Streetwise for Sunday Oct. 11, 2009

Streetwise

Lauren Rudd

Sunday, October 11, 2009

Beware of Those Who Forecast

“Persons pretending to forecast the future shall be considered disorderly under subdivision 3, section 901 of the criminal code and liable to a fine of $250 and/or six months in prison.”

                                                                                                                                                                      Section 889

                                                                                                                                                                      New York State

                                                                                                                                                                      Code of Criminal Procedure

“This market is frightening. Do you have any advice?” Oh, to be a soothsayer of such repute so as to know all the answers. Unfortunately, with the passing of Madame Marie, who is memorialized in the words of the Bruce Springsteen song, “4th of July, Asbury Park (Sandy)” and was actually arrested at one time under the above statute, I am completely out of crystal balls.

Nonetheless, there are countless prognosticators willing to offer up unsolicited opinions, many of which require a cash donation on your part. They run the gamut from the biased and mundane to such nonsensical advice as, “sell all your stocks.” The result is a deafening din of ridiculous discourse.

Moreover, all the rhetoric in the world is not going to help your portfolio. What you need is a modicum of cool rationale combined with a measure of forward thinking. Yet, if you are like many investors you feel that Wall Street has shredded your life, your livelihood and burdened future generations with a crushing debt.

Not to downplay the gravity of the current situation, the good news is that we no longer face an economic calamity similar to the Great Depression. Furthermore, the possibility of a follow-on economic retrenchment also appears moot. However, the speed of ongoing economic recovery is almost imperceptible, analogous somewhat to a train’s locomotive.

The initial motion of a locomotive is also nearly indiscernible. But then it begins to slowly pick up speed, its wheels sometimes aided by sand to prevent slippage. And in short order it gains traction and reaches undaunted speed despite pulling a mammoth load.

Yes, the economy will continue to improve and is capable of pulling its temporarily increased debt load. Unfortunately, any decline in unemployment is tied to the speed with which the economy gains sufficient traction from the stimulus programs that enable it to pull ahead on its own accord. Nonetheless, when unemployment does begin to fall it will act as a self-perpetuating stimulus to the economy.

None of which negates the fact that you still have to deal with the current investment environment. Therefore, begin by ignoring the perturbations roiling the financial markets and do not let the reactions of others drive your investment strategy.

Many quality companies are continuing to do business as usual and are retaining their status quo with regard to dividends. Nonetheless, whenever there is a disruption from the norm, Wall Street can be counted on to throw the baby out with the bath water, providing you with investment opportunities.

A good example is Varian Medical Systems (VAR), a company that manufacturers cancer therapy systems. Last August the company reported fiscal third-quarter earnings increased 15 percent to $85.4 million, or 61 cents per share, partially due to better cost controls. Revenues for the same period increased to $509.8 million from $507.4 million.

In its guidance for the remaining portion of its 2009 fiscal year, the company stated that it expected to see revenues from continuing operations grow by approximately 4 to 5 percent, with earnings from continuing operations estimated at between $2.60 and $2.65 per share. The company is also a favorite of many large financial institutions and will likely outperform the market over the next six to twelve months.