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ArgusVision®: Eyes on the Global Economy (held on November 5, 2007)
Approximately 150 investment professionals attended the second annual ArgusVision® conference on November 5, 2007. The day-long conference,
ArgusVision®: Eyes on the Global Economy, was held at the University Club in New York City.
The Argus Research Investment Policy Committee started the day with its top-down view of the economy and the stock market. Director of Economic Research Richard Yamarone argued that the U.S. will likely stay out of a recession as long as the employment environment stays tight. Currently, the unemployment rate is 4.6%. Rich noted that the growth of emerging economies has been beneficial for labor costs, as tens of millions of workers from India and China are now entering the global economy. U.S. workers must adapt, he noted, and they are: the manufacturing sector now accounts for just 10% of U.S. jobs, down from 30% in the late 1950s. Meanwhile, professional jobs now account for 13% of total jobs, up from 6.5%.
Director of Market Strategy David Ritter also focused on the low unemployment rate as a factor in his cautious outlook for 2008. David runs the Argus S&P 500 earnings and valuation model. Looking into next year, David forecasts that the S&P 500 will trade between 1400 and 1650, but may well end the year closer to 1550. David's forecast thus implies another below-trend year for stock market returns. The key to the outlook is an expected decline in the corporate profit growth rate, from 10% as late as 1Q07 to 5%-6% in 2008. The problem here: margins have essentially risen to cyclical highs, and expected high labor costs may pressure profits in the near term.
The companies that presented at the conference had much to say about the global aspects of their business. For example, the COO of recreational vehicle maker Thor Industries (NYSE: THO: BUY), Richard Riegel, discussed his company's use of global suppliers as a means of keeping costs low, and CFO Ira J. Lamel of Hain Celestial Group Inc. (NGS: HAIN: BUY) noted that 25% of its organic and natural sales come from overseas markets. Michael V. Pappagallo, CFO of Kimco Realty Corp. (NYSE: KIM: BUY), discussed the retail REIT's strategy of divesting less profitable mall properties in the Rust Belt states of Michigan, Ohio and Indiana, and targeting new opportunities in Mexico, Chile and Brazil. In a twist, the CEO of Hecla Mining Co. (NYSE: HL: BUY), Phillips S. Baker Jr., commented that the government of Venezuela is actually working closely with Hecla on the development of a local silver mine. Hecla has evidently convinced President Hugo Chavez that its investment in the country will lead to more jobs. Other corporate presenters at ArgusVision® included President and CEO Daniel R. Coker of Amerigon Inc. (NGM: ARGN: BUY), a small-cap company that manufactures thermoelectric devices for car seats; and Travis Campbell, vice president of finance and investor relations for Williams Cos. (NYSE: WMB: BUY).
Two groups of Argus Analysts also presented. Senior Analysts Martha Freitag, CFA, and David Toung discussed healthcare costs in a panel entitled "How to Hedge Rising Healthcare Costs." David talked about the increasing importance of pharmacy benefits managers, including Medco Inc. (NYSE: MHS: BUY), and commented favorably on the balance struck by insurance company Aetna Inc. (NYSE: AET: BUY) as it manages healthcare costs and works to increase new enrollees. Martha noted that investors are seeing opportunities in companies focused on generic drugs, which now account for 50% of total prescriptions. Barr Pharmaceuticals (NYSE: BRL: BUY), with its recent acquisition of Eastern European drugmaker Pliva Inc., is her top generics call. In addition, companies innovating with new products, particularly in the area of auto-immune diseases, look well positioned. Her top picks here are Genzyme (NGS: GENZ: BUY) and Abbott Labs (NYSE: ABT: BUY).
The final panel of the day -- "Will Oil Hit the $100 Mark?" -- contained the most fireworks. Director of Economic Research Rich Yamarone moderated the panel, which included including Senior Analysts Philip Weiss, CFA; Gary Hovis; and Kevin Calabrese. The panel reviewed factors behind the rise of oil, including basic supply and demand, the falling dollar, hedge fund speculation, and international and domestic political developments. There was much debate and little agreement, but as the buzzer sounded to end the discussion, Rich Yamarone suggested that oil prices could surge as high as $115 per barrel in the near term, but would then drop back to lower levels -- in the $75 range - over the next few months.
In addition to the oil panel, another highlight of the day was the keynote address by Jim Rogers, hedge fund legend and global traveler. Jim sounded warning bells about domestic stocks as well as the dollar. He stressed that the assets of his four-year-old daughter are stashed in a Swiss bank, and are generally invested in hard assets such as commodities. He believes that the current bull market for commodities has another 7 to 12 years to run. Jim Rogers' comments may have been controversial, and may even prove to be wrong. At a minimum, though, they spurred the lunchtime crowd into some deep thinking and questioning. That was a main goal for all attendees of ArgusVision®: Eyes on the Global Economy.
To view the Agenda for ArgusVision®: Eyes on the Global Economy, please click here.
To view photos from ArgusVision®: Eyes on the Global Economy, please click here.
To view a list of representative attendees of ArgusVision®: Eyes on the Global Economy, please click here.
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