they came in at 12. that’s a pretty decent upside, a penny up.
>> we’re under a minute, probably close to 30 seconds now, so real quick, you had said that investors are wrongly concerned about the fourth quarter and how much expectations are already built into growth. what do you mean by that, briefly, if you could.
>> well, it’s just that we think that we’re at the point where basically you have to be hit over the head with earnings, and that’s really what’s going to drive stocks going forward. so i don’t want to say that investors are wrongly concerned, but it’s basically we’re moving into a period where it’s earnings and earnings and earnings that are going to drive stock prices, and really, that’s what we look for at the armada fund.
>> and you have made that point crystal clear. crit thomas, thank you very much, director of growth equities and a portfolio manager of the armada large cap growth fund. well, stay with us. there’s lots more to come, including china life’s debut. the a.d.r.’s jumped in their first day of trading on the new york stock exchange, off to 35% at one point. will investors have a similar reaction, though, when the shares begin trading in hong kong thursday? we’re going to asia for a preview.
