Morgan Stanley leads list of best stocks to buy now

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

The single stock that David G. Dietze likes the most now is: Morgan Stanley. In fact, he’s bullish about a whole bunch of financial stocks – and bullish about stocks in general.

Dietze, a CFA, CFP, and lawyer who runs Point View Financial in Summit, a fee-only financial company, pointed out various reasons for optimism about the stock market in a talk last week in Ridgewood.

Stocks look attractive compared to the alternatives – especially fixed-income investments, he maintained. And corporate profits are up.

If interest rates suddenly spike up, existing bonds may be taken to the cleaners: “You may see a horrible bear market in bonds.”

Corporate officers and directors are buying stocks heavily – especially people working for financial companies. “And there’s only one reason why they buy: To make money.”

Oil prices have dropped 30% — and “what people don’t spend at gas stations they tend to spend at malls.”

Mortgage rates are low and have dropped – and there are signs of new house-buying activity in Florida and New York.

The average stock’s price-earnings ratio was a low 12.3 (before the drop on Friday). Since 1954, the market’s average p-e has been 16.

The earnings yield (inverse of the price-earnings ratio) on the S&P 500 is 6% above the yield on 10-year Treasuries — when it’s usually 2 or 3%.

Since April, stock prices are down 18% — indicating that they may be cheap now.

As for Standard & Poor’s downgrade of U.S. obligations, Dietze noted that long-dated Treasuries have appreciated 9% since then. “No one seems to agree with S&P.”

So, which stocks might you buy? Those in sectors that have fallen the most, Dietze advised. Besides Morgan Stanley, he likes Bank of New York and JP Morgan and Wells Fargo. They’re solid companies, he argued, paying high dividends.

Other stocks he likes: Travelers, BP, Total (a French company), Royal Dutch.

Dietze is also fond of technology stocks, especially Hewlett Packard, Intel, Microsoft, and Alcatel.

One “story stock” he mentioned: St. Joe, the Florida landowner that Bruce Berkowitz of the Fairholme Fund favors but that a short-seller, David Einhorn, is skeptical about. Florida is one of the cheapest places go do business, Dietze said, “and I don’t think Florida real estate is going to stay down forever.”

Among the advice he gave:

Be cautious about extrapolating from the past. What worked then might not work now.

Recognize the need to diversify.

The time to consider reducing your exposure to stocks is during a bull market; during a down market, consider buying.

Buying high-quality companies that pay generous dividends sometimes isn’t rewarding: “It’s a clue, not a litmus test.”

Buying investments when they are out of favor can be richly rewarding. You would have profited mightily if you had bought stocks in November 2008, “but no one was even picking up the phone then.”

But don’t buy and hold forever. “Even the stocks of good blue chips don’t go up in a straight line. Volatility is part of the game.”

Dietze quoted Warren Buffett with approval. Asked recently why he was buying stocks like Bank of America, Buffett replied: “I like to buy stocks when they’re on sale.

Dietze has been cited in various such periodicals as The Wall Street Journal, The New York Times, LA Times, Forbes, U.S. News and World Report, and NewJerseyNewsroom.com.

Born in 1956, he graduated Phi Beta Kappa, magna cum laude, and with honors in his major, economics, from Dartmouth College in 1978. There, he was a Rufus Choate Scholar and received five citations in English, Latin, and Greek. He studied Spanish in Granada, Spain. He pursued graduate studies at Yale University in 1978 and 1979.

Dietze, who lives in Summit with his wife, son and daughter, received his law degree from The Law School at The University of Chicago in 1982.

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