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Eberhard: Dow will hit 9,000
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February 4, 1998: 12:08 p.m. ET
Analyst minimizes earnings damage, says liquidity will drive Wall Street
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NEW YORK (CNNfn) - Weaker earnings won't do any serious damage to the Dow, according to one stock strategist.
Todd Eberhard, president of Todd Eberhard & Associates, said on CNNfn's "Before Hours," he foresees a "capital rally," in which cash will be converted to stocks.
Eberhard also recommended investing in several health-care companies.
Here is a partial transcript.
DEBORAH MARCHINI, CNNfn ANCHOR, BEFORE HOURS: My next guest says the Dow should hit 9,000 by the end of the year, but it could be a bumpy ride.
How are we going to get there with Alan Greenspan projecting, as he did last week, only 3 to 5 percent growth in profits for the year?
TODD EBERHARD, PRESIDENT, EBERHARD: Right. We are expecting to see earnings a little bit lower than we saw over the last couple of years, but I think the markets in general -- we've seen somewhat of an ebb and tide going on, with moneys flowing back and forth. And certainly, the bond market's done exceptionally well, as nobody can argue, for the last quarter or two. I think a lot of that money is going to switch into stocks for hope of better gains.
MARCHINI: OK, so what you're saying it's likely to be less of an earnings-driven rally that we've seen in the past and more of a liquidity-driven rally?
EBERHARD: Correct -- more capital rally, as I call it -- exactly.
MARCHINI: OK. Talk to me a little bit about, you know, historical precedent. When liquidity drives the market, how long does a bull market tend to last?
EBERHARD: It depends. I mean, certainly we're not -- we can't look it back historically on anything at this point. We've seen drives in bull markets never last to this degree typically. But, I do think we're going to probably see these markets run for the rest of this year into probably the first or second quarter of next year.
MARCHINI: OK. Where's the money coming from -- the liquidity that is going into the U.S. market? A lot of it, I know, in January, February is retirement money.
EBERHARD: Right.
MARCHINI: To what extent are we still seeing money flow into U.S. stocks from abroad, especially since a lot of people in Asia have been hurt financially?
EBERHARD: That's true, but they did pull a lot of money out of those markets and go to liquid investments or conservative investments, like Treasuries, which we certainly have seen yields drop there. But, you are going to see continued moneys flowing from the U.S. market -- or into the U.S. markets from retirement policies because a lot of the people who put their money in there were afraid in the January month because we certainly didn't see great moves. So, I think a lot of that cash is still sitting around and starting to flow in now.
MARCHINI: OK. You run about $200 million. Where are you putting money? What are the newest things you're investing in?
EBERHARD: Well, we did a lot in Asia. We are looking now to see if this rally -- the short rally we've seen for the three or four trading days -- is going to continue. We hope so.
MARCHINI: What in Asia is acceptable, as far as risk right now?
EBERHARD: Well, it depends on the client obviously. Everybody's a little bit different. But, we're looking -- South Korea, obviously, seems to be turning around very strongly. Japan, we're still a little weak on. We're not very comfortable yet until they get the banking sector in order. But, we are looking at Indonesia, Thailand and a few others.
MARCHINI: Wow -- that's brave, but obviously not a big chunk of your portfolio.
EBERHARD: No, absolutely not, and I wouldn't recommend anybody, especially risk-averse people to go into those positions at this point.
MARCHINI: OK. Now, when I introduced you, I said you are looking for the Dow to get to 9,000 this year, but with a choppy ride. Is that correct?
EBERHARD: I absolutely think so. Part of the choppy ride is caused by comments from Alan Greenspan, as well as potential problems overseas with Iraq and other situations. But, I do think we're heading higher. I think we're still in the bull market. There's plenty of cash out there to flow in, whether from overseas or U.S. funds. I think that's going to continue to drive this market higher.
MARCHINI: Not just a blue chip rally?
EBERHARD: No.
MARCHINI: Right now, as a matter of fact, a lot of other indices have hit all-time highs, but the Dow has not.
EBERHARD: That's right. We're seeing the small cap and the mid caps coming up. I'm a very big value investor. Look for companies with lower P/Es; try and get some bargains there. You can run up with, you know, 30 or 40 percent on the P/E numbers and you can make some money.
MARCHINI: OK, where do you see bargains out there with stock prices on the -- some indices at record highs and the Dow maybe a 100 point shy?
EBERHARD: Right -- about 100 points shy. Well, it depends. I am not -- no longer a dart thrower, as they used to call it, because you can make money anywhere. Now, you really have to be a stock picker. Look for earnings expectations that are above and beyond. I'm expecting, actually, Allstate to come in with very high numbers hopefully. Aetna came in line today.
MARCHINI: Right.
EBERHARD: But.
MARCHINI: Allstate also contemplating a sale, I think, that would take it out of everything but the health-care management business.
EBERHARD: That's right. They're pushing to compete in one arena only.
MARCHINI: OK, so Allstate, Aetna - really briefly, what others?
EBERHARD: Really briefly, I'm looking at a lot of the other health cares -- Merck, Johnson & Johnson, companies like that.
MARCHINI: OK.
EBERHARD: Some of the big companies out there. I expect them to go higher. 
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