Wall Street Week with Louis Rukeyser; 1335; Investment Quality Trends

Wall Street Week With Louis Rukeyser. Brought to you by this and other public television stations and by grants from the Hilton Hotels Corporation America's business address and its subsidiary Conrad international hotels the world's business address Prudential Bache securities where total financial planning can help the American dream happen for you and the Sperry corp. Computer based information systems for business industry government and defense. Produced Friday February 24. Our panelists are Howard Carter Randall and Julius Westheimer. Tonight's special guest is Geraldine Weiss editor and publisher investment quantity trends.

Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well guess when you thought it wasn't safe to go back in the water. All the Sharks took a one day holiday and a drowning stock market gamely poked its head above water in one of those miraculous turnarounds that make Wall Street the closest thing now available to a Tom Mix cereal. The stock market ended what had been still another dead full week with its best day in more than seven months before it was over. The Dow Jones Industrial Average had gained nearly 50 points from its low point the previous afternoon and had dramatically reversed at least for the moment. A seven week slide that had taken it about one hundred and seventy points below than the record levels at which it had started the year. Now as good scientists we naturally want to know why the stock market which is of course every good little child surely knows. Always supreme leader logical chose this particular day to stop weeping and start cheering.

Was it for example because of some marvelous new evidence that Washington was actually going to do something about the federal deficit. Not so as you'd notice the great political game also known as my party is more chicken than your party continued apace. There was more jockeying for position than at the starting gate of the Kentucky Derby but less genuine action than at the Regional Championships of tiddlywinks. Typical perhaps with the Senate Finance Committee which pledged to be Douce the deficit by 100 billion dollars over three years and then showed how absolutely positively serious it is by approving actual spending cuts of eight point seven billion and approving even that meager ration. Only tentatively of course one does have to keep an eye on those polls as one. Perhaps then the reason for the stock market sudden rebound was news that the tiger of inflation had been tame. Well not exactly. When you get right down

to it the news there was reasonably grim. Last month saw the sharpest one month increase in consumer prices since last April but clutches after straws noticed that the weather had been especially bad in January and that some economists had been predicting even a larger rise and that the money supply was now bound to the head a little less rapidly than feared and that the January deficit while still horrendous was a bit smaller than some doomsday his had predicted. And it looked like Washington might eventually do something anything about the projected deficits. And besides don't it enough was enough and the market was good and ready for a rally on that last point at least. No dispute. Why there even was a faint comeback in the near Khama toast. Bond market where prices at midweek could fall into their feeblest levels in more than six months. We tonight will be examining that earth shaking question. Is this the beginning of the end of the market

slide or the end of the beginning or with the boys on Wall Street just smoking something peculiar and then deciding to fund this for 24 hours. And then we'll get more serious with a lady who says we should disregard this kind of passing hysteria and stick with what she calls select blue chips. But first let's see how they chipped away in Wall Street in the week has passed. And as the Dow Jones Industrial Average indicates things were looking gloomy indeed until the mid afternoon turnaround on Thursday followed by a 30 point gain on Friday on a notably increased volume of trading for the week. The Dow showed a plus sign for the first time in seven weeks 18 16 points to close at eleven hundred sixty five point one zero and the final day's strain which mounted right up to the closing bell also brought net advances to our broader market indexes. But alas our elves who suddenly bullishness last week came just in time have faded two notches and their technical market index is now only

mildly both ways three points below an outright buy signal. The little fellows just can't stand success. Earlier in the week there was a notable revival in the precious metals market and even more dramatically in the stocks of mining companies. But the week gold added $11 and Alison is now just four bucks below the 400 mark. While silver moved up 46 cents to nine sixty two. But about what Wall Street out of its dead man's float. I really don't know Lou except perhaps a realization that the market was very very cheap. I believe it is now you know all during 1982 we were saying the market was cheap then the return to that was well ok but when's it going to go up. It went up in a hurry at the end of 1982 and I feel the same way right now I think the market's been oversold I see no real reason for this heavy selling. I think it's cheap and I think the investors realize to what extent is the stock market the slave of the bond market that the bond market have to prove first. Well there's a

good in a relationship mainly on the subject of the capitalization of earnings and price earnings ratios. However if earnings are improving on a constant basis which they are and will be I could overlook that relationship and not worry about the bond market versus the stock market. So if you have you then the market simply came to its senses. Yes I don't know whether it's going to stay there or not but I think we deserve a higher market. There was west time a welcome back you've been five in the world since we saw you last of this long term. Long far away perspective help you in reducing your innate bearishness. Well of course there's less risk in the market now than there was 100 50 points ago but I still see the same storm flags flying that I saw before I see a tremendous spread between stock yields and bond yields of almost 8 percentage points and I think that'll siphon some money out of stocks into bonds. I further not only see a horrendous deficit but Washington's apparently complete unconcern about it

I think the president feels it will go away like a sore throat. But but it but it won't. But as a fighting liberal you may be disappointed to know that your analysis of where the money has been going coincide with that of Ronald Reagan who told us the reason that the market was down is that money was flowing into bonds a fact which is not evident in the bond prices right now. That's true. Well you know he can be right once in a while to your right you have you on the question I asked the question of whether interest rates have to get out before the market I think they do and I don't see anything that's going to bring them down though until somebody really has the courage to attack the deficit. And I don't think that will happen in the election year. What about the possibility that we have some token act and as it was maybe two in the market will then take off. Well I see that they're forming a commission to study it but we don't need any more commissions in Washington we know what the problem is we need the courage to raise taxes for the most under taxed nation on the face of the globe. That may be news to the Japanese people call them what you do I think what happened is that Thursday a pundit said interest rates were going up in the market believed that Friday they realized

that that pundits like other pundits could be wrong and was likely to be wrong again and said I don't believe in. That's what happened in the short term. I think in terms of the general trend Westies comments about the deficit about the need to increase taxes probably exactly the wrong time when the economy may be coming down and 85 is likely to happen and the issue is are we going to cut government spending and I'm very pessimistic about facing the truth. Do you share Westies desire to raise taxes. I think we have to do both to get the spending cut that is really needed. You're going to have to do something in taxes but I've afraid that we're going to end up doing more taxes and not the spending cuts. You mentioned the point that it might potentially cover many of the chief economist with Salomon Brothers was quoted twice on the front page of The Wall Street Journal today why it's so much attention paid to this man one of productions and marketing up in America. Well that's a very difficult question to answer but if you have a nervous market and someone has the courage to act like an authority the market is likely to follow

them temporarily. I mean Joe Granville was a pundit for a while and his advice didn't turn out in that takes a while to rebuild credibility. Well in any event panel it is time now to engineer a turnaround in our viewer's fortunes. Quite a battle Richard. A herd of Mercer Island Washington is made about mergers. They're not always big takeover such as Texaco getting would require huge loans from banks etc.. Yes and does this not affect the level of interest rates. Doesn't it make it more difficult for individuals to borrow. I'm reminded of the huge loans given Don't petroleum and how that borrowing still affects the Canadian American banking systems. So this sort of thing not be controlled or stopped. Well he's got a very good point there Lou. To the extent that nonproductive borrowing takes place and this is nonproductive borrowing nothing new is created as a result of this. We increase the money supply. That is to some extent inflationary and we certainly decrease the ability of

the lending institutions to lend. So I think he's got a point. But but the alternative to that is to control the private sector and that that's another story altogether. This is one of the costs of freedom. That's right. Just watch Thomas interest doc Rog I know you always want to encourage business for your competitors in the financial game. Jim and Marjorie Joyner of Raleigh North Carolina say they recently got a brochure from a bank that said as they put it that no one could get a better price for 500 a fewer shares because the price is controlled by a machine to what extent is this true the joiners ask and if so how is the opening trade handled each day. The joiners have received a brochure which is correct under a new sophisticated computer techniques orders of under 500 chairs and they all are sent to the floor of the exchange. Very very quickly the specialist is still involved. Some of the fuel brokerage is eliminated. And it's true that everybody does get virtually for exactly the same price on the mistype orders. On the

opening what the specialist does is group all the DE OT orders direct order turnaround orders and that's how the opening price is set but they're correct already because no no Oliver of Los Altos California. That's my pontificating award for the week. Last month you write a big heart disease study reported that red meat and cholesterol put people at risk. I previously noticed the growing popularity of seafood the hottest item being Japanese sushi and sashimi. Although raw fish may either require a touch of raw nerve will people continue to abandon the frying pan. Can I saturate or at least fatten my bank account. I'm a trend away from saturated fat. But I'd be on firm ground to be in the swim. But I find a new high on cholesterol reducing drugs or health foods. As you see I am fishing for investment ideas. Lou there is nothing fishy in the major point that the National Institute of Health made in their study after 10 years. That said people who have less cholesterol are going to live longer and most people want to live longer. It is difficult

though to get direct investment in that thing. But here are two ways One is the companies that make cholesterol reducing drugs and therefore those That's Dow Chemical. American hospital American Home Products Warner-Lambert and Bristol-Myers. But the amount of sales that they have in their cholesterol would do drugs is so small to the total of any one of those sales I wouldn't buy those companies for that reason. Second way to play it is with restaurants that are selling fresh nonfat and fish. And there's one restaurant chain that is particularly good at that and that's rusty Palak and I might add that fresh fish she's been selling twice as fast as hamburger for ten years. So if Mr. Oliver wants to button up his portfolio maybe stay in shape. I think I would find a better theme than the cholesterol issue. I mean it's not even funny. If you're wrong we'll get the help for you in any event if you are looking for fishy advice we will always try to put you want a California roll that might suit you to a green tea.

Carefully pick up your money questions and skillfully guide them to us here with Wall Street Week Owings Mills Maryland 2 1 1 1 7 that's Wall Street Week Owings Mills Maryland 2 1 1 1 7. Now before we meet tonight's special guest who follows what she calls select blue chips. Let's take a look at the requirements she uses in deciding if a stock can answer yes to that vital question am I blue. The first requirement for a true blue chip she says is for a stock to show at least five dividend rises in 12 years. Dividends are the driving force behind the market. My guess contends the next rule she applies is that the stock should rate an 8 in the Standard and Poor's quality ranking. Some of our stocks do occasionally raid only a B-plus she admits. But if they fall any lower they are definitely off her list. Another room I guess for hours though she doesn't always insist on this one is that the

stock should have at least 5 million shares outstanding. And she also sometimes bends her next criterion that at least in the institutional investors hold the stock. Money moves the market. My guest observes and institutions account for two thirds of the value though she adds that individuals can sometimes snatch up undervalued blue chips before the institutions make their moves back on the list of her rigid rules for qualifying as a blue chip is a history of 25 years of uninterrupted dividends. Good earnings can be fudged now and then she says but dividends are the best evidence a company is doing well. And her final criterion for select blue chip is that a company's earnings must be improved in at least seven of the last 12 years. If a stock meets these six requirements it is on my gas powered at least indisputably blue. And now let's go over me tonight special guest Geraldine Weiss.

Very welcome we're very pleased to have you with us tonight. Thank you it's a pleasure to be here. Jody Weis co-founded the newsletter investment quality friends in the whole California in 1966 and she's been meeting deadlines ever since for the last 16 years she's been editor and publisher of this stock market letter which tracks what she calls select blue chips. And she must be doing something right. In a survey of the performance of more than two hundred eighty advisory newsletters from June 1981 to January 1983 her publication grabbed the number two spot with an annual portfolio gain of 51 percent. Do you think most other analysts place less emphasis than you do on dividends and if so why. I think they overlook the importance of dividends although I think that investors do not overlook that importance. We often hear the contrary view that when a company pays out dividends of not keeping enough money to grow. How do you respond to that.

Well we use. We fight feel of the importance of dividends reflects in the growth of the company and also we use dividends to reflect value in the stock dividend growth is probably one of the most accurate measures of corporate growth. And with our service our services found the dividend yield is a very good indicator of investment value so of course dividends are very important as well. Heaven knows dividends are important to a lot of our viewers as well and many of them have discovered that a stock that pays a dividend can go up in a stock with doesn't pay dividends go down there's no good relationship between the dividend and the performance. Where are you finding your values these days. A stock that pays a dividend does have a a safety net under the price of that stock. Dividend Yield provides that safety net a declining trend and the stock will be halted by a high

dividend yield. And every stock over a period of time establishes its own profile of value where it will be stopped at undervalued by a high dividend yield and where at. Rather it undervalue and overvalue it no longer will attract investors to that stock. Well disposed to the broad we'd like to find some undervalued one. Where would we find them though. You have some names for us. Yes there are six areas in the stock market right now that are undervalued. The utility stocks now are quite undervalued. Oil stocks are undervalued. Drug stocks are undervalued. A bank industry stocks are undervalued insurance company stocks are undervalued and then there's a collection of just assorted undervalued household names. In those six and six groups I can give you a few representative names if you'd like but I would like it if you could give them to me. But it might come down. In the utility group I happen to like Middle South utilities.

I like Dayton Power and Light for that high yield and I think the devil the dividend the safe out my way were investment quality trends as published in the La Jolla. We're close to San Diego and we see good solid growth and good management in San Diego Gas and Electric about oil. I like Exxon yielding eight and a half percent. Good growth of dividends there and very little that I like Mobil Standard Oil of California which soon will change its name to Chevron and I still like Texaco. Drugs in drug of the drug group. That too is an undervalued industry group with many of those drug stocks yielding 5 percent which is a very high yield for drug stocks. And that group I like Pfizer and SmithKline Upjohn and Sterling and American Home Products banks and insurance banks I like but I like the big money center banks Bank of America Chase Manhattan. Manufacturers Hanover and there's a fly by night bank in Boston the bank a Boston that has been paying dividends for 200 years

consecutive to sedentary if you are right about about insurance. Insurance I like Aetna travelers and I like American Express also and household names and the household names I would pick Coca-Cola I like PepsiCo Colgate Palmolive. Kellogg is an excellent growth company with twenty seven consecutive years of dividend increases Winn-Dixie with 40 years of dividend increases. Procter and Gamble is a good one and one of my favorites is is Xerox which is priced below book value and yielding 7 percent at the moment. Will copy three more select blue chips for you starting with Quarterman. Thank you Lou. Gerri everybody cares about income or should I care about income. Oh but we had a discussion just a couple minutes ago on the subject of rates of return available from bonds versus stocks and there's no question that Bonds yield more. My question is on the market

generally how do you feel about yields rates of return under priced overpriced etc. stocks give you growth. The vivid in our potential for growth of dividend income the bonds don't give you the dividends that are rising. Of course give you appreciation of capital in addition to growth of dividend income. So I prefer the stocks to bonds. I'd like to dig a little deeper on utility stocks a lot of very viewers own large portfolios of them. Some of the nuclear utilities have been hit very hard. Do you think they should be sold. And of the nuclear stocks that haven't been hit. Do you think they should be held. Yes there's been a nuclear disaster in the utility market. And I think that it's been overdone and I certainly don't think they should be sold at this at this stage of the game. Even the even the ones that might be in a little danger as far as the dividends go such as Long Island lighting which is priced at about 8 right now

its book value is 19. It's selling 60 percent below book value. And even if that dividend were to be cut it's still good value. Of course I do think that all of the bad news about utilities now is such common knowledge that I wouldn't expect those prices to go down any further. Your your service is based on the actual numbers that a company reported what dividends are actually paid. Yes a whole lot of money is spent in the best of business for analysts out visiting companies trying to predict what's happening based on talks with the company present financial or what your view of all that effort to predict the future based on research. We look at performance rather than than a prediction of the future and we like to base our predictions on the past. Past performance we look at companies that have bitterly raised their dividends and we feel that companies as I mentioned I think I mentioned Winn-Dixie that's raised its dividend in each of the past 40 years. That company also is doing something right and that those are the things that we would look

at in recommending a stock not in trying to to second guess either the market or what a company might do based on what the president might say the company would do you applied to the overall market your same theory of dividend yield and if so what's the outlook for the rest of this year. Yes we do. We have established a profile of value for the Dow Jones Industrial Average as well as individual stocks and our profile of value for the Dow Jones Industrial averages 6 percent undervalue and 3 percent overvalued. However because I view this this last decline in the market or the decline since the second week in January as a correction I don't I don't believe it will carry back down to a 6 percent yield. It did carry down to a 5 percent yield which I think should stabilize the market right now. You think we've seen the low for the year. Yes I do. I believe that we'll go back up to test the the former high I think we will exceed it and we will reach a 4 percent dividend

yield on the current dividend for the Dow Jones Industrial Average would give us an objective of 4 to give it a number of fourteen hundred eight. That's a good number right. You certainly have named predominately quality stocks household names companies that have been around for a long time presumably will be around for a while. Do you think people should be 100 percent invested in them at this point. A Nobody should be 100 percent invested in any one area. We believe in diversification. However this is a particularly opportune time to be in the stock market because there were so many good values around when you asked me to name undervalued stocks among the three hundred fifty stocks that we carry in our service investment quality trends hundred and forty of forty two of them are undervalued so we have time to hear them all but we're out of time. Thanks very much for the Wise thanks to our panelists. Hope you'll be back with us again next week when we'll hear from a man who specialized in finding the baby stocks of today that sometimes become

tomorrow's Giants. My guest will be William Richter a leading analyst of emerging growth companies and I'll be asking him for his views on just how to get the stocks to do a little emerging and growing for you. While this has been Walker I'm with you guys about. Wall Street Week With Louis Rukeyser brought to you by this and other public television stations and by grants from the Hilton Hotels Corporation America's business address and its subsidiary Conrad international hotels the world's business address Prudential Bache securities where total financial planning can help the American dream happen for you and the Sperry corp. Computer based information systems for business industry government and defense.

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