Air of Caution Pervades Money Managers’ Meeting
The warning flags were flying Monday at Montgomery Securities’ 17th annual conference for institutional investors at the swanky but sweltering Mark Hopkins Hotel here.
Despite--or perhaps because of--the heady gains in stock prices since last year’s conference, the predominant sentiment among the 750 money managers who have gathered here for the four-day affair this week was one of extreme caution.
“The only thing I’d like to buy,” said Bank of California analyst John Brown as Monday’s 102-degree weather overwhelmed the Mark Hopkins’ air-conditioning, “is a fan.”
That sentiment was borne out Tuesday, when the closely followed Dow Jones industrial average plunged 91.55 points in its largest one-day drop in history.
“With prices this high, there is a sense that the market will be less forgiving,” said Clifford H. Krauss, a vice president of Eaton Vance Management in Boston.
On Tuesday, jittery pin-striped money managers lined up five and six deep at the two Quotron machines in the lobby of the Mark Hopkins Hotel as the market plummeted.
Some abandoned the sessions for telephones, while others clustered around a board showing the stock price performance of companies that had made presentations at the meeting. Few of the multipoint gains that have characterized past Montgomery Securities gatherings were in evidence.
Judge Words, Convictions
The conference is designed to provide Montgomery’s brokerage clients with a smorgasbord of investment ideas--and to bolster Montgomery’s reputation as one of the savviest and most influential brokerage firms outside of New York.
Before the gathering draws to a close on Thursday, representatives from 107 publicly traded and 37 privately held companies will have made presentations to investment professionals who control more than $800 billion in capital.
“I think that getting together with investors like this is critically important,” said C. Joseph La Bonte, president and chief operating officer of Reebok International, the footwear and apparel company.
“This gives us an opportunity to talk directly with investors, who can then judge both our words and the strength of our convictions.” LaBonte used his 35 minutes on Monday to play down worries about Reebok’s shoe-supply network in Korea and to play up the company’s fast-growing line of Rockport walking shoes.
“We’re running a marathon, not a hundred-yard dash,” LaBonte said in announcing a disappointing 2.4% gain in third-quarter net income. (Reebok’s stock fell 62.5 cents a share on the news Monday and an additional 75 cents Tuesday, closing at $17.25 on the New York Stock Exchange.)
Other companies making pitches included such corporate giants as IBM, Digital Equipment, Philip Morris, Chrysler and Pepsico and smaller firms like Xicor, Xyvision and Intellicorp.
Paul R. Low, president of IBM’s general products division, had the tightest lips of any presenter, repeatedly declining to answer questions or to discuss financial results.
“Only IBM could get away with that,” groused New Jersey investment banker William Thompson, while another attendee complained that Big Blue’s presentation was “worthless.”
Philip Morris Chairman and Chief Executive Hamish Maxwell was bullish about its General Foods unit and overseas sales of Marlboro and other company cigarettes. He proudly screened a “Marlboro country” television commercial that the company broadcasts abroad; cigarette commercials are outlawed in the United States.
As for the 50 tobacco-related liability suits pending against the company, the executive noted that the cigarette industry has never lost or settled a single lawsuit charging that cigarettes cause cancer and other health ailments. Recent appellate court decisions, he added, have established that federally mandated warnings provide consumers with adequate warnings of what Maxwell called “the alleged danger” of smoking.
Marion O. Sandler, the outspoken co-chief executive of Golden West Financial, complained that ailing thrifts in Texas are forcing her company’s savings and loan unit to offer unrealistically high interest rates on consumer deposits. Regulators, she urged, should “put some companies out of their misery.”
Cautious Stance
On the plus side, Sandler also stressed Golden West’s low-cost structure, its steadily growing operating profits and its loan portfolio of variable-rate mortgages.
The subdued mood among money managers at the conference echoed Montgomery’s cautious stance. “More than ever, we feel that investors must be very careful to be in stocks where the earnings are really going to come through next year,” said Thomas W. Weisel, Montgomery’s senior partner.
“The time is well behind us when we could count on declining interest rates to result in expanded price/earnings multiples,” he added.
Montgomery’s investment case rests on its researchers’ belief that interest rates, which have climbed about two percentage points this year, “won’t go much higher” and that the dollar “won’t fall much further in relation to the yen,” said Karl L. Matthies, director of research.
If those assumptions hold, Montgomery expects that corporate profits should climb 20% next year. The firm is focusing its recommendations on companies whose earnings will grow 30% or more next year.
