This profile by Allan Sloan (HT: RealClearMarkets.com) of Joe Rosenberg, the chief investment strategist for Loews, is a very good read:
Rather than messing with commodities and currencies, which, he says, “aren’t games an individual investor should get involved in,” he suggested that I buy stocks of some large-capitalization U.S. multinational companies. Specifically, companies that meet his criteria of being financially sound, showing rising profits and selling inexpensively relative to profits and free cash flow. (Free cash flow, for those who skipped Finance 101, consists of profits plus noncash items less capital expenditures.)
Large-cap stocks have been out of favor relative to small- and medium-cap stocks, which as a class have been trading at near-record levels. Someday that will change. Buying stocks that make the screen isn’t a one-size-fits-all answer to investment questions — nothing is. But it’s a helpful way of thinking for us nonprofessionals. Rosenberg uses free-cash-flow yield to compare bonds with stocks. For example, a five-year Treasury security currently yields a paltry 1.8 percent, while Microsoft, Cisco, IBM and Kohl’s had free-cash yields of 13.4 percent, 12.9 percent, 6.6 percent and 6 percent, respectively, when the list was run.
“This doesn’t mean that you should go out tomorrow and sell all your bonds and buy stocks,” Rosenberg says, because markets can take years to turn, and some stocks on his list won’t do well. One reason Microsoft and Cisco make the list is that questions about their strategies have held down their prices. But it’s hard to believe stocks such as these four won’t return more than 1.8 percent annually over five years.
Oh, and youve got to love this bit about the US dollar's decline:
He attributes much of the decline to the Federal Reserve trying to boost exports and reduce imports by cheapening the dollar. “Germany has a strong currency and is doing very well in manufacturing,” he says. “If a weak currency made you competitive, Zimbabwe would be a manufacturing powerhouse.”
Jim Grant penned a wonderful piece on Joe Rosenberg that was reprinted in Minding Mister Market:: Ten Years on Wall Street with Grant's Interest Rate Observer. Though written a good while ago, it's something I find myself re-reading from time to time for inspiration.