Monday, March 29, 2010

Finney of Evermay still sees stocks on sale

We once again visited with Kizziah Finney of Evermay Securities, this time for a lengthy breakfast at Balthazar on Spring Street. His traditional English breakfast, although he prefers to call it Irish, and my raisin Danish vanished quickly and then we began to talk about today's market. He is again upbeat, more so than when the market was lower a few months ago.

"The U.S. equity market has an 'on sale' on it, as in like it's in foreclosure. My God man, the dollar is 12% stronger than a month ago, corporate earnings are still coming through fine, and you've got what, less than 4% on the ten year, around 2% on the two year in this impossibly positive yield curve for financing, what could not be right for discounting free cash flow back into stock prices for U.S. firms. The market is still so friggin' timid that it will only extend the discounting period for maybe three years and if a company really has its market share down, really down, then that's too short. A friend of mine is traveling around the world on some boat, God bless him, and no matter where he goes it's U.S. products advertised everywhere and just like in the old days, pre-Soviet collapse, U.S. products still have some cachet in the developing world. Go figure, I'm proud to have my Colgate toothpaste. You got it, that's the thing. The risk/reward on these stocks is still like betting on Secretariat, God bless that horse who I saw from the infield at the Kentucky Derby, a highlight of my Irish life."

We asked Finney about the current market, as in right now, given its substantial run-up. He was unflappable. "Of course you ninny, the market could correct anytime, that's what a market is, if it went straight up it would go straight down, so you want it to jiggle around a bit, who cares if you write this interview up and it goes down tomorrow. Let it go and just try to pick the right chance to buy again. Look up the street, one over, on Broadway and there's Uniglo, the Japanese H&M, and think of a sign out front that said, 'everything at the price it cost us to make this stuff in Mauritius or wherever in Asia', so that means its 80% off. That's almost the kind of discount we're seeing in the U.S. stock market for companies big and small with, importantly as in very importantly, decent balance sheets over a five year period. Any dead stock with a brand and a balance sheet is golden now."

Another round of coffee and for the ebulliant and apparantly gourmand, a crossiant with butter and jam please, Finney allowed a follow up question as to what he is talking about in what many call an overbought market. For example, we mentioned to Finney the quote in the NYT today from a market strategist saying "the market is as overvalued now as it was undervalued a year ago". Finney responded. "Yeah I saw that. It was the analyst from Gluskin Sheff. Who the f**k has ever heard of Gluskin whatever. The Yorker Times takes its quotes from any street corner bloke on Bowery if it fits their agenda, which is only to complain. The overall market will take two steps forward one step back, for the near term, but bargains galore remain below the surface. You like X-sports or whatever they're called, or surfing, or that whole idea that even I can wear on summer weekends, it's called Quiksilver as a stock, was selling as low as $2 in early January and now is at around $4.80 here in late March. Somebody made a huge gain, as in this is somebody here. This kind of stuff is everywhere if you can find it, hard to find but lucrative if you can because the big securities firms no longer hire enough people to even begin to cover the little stuff. Believe it or not some of the government required, post Spitzer destruction of the equity research function, research is outsourced to India and they are just guys and gals crunching numbers in front of computer screens with no idea about the soul of a company. Peter Lynch must be amazed, well in fact he is beyond commenting, this is not research."

This led to a search for forward looking stock tips but Finney would only say that he knew one when he saw it and if he saw it he moved immediately and that's that. He might be right or wrong, but in this market he obviously feels comfortable, now ordering a poached egg on toast with truffle butter. Fearing that he might eventually just have a heart attack at the table I hastened to end the interview despite his formidable insight. Asking the question "is there anything that you would like to add to this valuable interview?" he answered, "Stay slow, stay low, but keep buying, that's the formula for now, and how's the chipped beef?"


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