Ripe For A Recovery

F. Douglass Lewis Jr. of FDL Financial Services looks to forecast trends that will lead the economic rebound

F. Douglass Lewis Jr., president of Washington, D.C.-based FDL Financial Services, is focused on U.S. companies that are breaking trends and making sound decisions in the face of international unrest and a global economic downturn. Lewis has spent 14 years selecting stocks, bonds, Treasuries, and options, as well as giving clients advice on related financial products. Now his firm manages more than $22 million for institutional and high net worth clients. He describes himself as a “value investor who looks for low-priced stocks that have good earnings and are increasing their market share,” and he firmly believes in focusing on companies that are ripe for growth once the economy begins to pick up steam.

“I look at different criteria, for example, earnings growth, the debt of a company, the management team,” he says. “One thing that is often overlooked is whether the company has a catalyst that will drive earnings. You need to look at what will make the stock increase in value.”

Lewis says President George W. Bush’s plan to stop the payment of taxes on dividends will be a catalyst for the Altria Group Inc. (NYSE: MO) and its cigarette manufacturing unit Philip Morris U.S.A. He believes Philip Morris’ dividend yield of about 7% is one of the highest you can find on the New York Stock Exchange or the Standard & Poor’s 500 index. Anti-smoking litigation notwithstanding, Lewis says the company should realize earnings growth of 10% to 12%, primarily because of strong tobacco sales internationally and on the strength of its Kraft Foods Inc. subsidiary. Another encouraging sign is that the company has a vigorous stock buyback program. Last year, the company bought back $10 billion worth of shares and they intend to buyback another $3 billion this year.

Lewis says there are several factors that can provide a catalyst for Microsoft Corp. (Nasdaq: MSFT) to improve its stock price in the coming months. “Microsoft is one of the few companies that has no debt, while having $43 billion in cash,” Lewis says. The company has suffered from the slowdown in technology spending that has virtually cut its stock price in half. However, Lewis is confident Microsoft will maintain its 90% share of the computer operating systems market, and that its other popular products — Xbox and MSN online — will help boost its stock value.

With the increasing use of credit and debit cards, Lewis is betting that First Data Corp. (NYSE: FDC), which provides payment, merchant, and card-issuing services as well as high-volume information processing for Western Union and other financial institutions, will surge. “There are a lot of transactions that go through First Data. It’s a huge market that will grow as the company expands into India and China,” he says. “They are expecting a 15% growth rate over the next 12 months.”

And finally, Lewis is high on motorcycle manufacturer Harley-Davidson Inc. (NYSE: HDI), which has a very strong demand for its products. “They are a fantastic company with a very strong brand name and they are one

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