going to get in the market (and hopefully they don’t cannibalize themselves). The stock is up 26% over the last year. It is truly what I consider a small-cap growth stock. When you look at risk-to-reward ratio, there’s high reward potential, but on the other hand, there is some high risk. You’re going to see stocks like that that have above-average price-to-earnings ratios relative to their industry peer group–specialty footwear retailers–including Bakers Footwear Group, Foot Locker, and Payless Shoesource. DSW’s P/E ratio is currently 26, where on the other hand Payless has a P/E ratio of 18.
You also like Verizon, which recently hit a 52-week high.
It’s buying what you know. When I look at Verizon, they have by far one of the few premier takes on the telecommunications industry. Here in eastern Massachusetts, they’re now doing Voice over Internet Protocol (VoIP) service. More of their business is concentrated in the Northeast and Southeast. It’s a very large company. And it is considered more of a value-oriented stock and has fairly low volatility.
At 4%, Verizon’s dividend yield is pretty high. Is that a factor?
I work with a lot of pre-retirees and retirees, and I’m a big believer that if you can’t get capital appreciation from the stock price, the other way of getting capital appreciation would be from the dividend income. When you look at large-cap value stocks, you’re going to buy those companies for a combination of price stability and cash income.
Sherwin-Williams is another of your picks. Won’t it be impacted by a slowdown in the housing market?
Will they be impacted by the fact that builders eventually will need less paint because the housing market’s not moving? Keep in mind, builders aren’t the only ones buying paint. Yes foreclosure rates are higher than they’ve been in the past, but my opinion is that foreclosures can be correlated to the fact that a lot of banks got greedy and lent money to borrowers who, given normal market conditions, they would have never given money to. If you look at the reality of it, we’re talking about 10% of the housing market. So 90% of the people who are borrowing money are still paying their mortgages on time.
Do you have a favorite market pundit?
I don’t necessarily do things based upon what Warren Buffett says, but one of his quotes stayed with me. The question was, ‘When is the best time to buy a stock?’ and he said, “Whenever the market is open.”
|Company (Ticker)||Price High||Price Low||52-week price range High||2007 Est. EPS||2007 P/E Ratio||Comment|
|DSW Inc. (DSW)||$38.37||$27||$45||$1.41||27.2||With shoe sales of more than $1 billion last year, profits rose 48%.|
|Sherwin-Williams Co. (SHW)||$65.99||$44||$71||$4.58||14.4||Shares of the paint maker should withstand any subprime lending woes.|
|Verizon Communications Inc. (VZ)||