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Big caps look attractive
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August 27, 1998: 12:17 p.m. ET
David Beard sees opportunity in large caps, but advises not to bet the farm
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NEW YORK (CNNfn) - The bears are out in force, or so it seems from the more than 2 percent drop in early trade on the Dow Thursday. But as in most down markets, not all is grim for the long-term investor, who may be presented with good buying opportunities.
So says Morgens Waterfall Vintiadis portfolio manager David Beard, who joined CNNfn's "Before Hours" to discuss the prospects for today's trading on Wall Street and in the future.
DEBORAH MARCHINI, CNNfn: What do you expect to see (today)?
DAVID BEARD, Morgens Waterfall Vintiadis: I do think, relative to the large averages -- you know, the S&P 500 and the Dow -- there is rampant pessimism in the market. There's a lot of put buying, which, if you believe the U.S. is not going into recession next year, I think that it's probably a pretty attractive place to put money into the larger cap stocks.
In terms of smaller cap stocks, we're three months into a bear market. When you're in a bear market, stocks go down for no reason. They're still going down for no reason. We probably have a couple more months before you step in, but you can find some great values where stocks are cheap in terms of trading -- at 10-times free cash flow and much higher yield than the bond.
MARCHINI: You say stocks are going down for no reason. Is that really what's going on? You don't feel that the financial crisis in Russia should be having an impact in terms of accelerating the selling that we've seen recently on Wall Street?
BEARD: Well, when I said "going down for no reason," I meant some of the small-cap stocks, which are cheap and they have solid earnings. And this isn't true with all small caps, but a lot of ones that we invest in are still going down -- really because people see the stocks going down and don't want to step up and buy at this point. And that's a classic sign of a bear market in smaller cap stocks, which we're in, and it may continue for a couple more months. But, you know, six months on Wall Street is forever, but six months for these companies -- if their business is still in good shape -- nothing really changes.
MARCHINI: And six months for a long-term investor thinking about retirement 10, 20, 30 years hence is nothing.
BEARD: Yes, yes. I do think for the large-cap stocks … this may be … one of the better buying opportunities, because we'll get a sharp sell-off -- maybe another day of that -- but I think there's so much pessimism, that's probably where I should be looking to put money.
MARCHINI: The correction may, in fact, be over. If you were going to plow money into this market right now, pretty clearly, you'd put it into the large-cap stocks. But what sectors do you like the best?
BEARD: I think we're going to have to look at some of the technology names because they have been beaten down a lot. One of our favorite names for now is Micron (MU). It's a stock that's probably forgotten by most people because it's been in a three-year bear market itself. Prices are rising. The Asian crisis is affecting supply in terms of these companies not being able to buy equipment to produce supply, whereas Micron is able to. And also, this company now is the largest market-share producer.
MARCHINI: The tech company everybody loves is Dell (DELL), which has continued to go up despite a declining market in almost everything else. What do you think?
BEARD: Well, I think Dell in the short term is in a period of euphoria. It can do nothing wrong. I wouldn't put new money in Dell right now. If you have it, you probably could hold the stock because their business is doing fine. But this will correct on some psychology: 'Hey, it's gone up too far, too fast; let me sell it.' It can sell off 10 or 15 points. Then you probably could buy Dell at that point. Some of the other old-tech names -- IBM (IBM), its business is doing very well; and even Intel (INTC), though it's pretty controversial relative to what's happening at the low end of the market, their business is starting to get better. That stock could be worth closer to 100.
MARCHINI: What share of one's portfolio should one feel comfortable having in equities right now?
BEARD: I think it depends on your time horizon. You know, we look at valuing our companies over three to five years, but really, we have to invest over a three- to six-month time horizon. You know, if you weren't in stocks right now, you may want to put a third to work in the larger caps; save another third for the smaller caps in three months. You probably shouldn't -- depending on your time horizon, your volatility -- you probably shouldn't have more than 60 percent of your money in stocks. You know, right now, we're about 60 percent long, 40 percent in cash, and about 30 percent short. So, that's probably the biggest indication of how I would put money. …
MARCHINI: Clearly, a good time to buy stocks, but don't bet the farm.
BEARD: Exactly. 
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