Time for a reality check

In times such as these where there are large events unfolding and big shifts in the market, it is a good time to take the pulse of your stocks.

Is your stock outperforming the averages since Sept. 11?

Any stock that is higher now than it was on Sept. 11 is indeed a strong stock. And we don’t need to tell you that these are the stocks that money managers are buying.

Following are some stocks that are up in price since Sept. 11. This is a critical fact, very bullish news for holders of these shares.

Drug Stocks – Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Genentech (NYSE: DNA). These stocks are virtually unaffected by recent events. All of three of these stocks have exciting futures ahead of them, especially for the long haul. In the next 10 years, the number of new drugs coming to market will be huge. MRK, PFE, and DNA will get more than their fair share. All three stocks are buys here.

Food Stocks – Pepsi (NYSE: PEP) and Hershey’s (NYSE: HSY) are two food stocks acting very strong here. That makes sense as nothing about Sept. 11 has changed the future of these two. The food business is one of the most steady business areas in which to invest that you will ever find. These two stocks make terrific one-decision stocks and they would be our personal favorites in this group right now.

Small Bank Stocks – Trustmark (Nasdaq: TRMK), Mid-State Banks (Nasdaq: MDST), United Commercial Bank of California (Nasdaq: UCBH) and UMB Financial (Nasdaq: UMBF). While these stocks dropped in the first couple of days after the market re-opened, they have now come roaring back. While most money managers these days are pursuing defensive strategies (and are likely to do so for at least the next six months), they have been buying the smaller, high quality small-cap bank stocks. You can see that when you look at the new-high list on the NASDAQ these days.

We would especially point you towards these four smaller banks because they share the same characteristics – excellent management teams, growing geographical locations (true organic growth), outstanding balance sheets, and a good business plan. Of these four, the one that appears to be the strongest is UCBH, just a day’s jump below the old high. We rate their game plan superior to most others.

Insurance Stocks – As incredible as it may seem to some, American International (NYSE: AIG) and Berkshire-Hathaway (NYSE: BRK/a/or/b) are both about 5 percent above the closing price of Sept. 10.

This is a message from the markets that is not to be missed. The fact is, these companies have emerged from probably the biggest debacle they will face in our lifetimes, and with prices surging higher just three weeks later, that is indeed good news.

Consider AIG. They state they may have to pay as much as $500 million in claims. To put that in perspective, that is about 1/360th of their market capitalization. So, while no one likes to lose that kind of money, the fact is that many of AIG’s (weaker) competitors have been hurt badly, and will not be as aggressive in pursuing new business.

Remember that the revenue lost in the recent days will never be made up for Delta, American Express, or Viacom. Not so with the insurance business, as premium charges for commercial business will take a big jump up, and good insurance companies, between tax-credits and higher premiums, will likely make up this loss in the next two years.

All of what we said goes double ditto for BRK. We realize many of you reading this hate insurance companies, and we can understand that. If you want to get some of the money back that you give insurance companies, you might want to consider investing some of your hard earned money in these two A+ rated companies – AIG & BRK. A closer inspection will reveal that these stocks have been great buy-hold investments.

Another insurance stock you want to consider is Cincinnati Financial (Nasdaq: CINF). CINF was virtually risk free with regard to recent events yet they, too, will benefit from higher premium income. CINF has a top-notch management team, a first class balance sheet, and as with AIG and BRK, this stock, too, is higher now than it was before the recent tragedy.

We will mention one more which, though much smaller and therefore much more risky, has popped out to new highs since Sept. 11 and appears to be at the right place, at the right time.

Applied Signals Technology (Nasdaq: APSG) is a tiny ($95 million market cap) Silicon Valley based Telecom company that should see big revenue gains in the next few years.

Applied Signals provides the technology that enables Uncle Sam to monitor the phone conversations of those that would break the law or do our country harm by using microwave, cellular, regular phone, etc.

Prior to Sept. 11, Uncle Sam was using this technology on a limited basis. With the whopping new defense budget just approved this week ($348 billion) we suspect that APSG will be getting a lot of increased orders from Uncle Sam.

Conclusion: We don’t mean to seem callous in these times or ignore the pain many have gone through in the last three weeks, but we must address the stock market in real terms, because the stock market addresses reality everyday.