Talking stocks with Peter Ricchiuti

(08/15/2008)

10:19

Kim Quillen, T-P:

Good morning and welcome to today's chat with Tulane business professor Peter Ricchiuti. Peter is online and will be answering your questions about the stock market and the outlook for local companies. Feel free to begin posting your questions now. Peter will begin answering them at 12:30 p.m.

Friday August 15, 2008 10:19 Kim Quillen, T-P

12:30

[Comment From RickyRicky: ]

Mr. Ricchiuti, Cal-Maine foods has been on a tear as of late. The short interest on CALM is at incredible high levels. It seems like the stock is undergoing a short squeeze of sorts; word is a lot of hedge fund mangers can't take the heat and have begun to cover their positions. What's your take on the stock? Are the shorts right? Would you add on to your CALM position or begin to take some of it off the table?

Friday August 15, 2008 12:30 Ricky

12:30

Peter Ricchiuti:

You're right. Cal-Maine has a huge short position. As the stock rises, these folks must be getting pretty scared. Earnings are terrific for Cal-Maine. The rumor that I keep hearing is that someone, like Cargill, might be interested in buying them. However, I have no idea if this is true. As they say, "nobody ever went broke taking a profit".

Friday August 15, 2008 12:30 Peter Ricchiuti

12:35

[Comment From Chris VChris V: ]

Can you provide any insight on the recent Amedisy allegations? I understand you are a board member. Do the company representatives have any plans to address these allegations soon. I have sold nearly half of my shares but am wondering if I made the right move or should I plan to sell the rest. Please advise.

Friday August 15, 2008 12:35 Chris V

12:35

Peter Ricchiuti:

I am a director of Amedisys, so I am limited as to what I can say. A couple of days ago, a research report (from a company I have never heard of) came out with a very negative piece implying that the company's accounting practices are suspect. They also made vague suggestions of issues regarding Medicare. I have been a director for 10 years, and think the company is very well-run. Earnings continue to grow, there is lots of potential "mom and pop" Home Healthcare Companies to purchase, and the "greying" of America leaves the company very well positioned for the future. I am a shareholder.

Friday August 15, 2008 12:35 Peter Ricchiuti

12:39

[Comment From Jack W.Jack W.: ]

Should I feel depressed about the market?

Friday August 15, 2008 12:39 Jack W.

12:40

Peter Ricchiuti:

This market has given a lot of people the Blues. I am actually quite bullish. The two things that determine the direction of the market are interest rates and corporate earnings. Both of these indicators are in great shape. What's holding us back is consumer/investor confidence. These indicators are lower than they were in the recession of 1982, but the economy is in much better shape now than it was then. Some people are staying on the sidelines until the presidential election is over. However, they should note that there has been very little difference between market performance under Democrat or Republican administrations. Actually, stocks have done a bit better under Democrats and bonds have done a bit better under Republicans.

Friday August 15, 2008 12:40 Peter Ricchiuti

12:48

[Comment From BambiBambi: ]

What are your favorite stocks among the Burkenroad companies that you follow?

Friday August 15, 2008 12:48 Bambi

12:48

[Comment From TheNicksterTheNickster: ]

Professor Ricchiuti, what stocks should be expected to do well in the current economy (other than Exxon)?

Friday August 15, 2008 12:48 TheNickster

12:48

Peter Ricchiuti:

Of the Burkenroad stocks, I am most interested in Energy Partners ( EPL) and POOL Corporation (POOL). EPL has finally got all that takeover confusion out of the way, and is focusing on finding oil and gas in the shallow gulf. These guys have an excellent record of exploration and the market has kind of forgotten about this stock.

POOL Corporation reminds me of buying "straw hats in winter". The stock has been pushed down by the housing crisis. But, this won't last forever, and as the best capitalized, best managed company in the business they will be in an even stronger position when the market does rebound. In the mean time, POOL makes a lot of money in the maintenance of existing pools, and can ride out the storm quite well.

As far as non-Burkenroad stocks, I am very interested in the growing importance of water. There are several ways to play this. I personally own shares of Mueller Water Products (MWA) and Watts Water Technologies. Both stocks have been held back byt heir connection to the housing market, but the long term picture is quite bright.

Friday August 15, 2008 12:48 Peter Ricchiuti

12:51

[Comment From CajunCajun: ]

What's going on with the Shaw Group's shares? They were down a lot yesterday.

Friday August 15, 2008 12:51 Cajun

12:51

Peter Ricchiuti:

Shaw group has become a very complicated company. They are in a number of different businesses and when the conmpany reports earnings, it usually takes a while for analysts to digest it all. The bottom line is that Shaw is an undisputed leader in Power. Not only is there a tremendous need for power generation in the US, but the international market is huge. In a developing nation, nothing really gets started until you have somewhere to plug in the toaster. Little by little, Shaw has become the big dog in nuclear power generation. They should really benefit as the price of competing furls such as oil and coal are getting more expensive.

Friday August 15, 2008 12:51 Peter Ricchiuti

12:56

[Comment From OoblickOoblick: ]

Do You Think Entertainment stocks, like Cable TV would be good investments, given the high price of gasoline?

Friday August 15, 2008 12:56 Ooblick

12:56

Peter Ricchiuti:

I think this is a question that can be answered by young people. One of my former students is a Wall Street analyst for Video Gaming and the growth numbers he shows me are nothing short of spectacular. There is so much competition for viewers in the traditional media outlets The other extreme on this story would be newspapers. Many of these stocks are selling at or near their book value, and investors are treating them like they're going out of business. I think this is overdone and have recently bought stock in the New York Times (NYT). Eventually, I believe, people will pay up for good content.

Friday August 15, 2008 12:56 Peter Ricchiuti

12:58

[Comment From JimJim: ]

I am looking for a financial advisor, are there any qualifications that I should be looking for? Does he/she need any MBA?

Friday August 15, 2008 12:58 Jim

12:58

Peter Ricchiuti:

I like to see that a financial advisor has secured their CFP (Certified Financial Planner) designation. You really need to interview a few people and see where the best fit is. My rule of thumb is to stay away from those who are promising too high of returns.

Friday August 15, 2008 12:58 Peter Ricchiuti

1:02

[Comment From Guy JohnsonGuy Johnson: ]

The Burkenroad conference introduced me to Amerisafe - a company located in Deridder, LA, specializing in workers comp insurance products for hazardous industries. Management of Amerisafe was incredible - they seen razor focused on disciplined underwriting, holding costs to a minimum, and prompt & personal claims followup. In addition, their capital structure is improving and there's a possibility of a buyout down the road. What's not to like - except that an employment slowdown or recession will hurt near-term results? Is this company as good as it seems?

Friday August 15, 2008 1:02 Guy Johnson

1:02

Peter Ricchiuti:

Amerisafe is a new company for us. They have certainly found an interesting and profitable niche. The students and I have visited management in Deridder last spring, and we were very impressed at how well-managed the company was. They simply insure those occupations which are somewhat avoided by major insurance carriers. Because this is their only market, they know the inherent risks of each occupation incredibly well. The stock has nearly no coverage. It's these kinds of "stocks under rocks" that often produce superior returns. Keep in mind, all insurance companies are tied to the performance of the financial markets. Investment of Premiums is a big determinate of the success of any insurance company.

Friday August 15, 2008 1:02 Peter Ricchiuti

1:08

[Comment From TheNicksterTheNickster: ]

Can you say a little more about "the growing importance of water"?

Friday August 15, 2008 1:08 TheNickster

1:08

Peter Ricchiuti:

We all take clean water for granted, but as the world grows, the need for this commodity is soaring. Changing weather conditions seem to be exxagerating this. Last summer, Atlanta had to begin buying water from Florida. There are several ways to play this, but I have focused on the companies who produce the infrastructure for water-efficiency. Mueller, for example, makes municipal pipes, fire hydrants, and valves. New Orleans is a particularly good example here as many people believe that more than 50% of the city's water leaks out of our old pipes before it ever makes it to the faucet. This is the situation in many older American cities.

Friday August 15, 2008 1:08 Peter Ricchiuti

1:15

[Comment From RickyRicky: ]

Thanks for your comment on CALM. I'm a former Burkenroad Alumnus working for FINRA in New York. Do you believe Lamar's best days are behind it. It was a great performer a couple of years ago, but has been a consistent downtrend.

Friday August 15, 2008 1:15 Ricky

1:15

Peter Ricchiuti:

I think the performance of Lamar is a great leading economic indicator. Months before the current economic downturn, we began to see weakness in their stock. Keep your eye on LAMR. This should be your first indication that the economy is beginning to gain traction. They are a very well run operation and have been smart to focus their efforts on mid to small sized markets. One way you can tell how Lamar is doing in a particular market is to check the Billboards! If you see a billboard with an ad for Lamar Advertizing, you know that's a board they have not been able to sell to a customer. I am also impressed with their growing number of electronic billboards. This can be a very profitable operation for the company.

Friday August 15, 2008 1:15 Peter Ricchiuti

1:19

[Comment From ChrisChris: ]

What do you think of financials right now? Do you think now is a good time to invest for the long term? And are there any local financial firms that you follow that are oversold or you might recommend?

Friday August 15, 2008 1:19 Chris

1:19

Peter Ricchiuti:

This has been a wild time for financials. In the last month, I have received phone calls from people asking whether their deposits are safe in local banks and other calls asking if now's the time to be buying stock in these banks. It might seem scary, but bank stocks have been good places to invest at this stage of the economic cycle. They tend to benefit from these lower interest rates, and now the yield curve is finally going their way. There is about a 2% difference between the yields on 3-month secutities and 10-year treasury notes. This is a good environment to lend in. Additionally, many of the regional banks are selling at or near their book-values. Since everyone hates bank stocks, it makes me think that now's a good time to own them. When I was a young man, an older guy once told me "If a majority of the people were right, a majority of the people would be rich." And they're not.

Friday August 15, 2008 1:19 Peter Ricchiuti

1:22

[Comment From RickyRicky: ]

Do you see any organic growth for AMED or will it continue to be growth through acquisitions?

Friday August 15, 2008 1:22 Ricky

1:22

Peter Ricchiuti:

Amedisys has pleased analysts by producing both Acquisition-based growth and Organic growth, one of the exciting parts of the company involves startup operations. These require limited capital, and have produced very attractive internal rates of return. On the acquision front, Home Healthcare remains a very fragmented business with hundreds of operators.

Friday August 15, 2008 1:22 Peter Ricchiuti

1:25

[Comment From JAKE1JAKE1: ]

With the recent natural gas finds in the Shreveport area. How do you see stocks such as Petrohawk and Chesapeke. I reading where many of the small natural gas companies in the area are complaining that the leases being paid are too high and they can't compete. Do you think the big boys such as Shell and BP will become involved

Friday August 15, 2008 1:25 JAKE1

1:25

Peter Ricchiuti:

Chesapeake is a very aggressive company and has secured a lot of acreage in this area. If reserve projections are true, you will have to see the big integrated players get into that area eventually. It might be through land acquisition or perhaps through acquiring another company. Another player in this area is a company we have followed for years called Goodrich Petroleum (GDP).

Friday August 15, 2008 1:25 Peter Ricchiuti

1:28

[Comment From Steve09Steve09: ]

Hey Professor Ricchiuti, I'm going to be one of your students in a couple weeks. Which of the Burkenroad energy companies do you think will fare the best if we see a continued drop in oil prices?

Friday August 15, 2008 1:28 Steve09

1:28

[Comment From Guy JGuy J: ]

Our area has a lot of oil service companies - what's your take on this area of the energy industry?

Friday August 15, 2008 1:28 Guy J

1:28

Peter Ricchiuti:

The energy service stocks have taken a real beating in the last few weeks. I think this is overdone. Oil companies were not basing their budgets on $150 oil. The recent slide in crude shouldn't have much of an effect on drilling activity, and these service companies should continue to produce excellent earnings for the next few quarters. Additionally, these companies are brimming with cash, and I would be surprised if we didn't see some consolidation in the service industry.

Friday August 15, 2008 1:28 Peter Ricchiuti

1:32

Kim Quillen, T-P:

Thank you for participating in this online chat with Tulane business professor Peter Ricchiuti. And special thanks to Peter's son, Matthew, who has been with us and helping us manage this chat. Plan to join us on Monday at noon when personal finance columnist John Gin will be chatting about investing and planning for real estate.

Friday August 15, 2008 1:32 Kim Quillen, T-P

1:33