And Now, a Word From Our Analyst...

As we all wonder to ourselves if this year is the year to end the Festival of the Bear- even as a war in the gulf looms like the proverbial Sword of Damacles- we turn as we should to information. 

And what better broker of insight and intelligence than Doug Rogers, our favorite analyst and as many letters from the StockUpTicks membership have asserted, a reliable source of unbiased and realistic market information. Today, we are elated to provide to you the first in a two part story that answers the question: What will the markets be like in 2003 and what should I do?

Readers, if you make a single trade without reading Doug's FREE thoughts, you're driving without a seat belt in the rush hour traffic of a turbulent stock market.

One last thing, if you don't have time to read through Doug's article right now, be sure and read the COMING SOON section at the bottom. We think you'll like it. 
 

Analyst Doug Rogers: What to expect in 2003.

Welcome to 2003!  I would first like to take the opportunity to thank all of the loyal readers out there who have shown their support and unquenchable thirst for quality research.  I hope that we live up to your standards and add a little knowledge and guidance along the way.  So, thank you and stay tuned to StockUpTicks – we’ve got a lot planned for 2003 and beyond! -  DR
 

Part 1

Now that the sappy formalities are out of the way, we can focus on the important stuff, like what to expect from 2003 from the equity markets, or “What the <<insert expletive>> is going on?”.  I’m going to try to address a number of critical areas that will help to create a comprehensive picture of the investment landscape that lies ahead for all of us.  Currently, we have to concern ourselves with the national and geopolitical events and fundamental results that will impact short-term market direction (3 months) and how it relates to our long-term (12-18 months) expectations.  The mid-term is still a little fuzzy because it has amalgamated itself with the short- and long-terms, meaning that when the market is experiencing a protracted period of paradoxical results and directionless trading, the short term quickly melds into the mid term and then ultimately into the long-term. 

In other words, a lot of what I say here today was probably applicable anytime during the past six months to one year.  Ultimately, this signifies one thing: the market lacks guidance – not the guidance you got in high school that you should consider lowering your expectations to make it easier on yourself, but market guidance that comes from trends that are clearly defined by strong, consistent fundamental results in a favorable political environment.  Now, let’s take a look at some specific examples of recent results that we will then use to support a reasonable long-term outlook.

As I compose this, we are engrossed in earnings season and recent results are a good indicator of the general state of the economy.  The Financial Services industry continues to reel from write-offs and settlements associated with participating in Enron’s financing and underwritings as well as others like WorldCom and Tyco.  In addition, Fin. Svcs. institutions are also under attack from federal regulators regarding their research and investment banking practices, especially with respect to the handling of IPO shares.  The upshot?  Credit Suisse expects to report a loss of $2.5 B for FY 2002, the largest loss in their history.  Citigroup reported earnings that were one penny ahead of estimates, but their recently reported $0.47/share is 37% down from  $0.74/share reported in the same period last year.  The large financial institutions will continue to feel the impact of their tremendous losses and one-time charges associated with Enron, research mandates, IPO practices, etc.  Consolidated banking and financial services firms like Bank of America and Citigroup will experience relief from traditional banking units that continue to outperform.  Interest on expanding personal debt (secured and unsecured) combined with increased fees and charges from late payments and overdraft continue to drive revenues to traditional banking institutions.  MBNA, for example, reported 15% higher earnings of $0.46/sh. for the most recent quarter.  In the short-term, look for the Financial Services industry to continue to get battered by regulators and investors alike, but watch for the bottom when value investors start to invest heavily in the low valuations in advance of the expected rebound in sales and earnings. 

Battered retailers, in a similar situation are seeing a lot of attention by value investors seeking positions in the companies that they perceive as the most likely to lead the recovery in that particular industry.  Upscale retailers like Coach reported recent quarterly earnings of $0.68/share that is 41% ahead of last year’s $0.49/share.  It sparked renewed investor interest in the industry that drove all the major upscale retailers higher.  Saks, Tiffany, Gap, Limited and Wal-Mart all saw strong upside gains as value investors look to capitalize on battered retail valuations.  Look for the same scenario in the Financial Services industry.  When the fundamental results start providing the investment community with a clear indication of direction, be prepared with your best idea for the industry based on your risk tolerance and temporal strategy.  This methodology is earnings driven, however, and should be given a 9-18 month investment horizon to generate the expected returns. 

Biotechnology and related medical products will continue their strong trend as technology continues to drive rapid discovery and advancements while reducing costs for manufacturers.  Recent results from McKesson ($0.46/sh vs. $0.38/sh last year), Pfizer ($0.46 vs. $0.32/sh last year) and Amgen ($0.35 vs. $0.30) appear to belie this expectation.  In addition, the continued expansion of healthcare coverage and political forces that support the trend make more advanced (read: expensive) therapeutics and pharmaceutical drugs and devices more widely available, which will ultimately translate to increased revenues to manufacturers.

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For the first time on the modern financial web, average investors like yourself will be able to garner exposure to an audience of 1.2 million investors for their favorite public company... ABSOLUTELY FREE!!!

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