The Bare Essentials

Investment strategist Douglas Coe believes no portfolio should be without oil, gold, and healthcare

At its heart, stock investing is about owning a piece of a business whose potential you believe in. While that sounds like a no-brainer, many investors have lost sight of that fundamental truth, says Douglas Coe, managing partner and chief investment strategist at Moody Reid Financial Advisors in Kansas City, Missouri. As Coe sees it, the process of picking stocks for your portfolio shouldn’t be any more complicated than buying into solid businesses. “I think about owning companies, not stocks,” says Coe.

In spite of the volatility in the financial markets over the last two years, Coe still insists that his clients invest for the long term. He frowns on one-year price targets, the financial industry’s way of estimating an investment’s value 12 months into the future. “You want to buy something and not worry about the hourly or daily price quote,” Coe says. “I look for companies that have demonstrated a solid track record of performance. You make money in these companies over time, not overnight.”

Coe is so adamant about his old-school view of investing that, one week each summer, he teaches his stock-picking philosophy to Kansas City kids at the Bulls & Bears Investment Camp for Kids, a program he created nearly 18 years ago. black enterprise talked to Coe recently to find out what investments he’d buy and hold.

How do you see the economic recovery unfolding this year, and how will it affect the markets?
I believe that we’re still on a slow road to recovery. That won’t change until the employment situation improves. We should see better economic growth numbers this year. But the most important factor is going to be the Federal Reserve’s policy—whether they continue to keep interest rates low. As far as consumers, they have to see that the job picture is turning around before they start spending again. What bodes well for the financial markets is that the president continues to inject confidence in them, and investors recognize that. You have to invest when times are challenging. More than any other leader I can remember, President Obama has done a great job of addressing that issue.

With the huge run-up in stocks from March 2009 onward, is it possible to find any undervalued, hidden gems?
Yes, there are some good plays right now that are undervalued and that provide tremendous opportunities for investors. I’m trying to find value in the market. I see it in the economic turnaround. Remember: the market is a leading indicator of future economic growth. I wouldn’t be surprised to see the market retest its all-time highs in 2010 or 2011.

Bearing in mind your very traditional approach, what specific companies do you like right now?
If someone said you could own one of the world’s largest oil companies, would you turn that down? I wouldn’t. I like oil, and specifically Exxon Mobil (XOM), still the most profitable business on the planet. Exxon has a great business model. I especially like their strong dividend, which is $1.68 per share. The dividend is your friend in 2010.

You still like oil, even with the worldwide push toward greener and cleaner energy?
Absolutely, global demand for oil is expected to increase by 20% this year. Petroleum is still one of the cheapest sources of energy we have available. Sure, we’re switching to hybrid cars, but those cars still use petroleum. On top of that, inflation is going to be a big concern. I’m seeing across the board where prices have to increase. Most of your readers will see inflation coming in basic essential items: utilities and gas prices. Oil prices have a long way to go. I think it’ll hit the $100-a-barrel mark in 2010. This is a value play. Exxon is a good fit for any properly diversified portfolio. Oil is still an essential part of life. Even if U.S. demand is teetering, global demand is going up. Oil is black gold.

Where else should investors be looking to diversify their portfolios?
If I could recommend a physical asset it would be the American Eagle Gold Coin. You can put it in your IRA. You can have it in a safe deposit box. I think it’s a good asset class for the long term. Gold is a steadily increasing asset class. If you don’t want to invest in the coins themselves, the SPDR Gold Trust ETF (GLD) is a good choice. What I like about the Gold Trust exchange-traded fund is that the trust holds physical assets in gold, unlike some other funds that track gold. Holding this kind of ETF alleviates the hassle of finding a safe place to store gold. I like gold because it has balancing qualities. In times when the market is trending lower, gold has a tendency to outperform. As I said before, I’m expecting that there will be some inflation in 2010. What’s really going to hold our value and outpace inflation? Gold. Many of my clients who are older and lived through the Great Depression have seen all this before. One of the best investments to keep one’s purchasing power intact is gold. This is especially true when there are a lot of concerns about the national debt. So, (GLD) is a great way to gain access to that asset class. It’s a commodity that is increasing in value. It’s been one of the top performing asset classes of the past five years.

So, oil and gold. These are very basic choices. Are you sticking with this theme for your next pick?
Yes. Here’s another business that isn’t going anywhere: healthcare. This nation is now about to do something meaningful to improve healthcare, and companies such as Cerner Corp. (CERN) are going to be big winners. Cerner is a well-diversified global company with a strong model for earnings going forward. This is a company of the future that provides software, devices, and networking technologies for modernizing hospitals, health clinics, and doctors’ offices. It’s taking medicine to the next level. Here’s a company that stands to benefit from the overhaul in our medical system. It’s a leader in the industry. You want to own one that’s going to be in this business. The medical community looks to Cerner to make their operations more cost-effective and efficient.

The article originally appeared in the February 2010 issue of Black Enterprise magazine.

ACROSS THE WEB
  • Kimberly L. Milbourne, IA

    I agree with the information provided about the healthcare industry, and the concept that John Rodgers shares; “….slow and steady wins the race.” We can only hope that Mr. Coe’s predictions about the oil industry are on target.

  • R. Pirtle

    i will definitely use this info for my next investment. I live in K. C. and will be contacting Mr. Coe.