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Isaac H. Green says there are changes going on in the stock market. After all, every phase of life has its season; the ups and downs of company shares suggest that they do too.
Green, who handles $160 million in institutional money as president and CEO of his Durham, North Carolina firm, Piedmont Investment Advisors L.L.C., knows the patterns well. He has worked 16 years in the money management business, most recently at big institutional manager, Loomis Sayles, where he supervised 25 portfolio managers who oversaw some $10 billion in assets. Now, thanks to two African American financial institutions — North Carolina Mutual Life Insurance Company (No. 1 on the BE INSURANCE list with $209.9 million in assets) and Mutual Community Savings Bank, both in Durham, he set up shop in August 2000. The two companies not only provided seed money, but also control a one-third stake in Green’s brainchild.
Presently, Green thinks stocks are now cheap since the bear market pounced on shares in 2000 and 2001. “Valuations have come down and I’m more comfortable with stock prices in relation to 2002 and 2003 earnings than I’ve been for some time,” says Green. “Besides that, economic fundamentals have bottomed as has earnings growth. During the rest of the year, we’ll see that company earnings reports will seem quite strong compared to the numbers released last year.”
Those predictions point to a recovery. Green says he’s looking at cyclical companies, outfits whose profits and stock prices take a big hit when the economy is headed downward, but tend to regain ground when things are going better. He likes Providian Financial (NYSE: PVN), a credit card company that targets borrowers with spotty credit histories. Providian took a hit and tumbled from $60 a share in 2001 to below $10 when the market worried about bankruptcies and defaults. Now that borrowers are on surer footing, he thinks Providian should rise.
He also expects a stronger economy to loosen spenders’ purse strings and bolster consumer-related stocks like Clear Channel (NYSE: CCU). Since the company operates radio stations across the country and owns billboards and outdoor advertising space nationwide, it should benefit from firms spending more to promote their products once business activity picks up.
A recovery should also see a marked boost in capital spending, or the amount businesses and the government put into big equipment purchases. Green likes United Technologies (NYSE: UTX) for just that reason. For one, the current war effort is a boon to United Tech’s helicopter and jet engine manufacturing business. The company also makes air conditioning units and elevators, two other key capital goods.
Green expects the government will ease up on court battles over tobacco products, which should aid Philip Morris (NYSE: MO). “There’s less litigation risk right now, so the pressures on a Philip Morris are bound to ease,” he reasons.
Finally, Green thinks a rebound is certain to spur company spending on technology. He sees Oracle (Nasdaq: ORCL), a leading maker of databases and corporate software, as a beneficiary of a spending